TURKEY-IRAN NATURAL GAS MOU: OUTSTANDING ISSUES

C O N F I D E N T I A L ANKARA 002028 SIPDIS SPECIAL ENVOY FOR EURASIAN ENERGY GRAY EEB FOR ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 11/21/2018 TAGS: ENRG EPET IR TU SUBJECT: TURKEY-IRAN NATURAL GAS MOU: OUTSTANDING ISSUES REF: ANKARA 1998 Classified By: Acting Economic Counselor Rebecca Neff for reasons 1.4 ( B) and (D) ¶1. (C) Summary. We continue to seek information on the November 17 natural gas MOU signed between Turkey and Iran. The MFA is reluctant to share the text but did read from it during our meeting. The MOU is a "statement of intent" rather than a firm commitment, the MFA argued. As reported reftel, the MOU does not go much beyond what was signed in July 2007 with two exceptions. This MOU provides for Turkey getting 50% of the gas produced from a Turkey-Iran joint venture and the establishment of Turkey-Iran working groups to continue negotiations. Outstanding issues include price, transit and investment terms, the GOT's request, rejected by Iran, for a "net-back" pricing formula and the possibility of a Turkmen-Iran gas swap rather than a new pipeline to carry Turkmen gas to Turkey. The GOT continues to support a cross Caspian connection between Turkmenistan and Azerbaijan as a viable route for Turkmen gas to European markets. End summary. ¶2. (C) We spoke to BOTAS International Department Head Emre Unger and to MFA Energy Department Head Berris Ekinci. We continue to hear there is nothing new in the November 17 MOU. The MOU is an open-ended statement of intent not a firm commitment, Ekinci argued. There are many outstanding issues. As reported reftel, there is no agreement on price, transit terms and conditions or investment terms. Additionally, the GOT proposed a "net-back" pricing scheme for the 50% of natural gas that Turkey will get from the joint venture in South Pars. The pricing formula would work like this. Turkey would pay Iran the natural gas price at the Baumgarten Hub in Austria, minus the cost of transit from Austria (or wherever the final destination) to the South Pars field. The Iranians rejected the proposal. (Note: This is the very same formula the Turks are offering Azerbaijan for Shah Deniz Phase II gas. End note.) ¶3. (C) Regarding the transit of Turkmen gas across Iran to Turkey, Ekinci said the parties are considering a swap deal where Turkmen gas would enter Iran and Iran would offer its own gas for purchase by Turkey. No further details were given and it is unclear whether Iran would have the existing pipeline capacity to facilitate such a swap. Turkey is exploring all possible ways to get Turkmen gas to Turkey and markets beyond. Turkey is still trying to further the idea of a connection between Azeri and Turkmen off-shore gas platforms. Ekinci speculated that a summit hosted by Turkmen President Berdimuhamedov with President Gul, and Azerbaijan President Aliyev scheduled for the weekend of November 29 could bring progress on this issue. ¶4. (C) Comment: According to Ekinci, Guler traveled to Iran on the misguided advice of staff who told him many of the outstanding issues with Iran had been resolved. Its not clear who duped who or when or if a more detailed agreement might be ready. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey SILLIMAN