KAZAKHSTAN TO STUDY PLANS FOR SAMSUN-CEYHAN PIPELINE

UNCLAS SECTION 01 OF 02 ASTANA 002100

SENSITIVE
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STATE FOR SCA/CEN, EEB/ESC, S/EEE, S/CIEA
STATE PLEASE PASS TO USTDA

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV EPET KZ RS TK AJ IT
SUBJECT: KAZAKHSTAN TO STUDY PLANS FOR SAMSUN-CEYHAN PIPELINE

REF: (A) ANKARA 1592
(B) ASTANA 2005
(C) ASTANA 2007

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1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Meeting in Yalta on November 20, Russian Prime
Minister Vladimir Putin and Kazakhstani Prime Minister Karim Masimov
witnessed the signing of a protocol to study plans for the
construction of an oil pipeline between the Turkish cities of Samsun
and Ceyhan. The pipeline could ultimately carry crude from
Kazakhstan's largest oil fields, including Tengiz and Kashagan, from
the Black Sea to the Mediterranean Sea, where it would effectively
enter the world market. The agreement between Russia and Kazakhstan
comes less than one month after President Nursultan Nazarbayev
visited Turkey from October 22-24. During his visit, Nazarbayev
announced that Kazakhstan and Russia are prepared to participate in
the construction of the Samsun-Ceyhan pipeline, although questions
remain concerning the equity structure, volume commitments, and
transit tariffs of the proposed venture. END SUMMARY.

NAZARBAYEV'S VISIT TO TURKEY IN OCTOBER


3. (SBU) President Nazarbayev's visit to Turkey on October 22-24
highlighted the strong and growing cultural and economic ties
between the two countries (ref A). An economic officer from the
Turkish Embassy involved in preparations for Nazarbayev's visit told
Energy Officer on November 20 that six ministers, dozens of business
leaders, and local government officials accompanied Nazarbayev.
According to Turkish Econoff, the delegation included Foreign
Minister Kanat Saudabayev, Minister of Defense Adilbek Jaksybekov,
Minister of Education and Science Zhanseit Tuimebayev, Minister of
Industry and Trade Aset Isekeshev, Minister of Information and
Culture Mukhtar Kul-Mukhammed, Minister of Tourism and Sport
Temirkhan Dosmukhanbetov, the Chairman of National Welfare Fund
Samruk-Kazyna Kairat Kelimbetov, Almaty oblast governor Yesimov
Akhmetzhan, and Astana oblast governor Imangali Tasmagambetov.
Turkish Econoff said that Turkey and Kazakhstan signed a number of
cooperation agreements during the visit, including ones on science
and technology, environment, tourism, education, and energy.

KAZAKHSTAN WILL SHIP GAS VIA TURKEY


4. (SBU) During his visit to Turkey, Nazarbayev acknowledged
Turkey's important role as a transit country for Central Asian
energy resources and underscored that Kazakhstan's oil and gas will
flow through Turkey. Turkish Econoff said the Turkish government
was particularly impressed by Nazarbayev's clear, unequivocal
statement that both Kazakhstani oil and gas would transit Turkey,
and reported that Nazarbayev specifically expressed Kazakhstan's
support for the Nabucco gas pipeline to Europe.

FROM BAKU-CEYHAN TO SAMSUN-CEYHAN


5. (SBU) Addressing the Turkish parliament on October 22,
Nazarbayev announced that Kazakhstan and Russia are prepared to take
part in the construction of the Samsun-Ceyhan oil pipeline.
According to the BBC, Nazarbayev said, "Just as we supported the
construction of the Baku-Ceyhan oil pipeline at the appropriate
time, we are also ready, jointly with Russia, to take part in the
construction of the Samsun-Ceyhan oil pipeline." Later that day,
according to Reuters, Russian Prime Minister Vladimir Putin
announced that Kazakhstan might supply oil to the pipeline. The
project aims to provide a Bosporus bypass for Russian and
Kazakhstani oil to world markets. Turkish Econoff said Turkey's
State Minister Faruk Celik stressed during a visit to Astana on
November 17 the importance of relieving pressure on the Bosporus
caused by oil-tanker shipments.

A HISTORY OF THE SAMSUN-CEYHAN PIPELINE


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6. (U) On September 26, 2005, Italy's Eni and Turkey's Calik Enerji
signed a Memorandum of Understanding to cooperate on the project.
They completed a pipeline feasibility study in March 2006 and the
Front-End Engineering Design Phase in 2007. On October 19 in Milan,
Russia and Turkey signed an intergovernmental agreement to guarantee
a stable regulatory framework and consent to the participation of
Russian oil companies Transneft and Rosneft in the project. The
pipeline, which is expected to cost more than $2 billion, will be
constructed, owned, and operated by the Trans-Anatolian Pipeline
Company (TAPCO),a 50-50 joint venture of Eni and Calik Enerji
incorporated in Turkey. The 550-km (340-mile) pipeline will have a
maximum capacity of 1.5 million barrels a day. Eni Chief Executive
Officer Paolo Scaroni has said oil from the Kashagan and
Karachaganak fields in Kazakhstan could be used to fill the
pipeline. (NOTE: Eni owns 16.67% of Kashagan and 32.5% of
Karachaganak. END NOTE).

THE YALTA PROTOCOL


7. (U) Meeting in Yalta on November 20, Russian Prime Minister
Vladimir Putin and Kazakhstani Prime Minister Karim Masimov
witnessed the signing of a protocol to study plans for the
Samsun-Ceyhan pipeline. Russian Energy Minister Sergei Shmatko
announced the protocol, which amends an oil transit agreement of
June 7, 2002. "We have amended our plans in the protocol," he said.
"We amended the projected oil balance for the next few years, the
routes of transportation, and it is an essential piece of news that
the words 'Samsun' and 'Ceyhan' are appearing in our relations for
the first time."

RUSSIA READY TO DEAL WITH TURKEY


8. (SBU) On November 23, Arman Darbayev, Director of the Oil
Transportation Department at national oil company KazMunaiGas (KMG)
told Energy Officer that KMG was not directly involved in preparing
the Yalta protocol. He suggested that the decision was political,
not economic, and was made at the highest levels of government.
Darbayev speculated that Russia switched its support from the
Bourgas-Alexandropolis oil pipeline project to Samsun-Ceyhan,
because "the Turks are easier to deal with than the Bulgarians, and
they are ready to do business. They are ready to invest their own
capital, work with all partners, and move quickly to the
construction phase." Darbayev said that Kazakhstani crude from the
Caspian Pipeline Consortium (CPC) pipeline would likely flow through
Samsun-Ceyhan instead of Bourgas-Alexandropolis, despite the fact
that CPC members have a vague commitment to ship through
Bourgas-Alexandropolis. He also suggested that Russia will want to
take an equity stake in the Samsun-Ceyhan project, as would
Kazakhstan.


9. (SBU) COMMENT: Although the Samsun-Ceyhan pipeline is well past
the design phase, many unanswered questions about the project
remain. It is unclear whether Russia or Kazakhstan will take an
equity position in the consortium, what volume of crude they (or
international oil companies) will commit to the pipeline, and how
the pace of construction might be affected by other oil pipeline
projects, such as the planned expansion of the CPC, expansion of
Baku-Tbilisi-Ceyhan (BTC),and construction of
Bourgas-Alexandropolis. However, all parties agree on the need for
additional transportation capacity to deliver increased volumes of
crude from Kazakhstan to world markets. The situation will become
acute if CPC and BTC are not expanded to accommodate increased
production from Tengiz and Kashagan in 2013. Russia's role in the
Samsun-Ceyhan pipeline project is also well worth watching,
particularly if state-controlled companies Transneft and Rosneft
take an equity stake in the consortium. That could give Russia the
ability to influence tariffs, volumes, and markets for Kazakhstani
oil, which would undercut Kazakhstan's efforts to diversify export
routes. END COMMENT.

SPRATLEN