TURKEY MAKES PROGRESS ON TURKMEN GAS VIA IRAN,

C O N F I D E N T I A L ANKARA 000027

SIPDIS

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

E.O. 12958: DECL: 01/07/2020
TAGS: ENRG EPET ECON PREL TU
SUBJECT: TURKEY MAKES PROGRESS ON TURKMEN GAS VIA IRAN,
WHILE AZERI NEGOTIATIONS REMAIN STALLED

Classified By: Dale Eppler for reasons 1.4 (b,d).


1. (C) SUMMARY: Energy Minister Yildiz attended the January 6
opening ceremony for the Turkmen-Iran natural gas pipeline
and met with Turkmen President Berdimuhamidov, Iranian
President Ahmadinejad, and the energy ministers from both
countries. Yildiz said progress was made in bringing Turkmen
gas to Turkey. An advisor who traveled with Yildiz said the
discussions were "a good start," but much remains to be done,
and several contacts have pointed to the need for major
infrastructure investments in both Iran and Turkey to
transmit any substantial new quantity of gas to Turkey. No
progress has been made in gas negotiations with Azerbaijan.
According to MFA and Energy Ministry contacts, there was no
substantive discussion of gas during the December 25 visit of
Azeri FM Mammadyarov to Ankara. Convinced that the Azeris,
for non-commercial reasons, will not sign any agreement with
Turkey at this time, the GOT is looking for an alternative,
and the only Azeri bypass for Turkmen gas is through Iran.
End summary.


Turkmen Gas and Iran
--------------


2. (C) In a December 25 phone call, Turkmen President
Berdimuhamidov invited PM Erdogan to participate in the
opening ceremony for the Turkmen-Iran natural gas pipeline.
According to Berris Ekinci, head of the MFA Energy
Department, Berdimuhamidov expressed openness to exporting
gas to Turkey, but no concrete deals were discussed. Ekinci
said Erdogan stressed the importance of the new pipeline not
just for Iran but for Turkey and Europe, as well. According
to press reports, Erdogan specifically noted the line's
importance to Nabucco, and Berdimuhamidov also declared
support for the project and any route that would favor Turkey.


3. (C) Energy Minister Yildiz represented the GOT at the
January 6 pipeline opening ceremony. Yildiz met with
Berdimuhamidov, Iranian President Ahmadinejad, and the energy
ministers from both countries. In the press briefing
following the trilateral meeting of Yildiz, Berdimuhamidov,
and Ahmadinejad, Yildiz said progress was made in bringing
Turkmen gas to Turkey and noted that the parties discussed
supplying gas to the Nabucco pipeline as well as to Turkey's
domestic market.


4. (C) Ibrahim Arinc, an advisor who traveled with Yildiz,
said the outcome of the meetings was positive. He said
Turkmenistan had revised its gas contract with Russia from 80
billion cubic meters (bcm) to 30 bcm, releasing a significant
volume for export elsewhere. Arinc read this as a positive
sign that Turkmenistan is ready and willing to diversify its
exports. He said Turkey will pursue a deal with
Turkmenistan, as it pursues other sources in the region.
Arinc said that although the intention and will exist between
the parties, and the January 6 events were a good start, much
remains to be done before any deal can be finalized.


4. (C) One major issue is the infrastructure improvements
needed to move gas across Iran and through Turkey. OMV Turkey
General Manager Oktay Sen noted that, as disclosed in recent
press reports. BOTAS' infrastructure is inadequate to move a
large volume of gas from the Iranian border to central or
western Turkey. BOTAS will need to invest in new compressor
stations and pipeline upgrades, especially in the Eastern
Anatolia Transmission Line. Similarly, there are serious
investment requirements in the Iranian
Meshed-Gorgan-Ardabil-Tebriz line. Reha Muratoglu, head of
the MENR Pipelines Department, said Turkey has an existing
contract for 16 bcm of Turkmen gas, but the existing
infrastructure cannot handle that scale of increase.
Similarly, Emre Engur, head of the BOTAS Strategic
Development and International Projects Department, told us
significant infrastructure investment would be needed in both
Iran and Turkey to import Turkmen gas through Iran. He also
cautioned that discussions on importing Turkmen gas through
Iran also may be another message to Azerbaijan that Turkey
has alternatives in terms of both supply and transit routes,
arguing that Azerbaijan has long impeded the flow of Turkmen
gas through Azerbaijan because it would compete with Azeri
gas.

Azerbaijan Talks Remain Stalled
--------------


4. (C) Despite press reports this week alleging that BOTAS is

using figures of USD 230 to USD 399 per thousand cubic meter
for Azeri gas supplies in its formulas to determine the price
it will charge its domestic customers in 2010 (which would
imply a deal on price and payment of arrears since the price
negotiations began),Engur told us in some frustration that
no price agreement has been reached yet with the Azeris, and
that the press reports were "rampant speculation" about
domestic gas prices. He noted that Turkey bought Azeri Shah
Deniz phase I gas when demand was low at a price far higher
than what the Russians were offering, and now the Azeris
complain that Turkey got a sweetheart deal on price. The GOT
is totally disappointed with how the Azeris have handled the
negotiations. "We have a contract with a good price but,
based on GOT policies, we agreed to revise the price. If
they go to arbitration, they will lose."


5. (C) On December 25, Azeri FM Mammadyarov met with Turkish
FM Davatoglu in Ankara. At a joint press statement,
Mammadyarov said the two countries had a bright future ahead
of them in regard to joint work on energy. Davatoglu said
they had discussed Eurasian energy projects in the meeting
and reaffirmed the countries' commitments to working together
on these projects. MFA Energy Office Head Berris Ekinci told
us nothing specific to Shah Deniz gas was negotiated at the
ministerial level during the visit. She said MFA Deputy
Undersecretary Hakki Akil spoke briefly with SOCAR
representatives on December 25, but no significant
breakthroughs were made regarding Shah Deniz gas. Ibrahim
Arinc, advisor to Yildiz, also confirmed there has been no
significant movement in the negotiations recently. He added
that following the last meeting with the Azeris prior to
Erdogan's visit to Washington, Yildiz said he was now
convinced the reason underlying the Azeris reluctance to
reach an agreement was not commercial. Similarly, Muratoglu
said he has been involved in all the price negotiations with
the Azeris and had not heard of any new developments
following the foreign minister meeting.

Comment
--------------


6. (C) The GOT has long pursued an "all fronts" strategy in
its search for natural gas supplies, negotiating with all
available suppliers to meet its needs. While professing a
preference for Azeri gas, GOT interlocutors have long
maintained that they can get by without it. None of the
alternatives, however, are as certain or cheap as Azeri gas
would be. Yildiz's Turkmen gas talks are thus a warning to
Azerbaijan and a serious effort to get Turkmen gas. GOT
officials are convinced that the Azeris would never consider
allowing Turkmen gas to transit Azerbaijan until they reach
an agreement on Shah Deniz gas and transit, and the only
Azeri bypass for Turkmen gas is through Iran. End comment.
SILLIMAN

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