GULER STICKS TO TURKEY FIRST FORMULA FOR CASPIAN

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001681 SIPDIS EEB FOR A/S SULLIVAN SPECIAL ENVOY FOR EURASIAN ENERGY GRAY EEB FOR ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 09/22/2018 TAGS: ENRG EPET TU IZ SUBJECT: GULER STICKS TO TURKEY FIRST FORMULA FOR CASPIAN GAS REF: ANKARA 1641 Classified By: DCM Doug Silliman for reasons 1.4 (B) and (D) ¶1. (C) Summary. Special Envoy for Eurasian Energy C. Boyden Gray and Deputy Assistant Secretary Matt Bryza discussed Caspian and Iraqi gas with Energy Minister Hilmi Guler during a September 15 meeting. Guler asked for U.S. support for a northern export route for Iraqi gas to Turkey and Europe. Guler suggested looking only to Iraqi gas for the Southern Corridor, leaving Azeri gas for Turkey, but Bryza and Gray rejected this idea. Gray said now is the time for Turkey to strike a compromise with Azerbaijan whereby Turkey could get some new gas and enough gas would be left for a Europe pipeline. Gray warned that Azerbaijan will not develop its gas without an outlet to Europe and offered U.S. help to finance or support alternative ways for Turkey meet its energy demand, such as coal power plants, renewables or conservation. End summary. ¶2. (C) Gray told Guler that we understand Turkey's energy needs and are ready to help alleviate Turkey's projected electricity shortages by providing financing or other support to non-gas fired power generation. Guler also showed interest and asked whether the U.S. and Turkey could work together on LNG. Energy Undersecretary U/S Cimen was skeptical that the USG could "guarantee U.S. private sector investment in Turkey." ¶3. (C) Turning to Caspian gas, Bryza said the crisis in Georgia has focused USG attention at the highest levels on getting diversified gas sources and routes to Europe but Washington is frustrated with the lack of progress on a deal between Azerbaijan and Turkey. It is possible that the change of administration will mean at least some loss of focus. ¶4. (C) Minister Guler asserted that Azerbaijan is not interested in sending large quantities of gas to Europe. He suggested we should not count on Shah Deniz Phase II (SD II) gas production for the Southern Corridor (thereby leaving it all to Turkey) and focus efforts on getting Iraqi, Turkmen or other gas for Europe. Gray and Bryza strongly disagreed. Bryza said this would amount to abandoning our vision for SD II gas to Europe. We gave our word to the Azeris that we would help them build ties to Europe and we must honor our commitment. Additionally, Gray said that President Aliev has told him that Azerbaijan will not develop the gas without an outlet to Europe. Gray also noted that the cost of liquefying natural gas is dropping steadily, and that LNG will be competitive with pipelines within a few years. If this happens and Turkey has not built a pipeline infrastructure to Europe, gas might simply "sail around Turkey." ¶5. (C) A discussion then ensued of how the 10-11 bcm of SD II gas for export could be divided between Turkey and Europe. Gray said our goal is to provide enough Azeri gas to Europe to make one project viable and that the USG didn't want to pick market winners and losers for the Southern Corridor. Gray pressed Guler to accept 4 bcm for Turkey and leave at least 6 bcm for Europe. Guler said he doubted any pipeline could be built with only 6 bcm; however he said if 6 bcm is indeed the break-even point, perhaps for the Turkey-Greece-Italy pipeline, he would consider Gray's offer. BOTAS Chairman and others questioned whether 6 bcm would be able to meet Greek and Italian demand and expressed concern that Turkey might be pursuing a losing strategy of supporting TGI while the Europeans prefer Nabucco. ¶6. (C) Guler warned that sending Iraqi gas through the Arab Gas Pipeline (AGP) would eventually pull gas to Syria and Egypt rather than to Europe (reftel). He asked for U.S. support for building a northern export route from Iraq directly to Turkey and to the Mediterranean Sea. Guler suggested such a pipeline would create a win-win-win: Turkey would get gas from Iraq, Iraqi gas could be exported to Europe via Turkey and Turkey would re-export gas to Syria. ANKARA 00001681 002 OF 002 ¶7. (C) Guler said his September 1-2 meetings with Berdimuhamedov were positive. Berdimuhamedov wants two things: pipeline security and Caspian delimitation. Turkey is working as an intermediary between Azerbaijan and Turkmenistan and has achieved some progress on the disputed Serdar-Kapaz off-shore field. It is also working quietly to connect Turkmen and Azeri off-shore gas platforms. To help meet its own electricity demand, Turkey is considering a project to use Turkmen gas to generate electricity in Turkmenistan and then export it to Turkey, despite load loss of 3-5%. ¶8. (U) This cable was cleared by SE Gray and DAS Bryza. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey WILSON