4TH U.S.-TURKEY ENERGY WORKING GROUP MEETING

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 001766

SIPDIS

DEPARTMENT FOR EEB/S-EEE RICHARD MORNINGSTAR
DOE FOR OFFICE OF RUSSIAN AND EURASIAN AFFAIRS: LANA EKIMOFF

E.O. 12958: DECL: 12/09/2019
TAGS: ENRG EPET PREL TU
SUBJECT: 4TH U.S.-TURKEY ENERGY WORKING GROUP MEETING

REF: A. ANKARA 1729

B. ANKARA 1734

Classified By: CDA Doug Silliman for reasons 1.4 (b,d).


1. (C) SUMMARY AND COMMENT: At the fourth session of the
U.S.-Turkey Energy Working Group on December 3, the Turkish
delegation proposed increased cooperation between the U.S.
and Turkey to support development of Iraq's energy sector,
specifically through a joint project to relaunch the Iraq
Strategic Pipeline. The U.S. delegation said we would
consider the proposal but noted the private sector would need
to play the leading role, and both delegations agreed to meet
regularly to coordinate U.S. and Turkish efforts in Iraq's
energy sector. Turkish representatives said they continue to
negotiate in good faith with Azerbaijan on Shah Deniz gas,
but progress is blocked by the Azeris' mixing of political
issues with commercial projects. The Turkish delegation
requested U.S. cooperation to promote the interconnection of
the Turkmen and Azeri off-shore fields in the Caspian Sea.
The U.S. has been promoting this idea bilaterally, behind the
scenes for some time. It is not clear whether a trilateral
format to include Turkey would add any impetus. The
delegations decided to hold the next working group meeting
after the Iraqi elections, scheduled for early March. In a
separate meeting, MFA Undersecretary Sinirlioglu suggested
the two sides meet prior to the election in order to get a
running start in the immediate post-election period.
Cooperation with Turkey on Iraq's oil and gas sector
development has the benefit of helping guide Turkish messages
and strategies to fit ours. The disadvantage is that the
Turks' high expectations may be dashed because much of the
work needs to be done by the private sector and the USG
cannot control those investment decisions. End summary and
comment.


2. (SBU) U.S. and Turkish delegations met in Ankara December
3 for the fourth session of the U.S.-Turkey Energy Working
Group. Deputy Undersecretary for Economic Affairs Hakki Akil
headed the Turkish delegation, which included representatives
from the MFA, Ministry of Energy and Natural Resources,
Turkish Petroleum Company (TPAO),and the State Pipelines
Company (BOTAS). Special Envoy for Eurasian Energy Richard
Morningstar led the U.S. delegation, with Ambassador Jeffrey
and representatives from State and Energy. Reftels A and B
report on the working group's discussions on the GoT's
request for USTDA assistance with nuclear power projects and
MFA's proposed "Voluntary Principles on Oil Tanker Transit
through the Turkish Straits," respectively.

IRAQ
--------------


3. (SBU) Akil commented that political and economic stability
in Iraq is very important for both Turkey and the U.S. He
said security and preservation of Iraq as a unified entity
are the first priorities, and necessary for any other
progress. In regard to economic stability, another priority
is the legal system and establishment of a rule-based
framework for hydrocarbon development to create a good
investment climate. Akil said the GoT has raised these
issues with Baghdad, as with Syria, Jordan, and other
countries. He explained that cooperation between Turkey and
Iraq continues. Morningstar commented that the U.S. and
Turkey are in sync in regard to goals for Iraq. He said we
would like to continue to work closely with the GoT on
strategies that bring the central government and Erbil
together to develop oil and gas for export.


4. (C) Noting that one of the biggest problems in Iraq is a
lack of confidence between Baghdad and Erbil, Akil suggested
that activities in the energy sector could foster
interdependence both between the political factions in Iraq
and also with Turkey. Creating interdependence would give
various factions a stake in passing a legal framework for oil
and gas development, which could help move things along. As
a concrete proposal toward that end, he suggested working
jointly to relaunch the Iraq Strategic Pipeline (ISP),which
would enable Turkey to export oil from southern Iraq to
export oil through Ceyhan, a port on Turkey's Mediterranean
Coast, via the Kirkuk-Yumurtalik pipeline. For a second
phase of the project, he suggested a natural gas pipeline
could be built parallel to the ISP to export gas from
southern Iraq to Turkey. He said Turkish Ambassador Ozcelik

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had discussed the ISP with Iraq's deputy oil minister, and
both he and Erbil representatives were favorable to
relaunching the pipeline. Akil was confident of private
sector interest as well. He proposed forming a consortium of
U.S. and Turkish private companies and BOTAS to conduct the
projects. Morningstar told the Turkish delegation we would
consider the full proposal but emphasized that U.S.
companies, not the USG, would need to be convinced of the
merits of investing.


5. (C) Head of the Ministry of Energy Department for
Pipelines Reha Muratoglu outlined the four areas of the
memorandum of understanding signed October 15 on Prime
Minister Erdogan's visit to Baghdad: a) development of a
natural gas corridor, first to Turkey and then on to Europe;
b) training on natural gas distribution; c) renewal of the
Kirkuk-Yumurtalik pipeline agreement; and d) connecting the
countries' electric grids. BOTAS and TPAO representatives
stressed that Iraqi oil and gas are very important to their
enterprises and the Turkish economy. The BOTAS
representative said the U.S. could help by supporting Turkey
to receive Iraqi oil and gas. The TPAO representative said
the company had qualified to participate in Iraq's second bid
round and wanted to pursue both larger oilfields as part of a
consortium and smaller fields as the primary operator. He
said TPAO would like to partner with U.S. companies on the
bids. He added that TPAO has taken steps to show support for
Iraq. The company has opened an office in Baghdad and
offered assistance in training and exploration.


6. (SBU) Both working group delegations agreed it would be
helpful to meet regularly to coordinate efforts related to
the Iraqi energy sector to ensure they complement and
reinforce each other. Both also agreed the next meeting
would best occur after the Iraq elections, now scheduled for
early March. In a later, separate meeting, MFA
Undersecretary Sinirlioglu suggested the two sides meet prior
to the elections in order to have our shared strategies
prepared to deploy as soon as the election closes. Each
delegation will prepare an inventory of its country's
relevant efforts in Iraq for discussion at the next meeting.


AZERBAIJAN
--------------


7. (C) Akil said based on conversations with Shah Deniz
Consortium leadership, the GoT now believes Nabucco is not on
the Azeris' agenda; they prefer to sell the gas directly to
the Balkans or Italy, as they think it will give them
political leverage. Akil said the Azeris are mixing
political problems with gas projects. They do not plan to
sell gas to Nabucco and are using price and transit fees to
shift the blame to Turkey. Akil said Turkey has proposed a
good price for transit: USD 2.50 per thousand cubic meter
(tcm) per 100 kilometers. He claimed this rate is comparable
to the Russian transit fee through Ukraine to Europe.
Morningstar commented that the Russian-Ukraine relationship
is not a precedent for anything. Akil said that rather than
showing flexibility and negotiating for an agreement,
Azerbaijan has focused its efforts on pressuring Turkey
through the U.S. and EU. He said Turkey is negotiating in
good faith--and will continue to do so--but "it takes two to
dance." Morningstar commented that the U.S. has studiously
not taken sides in the negotiations, and we maintain the
position that this is a matter for Turkey and Azerbaijan to
decide. He said we understand the frustrations on all sides,
but feel strongly an agreement should be reached, as it is a
pre-condition for any other deals to move forward.

CASPIAN SEA TRANSIT
--------------


8. (C) Recognizing the strategic importance of transporting
Turkmen gas via Azerbaijan to Turkey and via Turkey on to
Europe, Turkey continues to pursue realization of the
Trans-Caspian Natural Gas Pipeline project. Recognizing the
difficulties of that task, however, the GoT proposed that a
joint (TPAO, British Petroleum, and Petronas, the current
license holder and operator of Block 1) pursue an
incremental, potentially less controversial approach of
connecting Turkmen and Azeri off-shore fields in the Caspian,
specifically the Block 1 field or Serdar/Kepez field to the
Neft Dashlari, Shah Deniz, or Azeri-Chiraq-Guneshli fields.

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Akil posited these pipelines could be laid without affecting
the delimitation issue and likely without Azeri objection.
He proposed that the U.S. and Turkey could work together to
promote the interconnection of the Turkmen and Azeri
off-shore fields. Morningstar responded that we appreciate
Turkey's involvement in this issue. He said we are open to
cooperating and should include Caspian Sea transit on future
working-group agendas.


9. (U) Special Envoy Morningstar cleared this cable.
Silliman

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