NEAR-TERM IRAQI GAS TO TURKEY?

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001710

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: 09/25/2018
TAGS: ENRG EPET IZ TU
SUBJECT: NEAR-TERM IRAQI GAS TO TURKEY?

Classified By: Ambassador Ross Wilson for reasons 1.4 (B) and (D)


1. (C) Summary. Ambassador discussed the near-term
possibility of importing Iraqi gas to Turkey and Europe with
the Chairman of Turkerler Group, Kazim Turker, on September

23. Turker said his Iraqi partner, Dana Gas, is committed to
use early gas to supply Iraqi domestic needs but gas for
export could be available in 2011. He estimated Dana Gas'
production could reach 10 bcm annually. Turker said Prime
Minister Erdogan supports his initiative. Some of the
pipeline infrastructure from the Iraqi gas fields toward the
Turkish border has already been built. The next steps are
gaining appropriate GOT import licenses and completing the
infrastructure. Ambassador welcomed Turker's project as a
way to bring diverse gas supplies to Turkey and Europe but
cautioned that Iraqi oil politics could complicate matters.
He suggested Turker and his partners reach out to the central
authorities in Baghdad and keep us informed. End Summary.

The deal
--------------


2. (C) Kazim Turker, CEO of Turkerler Group told the
Ambassador that his company and Dana Gas, an affiliate of
Iraqi-owned Crescent Petroleum, have formed a 50/50 joint
venture called Inci Gas to import Iraqi gas into Turkey and
markets beyond. Dana Gas signed a technical service
agreement with the Kurdistan Regional Government (KRG) in
April 2007 to produce gas from the Chemchamel and Kormor
fields (estimated reserves: 400 bcm). Turker said the
project will be developed in two stages. Early gas,
approximately 3.5 bcm will be supplied to the KRG to generate
electricity. Gas developed at a later stage, possibly by
2011, will be exported to Turkey. Peak annual gas production
will reach 10 bcm. A pipeline to connect Dana Gas' fields to
the Iraq-Turkey border is almost 50% complete. On the
Turkish side, there are two options. Inci Gas could either
build a gas pipeline parallel to the existing
Kirkuk-Yumurtalik oil pipeline or build an 80 km extension
from Silopi to Sanliurfa to connect to the Turkish national
gas grid. Further pipeline construction awaits a response
from the GOT on two licenses applications filed by Inci Gas
to import Iraqi gas and to move it through Turkey.

PM Erdogan Supportive
--------------


3. (C) Turker said he and Dana Gas CEO Hamid Jafer have
briefed Prime Minister Erdogan, DPM Ekren, Treasury Minister
Simsek, Finance Minister Unakitan and Energy Minister Guler
on the Inci Gas concept. Turker said Erdogan strongly
supports this project as a way to meet Turkey's growing gas
demand as well as its strategic interest in bringing gas to
Europe. Turker claimed a Russian company approached him
about joining the project. While he was open to talking,
Turker said the PM's support may hinge on his project's
ability to diversify Turkey's gas supplies (currently 65% of
Turkey's gas comes from Russia) and he didn't want to
jeopardize Erodgan,s support by doing a deal with the
Russians.

Baghdad complications
--------------


4. (C) Ambassador said the USG is very focused, especially
in the wake of events in Georgia, on working with Turkey and
other countries in the region to diversify gas sources. The
gas volumes that could be exported (perhaps up to 6.5 bcm)
could make a significant contribution to Nabucco or other
projects. Ambassador cautioned that the lack of clarity
regarding the authority of the KRG and central Baghdad to
regulate oil and gas deals is likely to complicate Turker's
efforts. He said some U.S. companies have had trouble in
this regard, and we continue to press Baghdad for passage of
a hydrocarbon law. He suggested that someone from Dana gas
reach out to the central authorities in Baghdad to brief
them. It would be helpful if the Iraqi and the Turkish
governments discussed this project directly. The sooner
these conversations happen, the sooner the project can make

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real progress. Turker said he was aware of the sensitivities
and Erdogan expressed a similar concern. Hamid Jafar is an
Iraqi Shiite who has excellent relations with KRG PM Barzani
and Dana plans to talk to President Talabani soon.


5. (C) Comment: Turker may not fully appreciate the
political sensitivities involved in this deal. His attitude
seemed to place the burden on Dana Gas to resolve issues with
Iraqi authorities while he simply waits for the gas at the
Turkey-Iraq border. When asked about whether Dana Gas had
discussed gas export with the GOI, Turker admitted he didn't
know and confessed he does not fully understand Dana Gas'
strategy.


6. (C) Turker,s deal may also face legal and institutional
challenges. According to Turkish law, only BOTAS
(state-owned pipeline company) has the right to build
pipelines in Turkey and import gas. And, if the deal looks
profitable, BOTAS may apply to the GOT to do the deal itself.

Visit Ankara's Classified Web Site at
http://www.intelink.sgov.gov/wiki/Portal:Turk ey

WILSON