Identifier
Created
Classification
Origin
07ANKARA2491
2007-10-05 15:53:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

US EUROPEAN/CASPIAN/EURASIAN ENERGY STRATEGY

Tags:  ENRG EPET XF XG ZK TU 
pdf how-to read a cable
VZCZCXRO8210
PP RUEHBC RUEHDBU RUEHDE RUEHDIR RUEHFL RUEHKUK RUEHKW RUEHLA RUEHROV
RUEHSR
DE RUEHAK #2491/01 2781553
ZNY CCCCC ZZH
P 051553Z OCT 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 3949
INFO RUCNCIS/CIS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0347
RUEHIT/AMCONSUL ISTANBUL 3385
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHDC
RUEUITH/ODC ANKARA TU
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 04 ANKARA 002491 

SIPDIS

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
EEB FOR A/S SULLIVAN
EUR FOR DAS BRYZA
SCA FOR MANN
DOE FOR HEGBURG
USTDA FOR DAN STEIN

E.O. 12958: DECL: 10/04/2017
TAGS: ENRG EPET XF XG ZK TU
SUBJECT: US EUROPEAN/CASPIAN/EURASIAN ENERGY STRATEGY

REF: A. ANKARA 1785

B. ANKARA 2273

Classified By: AMBASSADOR ROSS WILSON FOR REASONS 1.4 (B) AND (D)

C O N F I D E N T I A L SECTION 01 OF 04 ANKARA 002491

SIPDIS

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
EEB FOR A/S SULLIVAN
EUR FOR DAS BRYZA
SCA FOR MANN
DOE FOR HEGBURG
USTDA FOR DAN STEIN

E.O. 12958: DECL: 10/04/2017
TAGS: ENRG EPET XF XG ZK TU
SUBJECT: US EUROPEAN/CASPIAN/EURASIAN ENERGY STRATEGY

REF: A. ANKARA 1785

B. ANKARA 2273

Classified By: AMBASSADOR ROSS WILSON FOR REASONS 1.4 (B) AND (D)


1. (SBU) On September 20-22, Istanbul hosted a Eurasia
regional energy Chiefs of Mission conference. Participants
included representatives from the supplier country posts of
Ashgabat, Astana, Baghdad and Baku; posts in countries that
are on key transit routes and/or are major buyers, including
the Nabucco capitals, Berlin, Paris, Rome, Tbilisi, and
others; Moscow; and USEU. Washington policymakers who
attended included E U/S Jeffrey, EEB A/S Sullivan, and senior
officials from EUR, SCA, DOE, and other agencies and offices.
The goals of the conference were to gain a common
understanding of the economics and politics of energy, and to
develop new ideas and make recommendations for US strategy in
this area. The conference addressed five main topics: gas
supply, demand and transit, oil, and key regional and
external actors. This message summarizes key conclusions,
recommendations and outstanding questions.

Why We Care
--------------


2. (C) The conference opened with a discussion on US
achievements, goals and objectives regarding Eurasian energy.
Participants identified four key US interests:

-- Supporting the independence of the states of the former
Soviet Union and the new EU members in East-Central Europe
that remain heavily dependent for their economic well-being
on Russian-controlled energy resources and means of supply.
Russia's resurgence after the 1990s, its promotion in many
cases of opaque business practices, and its aggressive
attempts to dominate Eurasian markets and Central Asian
supply give this special urgency.

-- Support for Iraq's energy development and export
connections to Europe can similarly improve its economic
prospects and stimulate more European interest in its success.

-- Supporting European energy security via additional and
multiple sources of production and transit routes to bring

that energy to the European marketplace and ensuring open,
competitive markets for energy in Europe. Engaging the EU
and individual states in the sustainability and independence
of the energy-affected states of the FSU and New Europe
speaks to similar goals.

-- Countering Iran's influence in the region, reducing the
attractiveness of its gas and supporting US diplomacy to
block investment there by promoting alternative energy
sources in the Caspian Basin, Central Asia, Iraq and
elsewhere.

Key Conclusions
--------------


3. (C) Participants agreed that the US and Europe today face
challenges quite different from those 5-15 years ago when we
worked to develop Kazakh and Azerbaijani energy and the CPC
and BTC main oil export pipelines. Now the focus is
increasingly on gas. New factors include the greater
complexity of gas development and transit infrastructure
finance that require long lead times to realize; the much
larger number of players involved in the development and
transit of Eurasian gas to market (as the range of COM
conference participants demonstrated); Russia's resurgence;
increased Chinese activity; and Iran's continuing efforts to
develop and export its own gas.


4. (C) There was recognition of Russia's importance to
regional energy issues and complications that flow from that
fact, but views among conference participants varied.

ANKARA 00002491 002 OF 004



-- Russia is ruthlessly competitive and it is little
harnessed by checks and balances in the FSU and many New
Europe states. It continues to pressure Caspian Basin
supplier countries not to send gas to Europe via non-Russian
pipelines and has bullied Europeans, as well. It is
determined to maintain control of Turkmen gas exports, for
example.

-- Russian plans to build the Nordstream and South Stream gas
pipelines directly into Europe and to invest downstream there
demonstrate an unfettered sense of commercial opportunity
that could transform into a worrisome political presence
abroad. Russia is using energy as a tool to continue to
exert influence on former Warsaw Pact EU member states, whose
dependence on Russian energy is double that
of more diversified "Old Europe."

-- While Russian behavior challenges our interest in
supporting the former Warsaw Pact and USSR states and with
regard to European energy security, Russia is and must remain
a major supplier of energy to Europe for a long time to come.
Countering or excluding it as a major regional source of
energy supply is neither practical nor realistic.
Nevertheless, the US should continue pushing for alternative
European sources of supply (including alternative fuels) and
for competitive energy markets in Europe, avoid the
appearance that we are trying to drive Russia out, encourage
Russia/Russian firms to play by international rules, and
maintain a frank, senior, and quiet dialogue with Russia on
these matters. Our public remarks should avoid the
suggestion that US policy is this area is anti-Russian as
this would feed Russia's sense of unwarranted encirclement
and result in mainly negative reactions.


5. (C) Gas Supply: Regional gas reserves are plentiful, but
extraction and delivery to market present complex problems.
In the short term, there may be supply constraints because
Russian commitments to deliver gas to Europe have not been
matched by investment in upstream development. Azerbaijan is
committed to developing and exporting its gas to Europe
(10-16 bcm by 2013-16) and to serving as a transit country;
the commitments of Kazakhstan and especially Turkmenistan are
less clear. The time is right for more intense engagement
with Turkmenistan,
especially regarding upstream development. Some 4 bcm of
Western Iraq gas may be available for export via Syria to
Turkey and Europe within two years, and Northern Iraq may
have potential to export 8-10 bcm within several years.


6. (C) Gas Demand: By some estimates, gas demand in Europe
will double by 2030. European awareness of the security and
economic importance of diversifying gas sources and routes is
increasing. However, EU and member state energy policies
remain fractured. EC energy strategy doesn,t address
day-to-day calculations by member states, individual state's
energy policies may actually hinder EU gas market
competition, and countries and companies are making their own
deals with Gazprom that defy Commission rulings.


7. (C) Gas Transit: We have made progress on non-Russian
routes to Europe.

-- The Azerbaijani government is committed to the Southern
Corridor project. Gas has begun to flow to Georgia and
Turkey, and a symbolic amount will go to Greece this year.

-- The Turkey-Greece interconnector will open this year, and
a transit pipeline on to Italy should follow soon after.

-- Achieving the full potential of these projects, as well as
Nabucco and the Trans-Caspian Pipeline (TCP),is complicated
by the number of countries involved, financing needs, lack of
clear and commercially viable transit arrangements
(especially through Turkey),Caspian delimitation, and other

ANKARA 00002491 003 OF 004


problems. Increased US support is necessary to get completed
soon the commercial and political arrangements required to
realize these projects. We need to encourage a simpler way
to put Nabucco together and gain a better understanding of
the complex, long-term financing that is required to make
this deal work. TCP depends on identifying reliable,
long-term supplies of gas to fill a future pipeline, as well
as on progress in Caspian delimitation, for which there is
some hope.

-- There are uncertainties about the sources of supply for
Nabucco and the Turkey-Greece-Italy (TGI) pipelines and when
those supplies will come on stream.


8. (C) Oil: Maximizing oil output and minimizing oil prices
are in our national interest. High volumes, especially of
Kazakh oil, are set to come online soon,
though Kashagan may face delay. Continued Russian blockage
of CPC expansion is raising the importance of the
trans-Caspian shipment of Kazakh oil to Baku and onward
across the Caucasus to the Black Sea or via BTC to the
Mediterranean. Bosporus bypass pipelines may become
increasingly urgent as more oil comes into the Black Sea.
Participants agreed that the market, not the USG, should
drive decisions on bypass routes.

Recommendations
--------------


9. (C) Chiefs of Mission identified a number of
recommendations to bolster the effectiveness of US energy
policy and efforts in the region, starting with the need for
greater prioritization among our energy goals in the region.
Other recommendations include the following.

-- With all the countries involved, the US needs more
dedicated engagement at a senior level to leverage
step-by-step progress and the resolution of problems.
Regional leaders need an unequivocal sign of high-level US
commitment to next-phase Caspian development.

-- Focus on upstream development in Turkmenistan by working
with the government, American and other private developers
and helping the Turkmen address key investment climate
issues. Work intensively with Turkmenistan, Azerbaijan and
the private sector to signal that there is a way forward on a
trans-Caspian gas pipeline.

-- Get completed gas transit arrangements between Azerbaijan
and Turkey, which are essential for Turkey-Greece-Italy gas
flows and Nabucco. Participate at a senior level in the
Turkey-Greece interconnector opening ceremony later this year
to highlight progress.

-- Continue US-Turkey-Iraq trilateral efforts to promote
cooperation on gas and gas trade. Explore using the November
2007 Iraq ministerial in Istanbul and
visit later that month to Turkey by Energy Secretary Bodman
to advance this dialogue. Promote Iraq with the Europeans as
a source for energy diversity that would also give the
Europeans a more direct stake in Iraq,s future.

-- Increase US engagement with the EU and EC on energy. Get
them more engaged with Caspian Basin supply countries,
transit countries and "New Europe" on energy issues and
cooperation. For example, the proposed trilateral
US-Ukraine-EU dialogue would focus Europeans on energy
security and gas transit issues.

-- Support the Kazakhstan Caspian Transit System to bring
large new Kazakh oil volumes to market via Baku to the Black
or Mediterranean Seas. Support the expansion of CPC and BTC.

Resource Requirements
--------------

ANKARA 00002491 004 OF 004




10. (C) To expand on the first recommendation above,
conference participants believed that more dedicated
diplomacy is required for US efforts to succeed. Energy
issues are central to our foreign policy; our staffing and
support of this function need to reflect that more.
Participants proposed the following:

-- Creation of a dedicated, senior-level Eurasian energy
envoy whose job it would be to engage with the leaders and
countries of the region and with American and other private
firms to advance the US energy agenda on a more intensive and
sustained basis than present staffing permits.

-- Creation of an energy office at State to support the envoy
and posts overseas. It would assist in coordinating our
Eurasian energy diplomacy and provide expertise on such
issues as production-sharing agreements, pipeline financing,
delimitation of the Caspian, etc., so that our posts can
engage on these issues more effectively.

-- Revision of FSI's Oil and Gas Course to focus less on
extraction technologies and more on the politics and
economics of upstream, midstream and downstream oil and gas
development, the major energy players and current US energy
policy.

-- Revival of the annual Eurasian energy officers conference,
which Embassy Sofia offered to host in December to ensure
effective coordination in developing and
implementing US energy strategy regionally.

Policy Questions
--------------


11. (C) Participants identified several key issues on which
views were mixed, where trade-offs and choices may be needed,
and/or where US policy decisions may be necessary.

-- Nabucco: What are our priority countries for gas supply?
Knowing that Azerbaijan can supply the first tranche may not
be enough to make the deal work. If Iran joins Nabucco, how
will the US distance itself from the project? What is our
view on Russian participation in Nabucco? Is there more to
be gained by bringing the Russians in, including as a way to
foster their greater conformity to Western business practices?

-- TGI vs. Nabucco: Is there enough gas for both Nabucco and
TGI? If there is not, should we choose one project? Or do
we leave picking winners and losers to the market,
recognizing that the economics of gas could very
substantially delay the loser or force it toward Iran?

-- Iraqi Gas and Syria: What is our position on Iraqi gas
transit thru Syria to Turkey and Europe?

-- Turkmen Gas to China: Should we encourage Turkmen exports
to China? China may spur upstream development and diversify
Turkmenistan's markets, but large-scale exports to the east
may come at the expense of gas for Europe. How far east
should the East-West corridor go?


12. (C) COM conference participants agreed that timing is
key. Critical political and commercial arrangements to
support diversified sources of energy, especially gas, need
to be put in place soon. This post and others that
participated look forward to hearing Washington's views soon
on next steps to intensify
our Eurasian energy efforts as soon as possible.


Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

WILSON