SCENESETTER FOR DOE DEP SEC KUPFER'S OCT 30-31

UNCLAS SECTION 01 OF 02 ANKARA 001846 SIPDIS DOE FOR LANA EKIMOFF, TYLER TILLER USTDA FOR DAN STEIN OPIC FOR DULCE ZAHNISER E.O. 12958: N/A TAGS: ENRG EPET TU SUBJECT: SCENESETTER FOR DOE DEP SEC KUPFER'S OCT 30-31 VISIT TO ISTANBUL ¶1. (SBU) Turkey remains the vital link in our strategy to bring gas from the Caspian Basin and Central Asia to Europe through a Southern Corridor. Turkish leaders with whom you will meet believe Turkey is facing acute electricity shortages as early as 2009 and natural gas shortages of up to 16 bcm by 2015. They do not believe that there is sufficient gas available in the short- to medium-term to meet Turkey's needs and also fill both the Turkey-Greece-Italy Interconnector and Nabucco. The global economic crisis may slow Turkey's energy demand, but some drivers of demand -- like expansion of the gas pipeline network for residential heating nationwide -- will continue unabated. This energy supply insecurity is driving the GOT,s "Turkey First" position on energy transit, that natural gas will flow westward only when Turkey's future energy needs are met. Your goal is to convince the GOT that cooperation with other consumers (and producers) is the way toward energy security, that the U.S. is serious about helping Turkey meet its energy demand and that realistic ways are available to reduce future reliance on gas. ¶2. (SBU) The GOT understands and appreciates your mission to offer U.S. government assistance, financing and other guarantees to attract U.S. private sector investment into Turkey's energy sector. However, they are skeptical that we can or will actually deliver. Timing is an issue. The GOT told us it needs to make real, concrete decisions affecting energy security within the next six months, and so far there is nothing on the table to compensate for the sacrifices Turkey is being asked to make. It will therefore be key to put specific, concrete, substantive proposals on financing or guarantees on the table to make clear to the GOT that our effort is serious and substantive. ¶3. (SBU) We expect that the delegation will meet with PM Erdogan, Foreign Minister Babacan, Energy Minister Guler and Treasury Minister Simsek along with U.S. and Turkish business leaders working in the energy sector. Below are some key questions and messages for your meetings. As you relay these messages, a little background on each interlocutor might be helpful. --PM Erdogan will make the ultimate decisions about Azerbaijan gas off-take and the future of Turkey as a transit country for Europe. He understands the strategic reasons for Turkey becoming a reliable gas transit partner for Europe but also believes he must secure gas for Turkey. This country,s transit location is leverage to accomplish that. --Foreign Minister Babacan is the Turkish EU accession coordinator and may be the most supportive of the strategic vision for developing the Southern Corridor. --Minister Guler leads the "Turkey first" faction within the GOT and appears to has the PM,s ear on this issue. He will be the most skeptical of our offers to help. --Minister Simsek is in charge of relations with the IFIs and will be knowledgeable about EXIM and OPIC operations. He can help make the case to the PM for how project financing works and may have ideas of how to leverage U.S. proposals with what the EU or IFIs are planning. Key messages for the delegation to deliver: -------------- ¶4. (SBU) In addition to offering possible U.S government assistance, you should reinforce our key energy policy messages. -- Achievement of a viable Southern Corridor will be a strategic achievement for Turkey, the U.S. and our partners that will surpass the importance of the Baku-Tbilisi-Ceyhan oil pipeline. -- The Azeris have a strategic goal in providing gas to Europe, not a commercial one. Without strategic connection to Europe of the Southern Corridor, Azerbaijan appears unlikely to develop Shah Deniz Phase II gas at this time. -- A viable Southern Corridor can unlock not only Azeri gas, ANKARA 00001846 002 OF 002 but also Turkmen and Iraqi gas, and make larger quantities of gas available to Turkey in the long run. Key questions to ask the GOT: -------------- ¶5. (SBU) We recognize that Turkey faces an energy crunch. The U.S. wants to help Turkey develop energy supplies within a strategic framework that includes a Southern Corridor. To meet Turkey,s needs and move the Corridor forward, we need to understand the following: -- What is the GOT's overall energy strategy and your projected future energy mix? -- What are GOT priorities for U.S. government assistance, i.e., energy efficiency and conservation, new generation, upgrading of existing generation, renewables, etc.? -- Are there international or bilateral funding mechanisms already in place? To what extent can U.S. government assistance leverage EU or IFI financing? Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey WILSON