TURKEY-EGYPT SIGN GAS DEAL: FLOW TARGETED TO START IN 2007

UNCLAS ANKARA 000860 SIPDIS STATE FOR E, EB/CBA, EB/ESC AND EUR/SE USDOE FOR CHARLES WASHINGTON USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK SENSITIVE E.O. 12958: N/A TAGS: ENRG EINV EPET TU SUBJECT: TURKEY-EGYPT SIGN GAS DEAL: FLOW TARGETED TO START IN 2007 Sensitive But Unclassified. Please handle accordingly. ¶1. (SBU) Turkey announced a new gas deal with Egypt, heralding its contribution for diversification of supply and ability to seed export of gas to Europe. In light of over- reliance on Russia, and recent disruptions from Iran, this deal is viewed as a small, but positive step. End summary. ¶2. (SBU) On February 15 Energy Minister Hilmi Guler and Egypt Oil Minister Sami Fehmi signed an MOU to establish a 50/50 joint venture company to transport and market Egypt gas in Europe by 2007. The company to be established will be named Tergas, and will carry 2- 6 BCM natural gas to Europe through Turkey. The two governments had signed a protocol for transmission of Egyptian natural gas to Europe through Turkey back in March 2004. The pipeline will be 323 km long, 93 km of this in Turkey. ¶3. (SBU) Making a press statement following the signing ceremony in Ankara, Minister Guler stressed the importance of this agreement in diversifying Turkey's energy sources and said Turkey and Egypt could include other partners in the project in the future. Guler said the two governments were planning to hold a tri-partite meeting in Egypt in early March, with the participation of the Syrian Energy Minister, as a result of which Syria could become a partner to Tergas. Making remarks on the same occasion, Egyptian Oil Minister Fehmi confirmed the two parties' willingness to include more partners in the company, and said Romania and Syria would likely be future partners in this project. The two ministers did not comment on the price of the Egypt gas, but said it would be a competitive price. ¶4. (SBU) State Pipeline Company BOTAS' Strategic Planning Department Head Cenk Pala told Econ Couns in a February 17 meeting that this contract was the first to provide Turkey with marketing rights in Europe (along with the import contract with Azerbaijan). Pala said the projected capacity of the pipeline was 6- 8 BCM, and a possible additional 2 BCM from Syria. Pala mentioned the reluctance on the Turkish side to include Syria as a partner to this project, considering the political uncertainties regarding this country. Pala said Turkey and Egypt agreed to limit Syria's participation to a transit fee paid to this country. ¶5. (SBU) Comment: Although the amount of gas flow through the Egypt-Turkey pipeline will constitute a minor share in Turkey's gas imports, it is important that the contract gives Turkey re-export flexibility and it comes from a new source. Enthusiasm for this contract may also stem from criticism of winter gas shortages experienced by Turkey, for which the GOT blamed contracts signed by previous governments. End Comment. Wilson