TURKEY: ENERGY POLICY SWINGS TOWARD RUSSIA

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 000315 SIPDIS EEB FOR ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 02/27/2019 TAGS: ECON ENRG EPET TU SUBJECT: TURKEY: ENERGY POLICY SWINGS TOWARD RUSSIA REF: A. ANKARA 253 ¶B. ANKARA 289 Classified By: Ambassador James Jeffrey for reasons 1.4 (B) and (D) ¶1. (C) Summary. Over the past week, we have met with several Turkish counterparts on energy issues, including Advisor to President Gul for Energy Issues Volkan Ediger who accompanied Gul on his February 12-15 visit to Moscow (ref b). All confirm Turkey is increasing its cooperation with Russia on energy, a finding made manifest by Foreign Minister Babacan's February 21 statement that Russian gas should be party to the Nabucco East-West energy corridor. For some, this acknowledgment is just an opportunity to do business. A potential Blue Stream II deal with Russia would allow Turkey to sell gas to Israel and to set up an LNG port in Ceyhan. For others, like Ediger, a Russia-Turkey rapprochement on energy is the antithesis of a whole career based on the importance of diversified energy sources and routes. Faced with this bitter reality, Ediger blamed "the U.S. and European leadership vacuum on Nabucco" for giving Russia an opening to woo Turkey. He pleaded for U.S. high-level engagement to get the Southern Corridor back on track. With frustration and a tinge of despair, Ediger described Turkish energy policy as "hopelessly adrift." Increased Russian-Turkey cooperation is also likely in nuclear power. According to two advisors to Minister Guler, the Moscow trip resulted in a "gentlemen's agreement" that pending some further price negotiations, Turkey would award Russia the contract. End summary. Current situation -------------- ¶2. (U) Russia currently provides 65% plus of Turkey's natural gas requirements through the Blue Stream Black Sea pipeline in the East (contracted amount 16 bcm, current flows about 9.5 bcm),and two lines through Bulgaria in the West (14 bcm) of which the "West Line" (6 bcm) must be renewed by 2010. Russia also supplies about 40% of Turkey's oil (Iran provides much of the rest of Turkey's oil and gas, with Azerbajian and LNG from Algeria rounding out the gas supplies.) With Russia: South Stream, Blue Stream II and West Line -------------- -------------- ¶3. (C) According to different interlocutors, all three gas pipeline projects were discussed during Gul,s visit. Claiming the Moscow trip did not lead to any breakthroughs, MFA Energy Department Head Berris Ekinci did confirm that Russia offered Turkey to join South Stream. The GOT did not give a reply. (Comment: It is not clear what a South Stream that includes Turkey might look like. It might be a Blue Stream II that feeds Turkey and then continues on to Bulgaria. End comment.) ¶4. (C) Special Advisor to Minister Guler, Musa Gunaydin, told us that Turkey and Russia held substantive discussions on Blue Stream II, although final agreement was not reached. Plans for the line include a capacity of 25 and 30 bcm/a to be imported by a 50/50 Gazprom-BOTAS joint venture called Turusgas. This entity was at one time appointed the import vehicle for 6 bcm/a from Russia through Bulgaria to Turkey, however corruption allegations caused it to exit the business, leaving the gas to BOTAS. Gunaydin said Blue Stream II could be a good business opportunity for Turkey. Russia and Israel have already agreed that 10 bcm would go to Israel, via the yet-to-be built "MedStream" line. The rest could be sent to the Ceyhan LNG terminal to be built by the Japanese company Marabeni, realizing Turkey's goal of building an energy hub. When asked about Babacan's comments about Russian gas for Nabucco, Gunaydin said Blue Stream II could be a source. Econoff asked whether some of this gas could be used for Turkey's domestic market and therefore reduce the amount of gas Turkey is demanding from Azerbaijan. Gunaydin said this is a sensitive issue and this gas is destined for export, only. ¶5. (C) In a separate meeting, Turkey's Nabucco Coordinator Osman Goksel said that West Line, Blue Stream II and other issues will be solved as a package, as the Russians want. "This is the way they do business." Goksel, who fears that ANKARA 00000315 002 OF 003 Turkey's gas market liberalization will hand Turkey's downstream to Gazprom, said the key to stopping Russia's advances is Nabucco. "But we need more gas." Goksel suggested that Nabucco partners look to Qatar to find gas. (septel) ¶6. (C) Ediger declined to answer any specific questions on the possible renewal of the "West Line" gas contract (6 bcm) or an offer to build Blue Stream II. He did say the negotiations are continuing and Gazprom CEO Alexi Miller plans to visit Turkey in coming weeks. "Energy Vacuum" Being Filled By Russia -------------- ¶7. (C) On February 24, we met with an unusually fiery and combative Volkan Ediger, Advisor to the President for Energy Issues, who began by decrying the lack of U.S. and European leadership on Nabucco which he said is giving Russia an opening to increase cooperation with Turkey. Referring to Foreign Minister Babacan's February 21 comments inviting Russia to join Nabucco, Ediger said Turkey's energy policy is "hopelessly adrift." Russia is exerting major pressure on Turkey without a countervailing offer from the West. The U.S. needs to expend much more effort, akin to the role it played during the development of the Baku-Tbilisi-Ceyhan oil pipeline in the 1990s, if Nabucco is to work. The major issue for Nabucco is finding sufficient gas supplies. Large scale gas supplies are needed, Shah Deniz II is only a fraction of what is needed. "Who is working on getting more gas supplies?", he asked rhetorically. The U.S. needs to lead on this issue. The U.S. should (1) get a new hydrocarbons law passed in Iraq; and (2) open the door for U.S. firms to get contracts in Iraq, and which could include Turkish firms. He said Turkmenistan is a possible longer-term supplier but there too, he didn't see any U.S. leadership. Econoff pointed out that Azerbaijan has additional gas reserves (i.e. ACG deep gas, Apsheron etc.) and Ediger chimed in that it is the USG's job to make these supplies available too. No Substitute for U.S. Leadership -------------- ¶8. (C) Everyone is blaming Turkey for inaction on Nabucco but there is inaction on all sides and the project is not moving forward in any respect. Ediger pleaded for "real, high-level U.S. engagement" in the development of the Southern Corridor. We need someone to get everyone in the room and "bash heads" to broker a solution. Ediger argued that as the primary beneficiary of Nabucco -- Europe -- must show leadership on this issue. However, even with stronger EU support, Ediger hypothesized that Nabucco might not go forward because the EU doesn't have much sway over Turkey. France insists on a partnership rather than full EU membership and the European Commission is unable to take serious steps toward accession, instead opening "a chapter here and a chapter there." He said Europe should realize that "they need Turkey more than Turkey needs them." A Gentleman's Agreement for Nuclear Power -------------- ¶9. (C) Econoff asked whether there had been any progress on the nuclear deal during President Gul's Moscow visit. Ediger pointed to the lack of Western bidders to build Turkey's first nuclear power plant as another "example of lack of U.S. leadership." He was indignant that U.S. companies did not bid. Econoff said the GOT was well aware of concerns expressed by international companies (including GE) about the tender. Ediger dismissed the companies' request to extend the bid deadline as "nonsense" and said the Russians had enough time to prepare a bid, so others should have too. Gunaydin gave the same line and blamed the U.S. for the predicament Turkey finds itself in, namely a partnership in nuclear energy with the very same country it already depends on for natural gas. ¶10. (C) In separate meeting, informal advisor to Minister Guler Faruk Demir told us Gul and Medvedev reached a sort of "gentleman's agreement" by which Russia would win the nuclear contract assuming a positive outcome of further negotiations. ANKARA 00000315 003 OF 003 The main issue continues to be electricity sales price. According to the press, the Russian offer stands at 15 cents/kWh and Turkey wants it lowered further. Gunaydin, who may be close to the negotiations, said Russia is now offering a price of 13 cents and he expects it will be decreased further. The Cabinet of Ministers (COM) will make the final decision on the bid. Currently, the Turkish Electricity Trading Company (TETAS) is evaluating the latest Russia bid and will make a recommendation to the COM on whether to accept it. A final decision by the COM is expected in April. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey Jeffrey