US-TURKEY ENERGY WORKING GROUP REAFFIRMS ENERGY

C O N F I D E N T I A L SECTION 01 OF 05 ANKARA 000138 SIPDIS EEB FOR ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 01/28/2019 TAGS: ENRG EPET IZ TU SUBJECT: US-TURKEY ENERGY WORKING GROUP REAFFIRMS ENERGY COOPERATION REF: A. ANKARA 0014 ¶B. ANKARA 100 Classified By: Ambassador James Jeffrey for reasons 1.4 (B) and (D) 1.(C) Summary. The second U.S.-Turkey Energy Working Group on January 15 began on a positive note with both sides agreeing to develop a common strategy on Caspian energy, identify concrete steps and carry them out. EUR DAS Bryza stressed that the Russian gas cut off had focused Europe's attention anew on diversifying natural gas supplies, and we should take this opportunity to make real progress on the Southern Corridor. In some areas, U.S. and Turkish strategic vision was closely aligned. We agreed to coordinate our messages to Turkmen President Berdymukhamedov about allowing access for international oil companies for upstream field development and to support an interconnector between Turkmen and Azeri offshore platforms as an early route for gas westward. The Turks stressed the need to help the Turkmen build sufficient confidence to allow western companies upstream access by first providing Ashgabat some breathing space from Moscow through establishment of a link between Turkmenistan's offshore gas fields and the West via Azerbaijan. On Iraq, we agreed to urge the GOI to pass the hydrocarbon law and the MFA suggested its desire to convince Turkish firms they should refrain from signing contracts with the KRG until passed. (Ref B reports a slightly different take on this issue.) MFA Deputy Undersecretary Kuneralp said he expected to see progress following what he termed "Nabucco week" (Brussels conference on January 21-22 and Hungarian conference January 26-27). GOT welcomed our support for a World Bank study on CDC as a way to demonstrate to Central Asian gas producers that serious European partners are willing to move quickly to develop export pipelines should the producers take the risky step of committing to export some of their gas via non-Russian routes. On other issues, such as negotiations with Azerbaijan, Turkey did not feel our sense of urgency. MFA Energy Deputy Director General for Energy Altay said negotiations with Azerbaijan would be solved "when the time comes" but declined to say when that time would be. GOT working group members would not divulge the details of the negotiations. The Working Group agreed to produce a new action plan. Embassy Ankara will draft the first iteration. End summary. ¶2. (SBU) The second U.S.-Turkey Energy Working Group took place on Friday, January 16. The Turkish side was led by Ministry of Foreign Affairs Deputy Undersecretary Selim Kuneralp, Ministry of Energy and Natural Resources Deputy Undersecretary Yusuf Yazar, and Turkish Petroleum TPAO) Director General Mr. Mehmet Uysal. Additional representatives from those organizations and BOTAS also attended. The U.S. side was led by Deputy Assistant Secretary for Europe Matt Bryza and also included Ambassador Jeffrey, TDA Europe/Eurasia Director Dan Stein and other representatives from EUR, NEA and EEB bureaus, Department of Commerce and Department of Energy. Russian gas cut off -------------- ¶3. (C) Kuneralp said Turkey has suffered from Russia's gas cuts since January 1. Turkey lost approximately 30% of its total gas supply from the cut of the Russian-supplied Western Line via Bulgaria. As a result, BOTAS has cut gas to 20% of its customers (e.g., power plants with interruptible contracts and who can use alternative fuels) and is using gas from storage and LNG tankers to make up the difference (ref A). Despite these difficulties, Turkey has kept the gas on to Greece (albeit, in decreased volumes) and was considering a deal to reverse the flow of the Western Line to send re-gasified liquid natural gas to Bulgaria. (Note: this initiative was overtaken by the resumption of Russian supply on January 21. End note.) Kuneralp went on to say that previously, Russia has been a reliable supplier and has never used gas as a political weapon. Bryza noted Gazprom,s geo-economic approach that aims to maximize its control over gas import routes into Europe, and is instrumentalizing European gas consumers in their commercial dispute with Ukraine. The way to energy security is through ANKARA 00000138 002 OF 005 diversification, especially of sources of gas supply. Only competition from alternative suppliers can change Gazprom's behavior, though this will take time, focus, and political-level effort. We have Europe's attention. The way to be helpful now, is to make real progress to advance the Southern Corridor. A concrete step like resolving the Turkey-Azerbaijan gas transit dispute, or signing the Intergovernmental Agreement (IGA) for Nabucco is needed. Azerbaijan -------------- ¶4. (C) Bryza stressed that we have a golden opportunity with all of Europe, including Germany, focused on the need for diversification of natural gas supplies. We should seize the moment to make progress on the Southern Corridor. Kuneralp said Azerbaijan is committed to export gas to Europe, not Russia. There is no conflict with trying to accommodate Turkey and Europe's gas demands, as long as sufficient gas could be produced at Shah Deniz Phase II (SD II),as well as in Iraq and Turkmenistan. Bryza said we will continue to work with political leaders to help put in place the commercial and legal frameworks required to attract upstream investment. Only economically viable projects can attract investors. SD II will not be big enough to meet Turkey's gas needs, and also fill both the Turkey-Greece-Italy (TGI) pipeline and Nabucco. The developers of both pipeline projects had indicated in recent months to Bryza they each sought to fold the other project into their own initiative in the hope of securing sufficient gas volumes for one consolidated project. TGI hoped to move gas from Greece to Italy via the Poseidon sub-sea pipeline, then northeast through Italy and Slovenia to Baumgarten, Austria; Nabucco developers hoped to move gas from Turkey through Bulgaria, Romania, and Hungary to Baumgarten, then southwest to Italy via Slovenia. TPAO Managing Director for International Projects Memet Ali Kaya responded the development of SD II gas will open the door to further development of natural gas fields in Azerbaijan, Turkmenistan, and Kazakhstan, as had happened for oil in the case of the Baku-Tbilisi-Ceyhan pipeline. Kaya estimated that SD further phases, ACG deep gas, Absheron and Celikin in Turkmenistan could add up to 1 trillion cubic meters of gas. ¶5. (C) EUR/ERA Energy Officer McConaha argued that Turkey's lack of progress on Shah Deniz I (SD I) price negotiations and BTC arbitration were irritants in the negotiations with Azerbaijan for SD II gas and were impeding progress on the Southern Corridor. MFA Environment and Energy Deputy Director General Vural Altay responded with pique "when the time comes, these problems will be solved." Technical negotiations are continuing and they are not ripe yet. The final decision will be made at the political level but "we are not there yet." Kuneralp added that after next week, which includes a PM visit to Brussels, Nabucco IGA conference and Hungarian Nabucco conference (to which Energy Minister Guler will lead the Turkish delegation),things could move forward. CDC and Nabucco -------------- ¶6. (C) Kuneralp said the Caspian Development Corporation (CDC) concept was designed jointly by the EU and Turkey to address Turkey's energy needs and Turkmenistan's reluctance to risk Russia's enmity by selling gas to the West. Turkey is favorably considering the EU's proposal for the World Bank to do a study of the CDC concept. The lawyers are doing the final review of the legal implications for Turkey of the CDC study and Turkey will soon make the request to the Bank. Ambassador Jeffrey said the U.S. supports an expedited World Bank study and expressed his hope that the CDC would be composed of private companies and would not discriminate against U.S. firms. The CDC study represents an important concrete step we can take to shore up the Nabucco project. The more steps we take to realize the Southern Corridor, the more private companies and international financiers will support it. ¶7. (C) Kuneralp responded he was expecting some concrete ANKARA 00000138 003 OF 005 steps January 20-23 in what he termed as "Nabucco Week." The EU will host a meeting on the Intergovernmental Agreement (IGA) for Nabucco on January 21-22. The IGA has been agreed between partner companies of Nabucco and will now be presented to governments (i.e. Turkey, Bulgaria, Romania, Hungary, Austria and Germany) and may be ready for signature soon. In addition to the IGA, Turkey is seeking a "project support agreement" (PSA) that would include language on Turkey's energy security needs. (Note: the PSA would be the equivalent of the Host Government Agreements concluded for Baku-Tbilisi Ceyhan and the South Caucasus Gas Pipeline.) The PSA would be an agreement between the Nabucco International company and Nabucco partner companies (BOTAS, Bulgargaz, Transgaz, MOL, OMV and RWE) and host governments, and would give BOTAS the right or option to buy some gas transiting Turkey via Nabucco. Kuneralp noted Turkey could not watch 31 bcm of gas to Europe go by and not get anything. Turkey would like the IGA and PSA to be signed at the same time. Turkmenistan -------------- ¶8. (C) Bryza and Kuneralp agreed the U.S. and Turkey should coordinate their messages to convince Turkmen President Berdymukhamedov to allow international companies to develop new oil and gas fields and send it West. Our message should explain the benefits of allowing foreign oil company access to onshore and offshore fields. In particular, Bryza said we should work together to calculate the potential revenues from gas sales to Russia versus gas sales to the West and present the results to the Turkmen. We also should work to improve the relationship and confidence between President Aliyev and President Berdymukhamedov. More concretely, the U.S. and Turkey need to work quietly and behind the scenes to help improve Azerbaijan-Turkmenistan relations, which in turn would help create the climate to link up Turkmenistan's Livanov field to Azerbaijan's gas export infrastructure. TPAO Chairman Mehmet Uysal urged opening this early route for gas to the West because such an opening will itself help convince Turkmenistan to allow investment in Turkmenistan's onshore fields. Kuneralp elaborated over lunch that without such an opening toward the West, Berdymukhamedov will remain convinced he has no real alternative to buckling under Russian pressure. ¶9. (C) Dan Stein said TDA is ready to do a technical feasibility study of linking the two off-shore platforms in Turkmenistan and Azerbaijan, but the Turkmen president had declined the study. Political will is needed to move this project further. Kuneralp said our job is to make the decision to send gas westward easier for President Berdymukhamedov. The idea driving CDC is just that. CDC will pick up the gas at the border as Turkmenistan has required and it will limit Russia's reaction to Turkmen gas going West. Waiting for the Turkmen to assert political will is a losing strategy. ¶10. (C) Kuneralp said the meeting between Presidents Berdymukhamedov Aliyev and Gul on November 29 was successful in warming relations between Azerbaijan and Turkmenistan. An outcome of the meeting is the establishment of a tripartite commission chaired by the respective Energy Ministers to seek resolution of Caspian Sea delimitation between Turkmenistan and Azerbaijan. It is not yet clear what role Turkey will play in the negotiations and Kuneralp said Turkey should now move to organize the first meeting of the commission. He welcomed U.S. help on the difficult issue of delimitation and asked Bryza to inform the Azeris of Turkey's willingness to host the first meeting soon. Bryza said State lawyers have determined that a connection between Turkmen and Azeri offshore platforms does not require a formal decision on demarcation. Kuneralp agreed but added that this was an important issue to the Turkmen. Iraq -------------- 11.(C) Bryza and MFA Iraq desk representative Aydin Acikel presented a similar strategic vision for Iraq. ANKARA 00000138 004 OF 005 -- Iraq must pass the Hydrocarbon Law before developing Northern Iraq fields. (Note: In a separate conversation, MFA Iraq Envoy Murat Ozcelik indicated his long-standing position that Turkey should wait for the new law may be softening (ref B). -- The U.S. and Turkey should continue to press the GOI to pass this law. -- The U.S. and Turkey support the so-called "Grand Bargain" proposed by UK Special Envoy Frank Baker, according to which Iraqi politicians would agree on both the key economic issue of the hydrocarbon law and the key political issue of the status Kirkuk. ¶12. (C) Kuneralp asked for U.S. support for a northern gas export route from Iraq to Turkey to markets beyond. He referenced Iraq's support for such a pipeline as stated in the July 2008 joint political declaration creating a strategic cooperation council signed by the PM and PM Maliki. Uyusal also mentioned TPAO's desire to partner with U.S. firms to do business in Iraq. He said they had formed a consortium with Shell to bid on upcoming tenders and are in negotiations with another oil company (which we later heard is BP) to form another consortium. Uyusal also said TPAO would like to encourage the expansion of oil exports through the existing Kerkuk-Yumurtalik oil pipeline. ¶13. (C) NEA/I Iraq Officer Matt Amitrano pointed out that Iraq still lacks a national gas strategy and therefore, it is not clear how much gas will be used for internal consumption, how much for export and in what time frame. Ambassador said that Iraqi must first determine its own needs and how to meet them. To the extent they wish to export gas, we should support an Iraq-Turkey gas corridor. Energy Chapter and Energy Community -------------- ¶14. (C) Bryza said he had just come from Cyprus where he urged the GOC to lift its objections to the EU opening negotiations with Turkey on the Energy Chapter of the EU Acquis, and reached agreement with the Cypriot MFA to launch a working group in Brussels to explore this move in conjunction with potential progress on information sharing in the contexts of NATO and ESDP, though the Cypriot MFA political director warned there would be no chance for progress until the dispute over drilling rights in Cyprus, exclusive economic zone died down. Kuneralp thanked Bryza for his efforts and said this was important to Turkey. Furthermore, there are no technical barriers to opening the negotiations. Kuneralp added Turkey will soon begin negotiations with the EU on acceding to the Energy Community. Pipeline security -------------- ¶15. (C) Kuneralp said there are adequate measures in place to provide security for the Baku-Tbilisi-Ceyhan pipeline and other pipelines. He described two security commissions, one with the three partner countries and one internal with the gendarmes, that meet regularly to assess the security situation. BOTAS Deputy Director General Sakir Arikan said security upgrades are already being discussed, including hardening of the block stations. He expected that some improvements would be in place in about a year. EEB described in general terms the Critical Energy Infrastructure Protection (CEIP) initiative and suggested Turkey may want to consider joining this program. Kuneralp was non-committal. ¶16. (C) On security, Kuneralp said Turkey is concerned about Romania's plans to import LNG through the Bosphorus Straits. Bryza asked Turkey to do a careful study of the possible effects of an LNG tanker crash, adding that the effects might be less catastrophic than they think. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey ANKARA 00000138 005 OF 005 Jeffrey