Vast Oil and Gas Potential in the Black Sea Asserted by

UNCLAS SECTION 01 OF 02 ISTANBUL 000083 SIPDIS SIPDIS EEB FOR A/S SULLIVAN EUR FOR DAS BRYZA EEB FOR MANN DOE FOR HEGBURG E.O. 12958: N/A TAGS: ENRG EPET TU SUBJECT: Vast Oil and Gas Potential in the Black Sea Asserted by Turkey's State Oil President ISTANBUL 00000083 001.2 OF 002 -------------- Summary -------------- ¶1. (SBU) The Black Sea holds sizable oil and natural gas resources according to the Turkish Petroleum Corporation (TPAO) President and Chairman Mehmet Uysal. In a meeting on the margins of the Clean Energy Conference on January 29 with U.S. Department of Energy Deputy Assistant Secretary Alan Hegburg, Uysal stated that Turkey will start early production of Black Sea energy within seven years. Hegburg welcomed this development and cautioned Uysal that Russia and Iran will not be able to meet future natural gas demands. Developing alternative sources of natural gas sources from Egypt, the Persian Gulf, or Iraqi would help meet future demand, according to Hegburg. -------------- Bright Prospects for Black Sea Energy -------------- ¶2. (SBU) Uysal stated TPAO expects high interest in a bidding round that will close February 15 on five prospective areas in the Black Sea. Uysal told Hegburg that recent seismic surveys of the Black Sea showed potential for 10 billion barrels of oil equivalent (boe); with oil expected in the eastern region and natural gas in the western region. Moreover, the Black Sea is a technically easier place to drill than the Caspian Sea since it lacks a hard layer of salt, according to Uysal. ¶3. (SBU) TPAO intends to aggressively exploit the Black Sea, according to Uysal. Early production should begin in 2015 and full production would start in 2023. This date is particularly significant since it coincides with the 100 year anniversary of the founding of Turkey, and the ceremony for the start of full production would be added to the Turkish centennial celebrations. Hegburg welcomed this news and confirmed that potential contacts for Black Sea resources would be developed with production sharing agreements (PSA),a commercial arrangement favored by foreign investors. -------------- More Gas Needed for Nabucco -------------- ¶4. (SBU) Hegburg cautioned that there may not be enough gas to meet Europe's growing demand. Hegburg stated that Iran is an unreliable supplier, and Russia fails to make necessary investments into its gas sector. Furthermore, gas from the promising fields in eastern Russia could be piped eastward towards the growing Chinese and Indian markets. Uysal responded that TPAO strongly supports the Nabucco gas pipeline. He also added that LNG from the Turkish port Ceyhan could supply gas to Europe. Note: GOT is encouraging the development of an LNG terminal in Ceyhan. Presently, there is not one. End note.) Uysal also insisted that Gazprom's 900 km pipeline under the Black Sea--South Stream--was not a threat to Nabucco since the project is not technically feasible. -------------- Prospects for Iraqi Energy Development -------------- ¶5. (SBU) Uysal noted Turkey's interest and natural advantage in developing Iraq's energy resources due to its historical ties and existing oil operations. Uysal opined that Iraqi gas from Anbar Province could be piped out to the Turkish port of Ceyhan via a gas pipeline to be built paralleling existing oil lines or could be used to feed Nabucco. However, the lack of a hydrocarbon law, an unclear security situation, and business contracts that are unfavorable to investors-(i.e. modified buyback contacts)-are current barriers for developing Iraq's energy resources. (Note: TPAO and BOTAS are part of a consortium led by Shell which has proposed a comprehensive gas development plan for Iraq including eventual pipeline exports to Europe. End note.) Hegburg stated that small steps could be taken in Iraq, particularly capturing the gas that is currently being flared. He also noted that Iraq must see value in the Turkish market before committing to it, and said that currently, Turkey's gas pricing strategy is not market competitive. ISTANBUL 00000083 002.2 OF 002 ¶6. DOE DAS Alan Hegburg has cleared this cable. OUDKIRK