TURKEY: GULER UPBEAT ON GAS SUPPLY POST-NAKHCHIVAN

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001070 SIPDIS EEB FOR A/S SULLIVAN SPECIAL ENVOY FOR EURASIAN ENERGY GRAY ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 06/10/2018 TAGS: ENRG EPET TU SUBJECT: TURKEY: GULER UPBEAT ON GAS SUPPLY POST-NAKHCHIVAN REF: A. STATE 54797 ¶B. ATHENS 781 ¶C. ANKARA 687 Classified By: Ambassador Ross Wilson for reasons 1.4 (B) and (D) ¶1. (C) Summary. PM Erdogan,s meeting with Azerbaijan President Aliyev June 4 in Naxchivan may have produced enough agreement on new Azeri gas supplies for Turkey to unblock the Nabucco and Turkey-Greece-Italy (TGI) gas transit negotiations, Energy Minister Guler suggested to Ambassador June 9. Guler claimed not to know specific quantities discussed by the two leaders and said the gas purchase price also remains to be negotiated. He rehashed complaints about Iraqi Oil Minister Shahristani's decision not to pre-qualify Turkish Petroleum (TPAO) for participation in Iraq,s hydrocarbon sector. Ambassador urged Guler to attend a possible TGI meeting in Athens later this month and reiterated US concerns about possible new TPAO cooperation/investment in Iran,s gas industry (ref a) that is inconsistent with the appeal for US help in getting TPAO into Iraq. End summary. ¶2. (C) Guler described the Naxchivan meeting as a clearing of the air. There were tete-a-tete meetings among the two leaders, as well as discussions that involved Guler and others. Turkey discussed its gas needs, the Azeris talked about theirs, and both reflected on the "excess" gas that could be available for European markets beyond Turkey. Although Guler was not aware of specific quantities being discussed, he said that Turkey,s "security of supply" concern was accepted, and the clear inference was that Turkey got assurances of some very significant amount of gas out of Shah Deniz II production. Guler said the issues of price and transit tariff would be subject to future negotiations and that the next step is a meeting with SOCAR Chairman Abdullayev. Guler said there was no discussion in Naxchivan about Turkey's controversial 15% reserve formula for gas transiting Turkey at a net-back price. ¶3. (C) Ambassador asked whether this omission signaled a change in Turkey's position. Guler said Turkey's position is the same. Its highest priority continues to be meeting its growing domestic gas consumption needs. Guler complained about the lack of progress on Nabucco. He had conducted serious talks with EU Nabucco Coordinator Jozias van Aartsen and his deputy Brendan Devlin for the past three months without any results. Guler maintained that the Europeans, rejection of the 15% gas reserve formula places the onus on them to come up with an alternative. Separately, we heard that the EU-led talks between Turkey and the Nabucco companies will take place June 15-16. ¶4. (C) Ambassador asked whether Erdogan and Aliyev had discussed the possibility of moving a small amount of Turkmen off-shore gas to Baku and markets beyond. Guler said this topic was not addressed as far as he knew. He added he may travel to Turkmenistan, though no date has been set. ¶5. (C) Ambassador said we have learned the Greeks may be seeking a meeting in Athens among TGI partners at the time of Azeri Energy Minister Aliyev,s visit to Athens later this month. He encouraged Guler to attend. He also noted the Greeks interesting wrapping up an electricity swap agreement. Guler said the timing of the Athens meeting could be problematic. Key energy legislation should come up for parliamentary votes here before the planned July 1 recess. Foreign travel before that date may be impossible. Guler said that Turkey is likely to help Greece meet its electricity needs this summer, but observed that Turkey may face its own electricity shortages this summer. ¶6. (C) Ambassador reviewed US concerns regarding Turkey,s discussions about a TPAO role in Iran,s gas industry development (ref a). Guler said he understands the US position but Turkey can't afford to ignore Iran's resources given its fast growing energy requirements. Where else will Turkey get energy? Ambassador said this is exactly why we are working with Turkey to develop and access Azerbaijani, Turkmen and Iraqi gas, and we need to make these efforts ANKARA 00001070 002 OF 002 succeed. Guler expressed pique that TPAO is not among the pre-qualified bidders for the next round of oil and gas development in Iraq. He asked for US help. Ambassador said we will try to be helpful, but our priority is securing passage of the hydrocarbon law before the Iraqi parliamentary recess. In any case, a TPAO that concludes a deal with Iran can forget about US support in Iraq. ¶8. (C) Comment: Guler was upbeat and confident. Perhaps the assurance President Aliyev gave Erdogan on gas volumes, not disclosed to us, will now foster the more flexible transit negotiating strategy that was promised months ago. Separating its supply needs from transit terms would be a welcome development. But in the absence of firm commitments from Baku, Ankara is unlikely to change its negotiating strategy with the EU, which means driving a tough bargain along the lines of something akin to 15%/netback and/or very lucrative transit tariffs. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey WILSON