TURKEY/NABUCCO: DAS BRYZA URGES COMPROMISE ON

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000453

SIPDIS

SIPDIS

DEPT FOR EEB A/S SULLIVAN; EEB AMB. MANN; EUR DAS BRYZA;
DOE FOR HEGBURG

E.O. 12958: DECL: 03/03/2018
TAGS: PREL ENRG EPET AJ IQ RU TX TU
SUBJECT: TURKEY/NABUCCO: DAS BRYZA URGES COMPROMISE ON
TURKEY-AZERBAIJAN TRANSIT DISPUTE


Classified By: Ambassador Ross Wilson, reasons 1.4 b, d


1. (C) SUMMARY. The Nabucco pipeline is economically
feasible as Russia can supply the gas for South Stream only
from Turkmenistan, with Nabucco enjoying a forty percent
advantage over South Stream in terms of the cost of shipping
Caspian gas to Austria, DAS Matt Bryza told FM Babacan March

3. The lack of a Turkey-Azerbaijan transit agreement is
slowing Nabucco, and Bryza urged that Turkey and Azerbaijan
compromise. There is enough gas in Azerbaijan to satisfy
Nabucco, but the United States is working with the Iraqi and
Turkmen governments to ensure further supplies. Turkey can
help. Iraq has significant gas reserves which could supply
Nabucco. While exploiting northern Iraqi energy resources
would require passage of the hydrocarbons law, Iraqi
authorities believe they can proceed with exporting gas from
Anbar province. Turkish support can help Turkmen President
Berdimuhamedov recognize his leverage over Russia, which
needs Turkmen gas to realize South Stream. Ensuring energy
security requires Turkey to pursue diversification while also
seeking good energy relations with Russia, according to
Babacan. Turkey wants Nabucco to work, but Babacan noted
that the large number of countries involved inevitably
results in shifting policies and circumstances. Bryza
emphasized that, even with Hungary, Bulgaria, and Austria
hedging their bets with Russia, there is a political
alignment in support of Nabucco. The TU-AJ transit dispute
is holding up progress on gas sales/purchase agreements
required to secure financing. Babacan took the points but,
alluding to Azerbaijan, suggested that in this energy market,
it is difficult to make suppliers agree to reasonable terms.
Bryza emphasized the urgent need to elevate Turkey's gas
transit dispute with Azerbaijan to the political level;
Babacan agreed to raise it with PM Erdogan. END SUMMARY.

TURKEY-AZERBAIJAN IMPASSE THREATENS NABUCCO
--------------


2. (C) Bryza stressed to FM Babacan and DG for Economic
Affairs Kart, as well as, separately, MFA Deputy U/S Cevikoz,
Nabucco's economic attractiveness compared to South Stream.
Exporting gas to Central Europe makes much more sense through
Nabucco. Russian President Putin has recognized the progress
made on Nabucco and has launched a counter-offensive against
it. South Stream requires Turkmen gas; Russian gas fields on
the Yamal Peninsula and in the Barents Sea are years behind
schedule. There is enough gas in Azerbaijan to satisfy
Nabucco, though not all of it will be ready in time. Bryza
estimated that, comparatively, it would cost forty to fifty
percent more to ship Caspian gas to Austria via South Stream
than via Nabucco. But the TU-AJ transit dispute is blocking
investors from concluding crucial gas sales/purchase
agreements with Azerbaijan, holding up Nabucco, and creating
space for South Stream.


3. (C) Bryza described opposing pricing and transit schemes
favored by Turkey and Azerbaijan. Turkey is seeking to buy
15 percent of the gas transiting Turkey at a netback price
while Azerbaijan is seeking a straight transit tariff formula
and gas sales to Turkey at the top dollar price Turkey pays
Russia. Compromise is needed and only the top Turkish and
Azerbaijani political leaders can break this impasse. Bryza
noted that Azerbaijani President Aliyev has already suggested
a compromise based on a contractual price for an additional
volume of gas for Turkey, less than Turkey is paying Russia.


4. (C) Babacan agreed to engage PM Erdogan in resolving the
gas transit dispute with Azerbaijan. (PM Foreign Affairs
Advisor Davutoglu made the same pledge to Bryza the previous
day in Istanbul.) Asked about additional sources of gas to
supply Nabucco, Bryza pointed to Turkmenistan and Iraq.
Turkmenistan, he said, is nervous about Moscow, but, in fact,
has leverage over Russia which needs Turkmen gas to supply
South Stream. Turkey can bolster Turkmen President
Berdimuhamedov's confidence to commit some gas to Nabucco,
through Azerbaijan. Babacan noted that Berdimuhamedov would
be in Turkey for an extended, three-to-four day visit in late
March and PM Erdogan would work this issue with
Berdimuhamedov then. Bryza also pointed to Iraq as a
potential supplier, noting that experts believe 13-15 bcm of
gas could be produced by Iraq over the next five to eight
years. It will be impossible to proceed with developing

ANKARA 00000453 002 OF 002


northern Iraqi resources until passage of the hydrocarbons
law, but Iraqi officials believe it is possible to start
exploiting western Iraqi resources now (these resources are
not subject to the same Iraqi regional ownership disputes).
Iraq will already begin exporting modest volumes of gas to
Syria under pre-existing, Saddam-era contracts, and will then
aim to export perhaps 6 bcm via Syria through the Arab
pipeline into Turkey. Bryza described this as a modest
start; he relayed Iraq experts' analysis at the
U.S.-Turkey-Iraq Trilateral Gas Meeting on March 1 that the
Iraqi government currently lacks the strategic vision at the
political level to plan to expand production further and
supply Nabucco. Bryza called for the U.S. and Turkish
embassies in Baghdad to work together to help the GOI develop
such a vision. Babacan agreed. Bryza also emphasized
Azerbaijan's strong desire to export its energy resources
westward, even as Russia seeks to buy into Azerbaijani Shah
Deniz production.


5. (C) Turkey wants to help India achieve energy diversity
and meet its extraordinary energy needs. Babacan told Bryza
that Turkey, India and Israel have discussed building a new
oil pipeline from Ceyhan to Israel, which would connect to
existing Red Sea pipelines, allowing India to purchase oil at
a savings compared to the price it currently pays for Middle
East oil. Bryza replied that developing Turkey-India-Israel
relations is a good idea, and the United States would support
the project so long as it is commercially viable.


6. (C) Returning to Nabucco, Bryza stressed the importance
of achieving diversity of supply before deepening energy
dependence upon Russia, and asked if Turkey could support
Nabucco first. Babacan noted the supply disruptions Turkey
faced again this winter from Iran after Turkmenistan cut off
Iran. The disruptions led Turkey to request additional
volumes of gas from Russia, albeit at a very expensive price.
Turkey wants energy diversity, but needs a continuous supply
from Russia. Turkey is strongly supportive of Nabucco and
the Arab gas pipeline. Turkey is also exploring new
opportunities with Iran, but only on a purely commercial
basis. The security of Turkey's energy supply is paramount.
Babacan described what he saw as an inherent problem with
Nabucco: there are too many countries involved. Changing
governments and circumstances lead to shifting policies.
Bryza underscored the need to maintain political alignment in
support of Nabucco, even as Hungary, Bulgaria, and Austria
hedge their bets with Russia. The key obstacle right now is
the TU-AJ transit dispute, and he urged, once again, a
compromise agreement. Babacan empathized with Turkish Energy
Minister Guler, noting Turkey will be hosting the largest
stretch of Nabucco pipeline and pointing out that Turkey is
in the market for gas in its own right. It is sometimes hard
to make suppliers agree to reasonable terms, he said.


7. (U) DAS Bryza cleared this cable.

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

WILSON