This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002721 
 
SIPDIS 
 
 
STATE ALSO FOR EUR/SE AND EB/CBED 
 
 
E.O. 12958: DECL: 05/12/2014 
TAGS: ECIN ENRG EPET ETRD SENV TU
SUBJECT: TURKEY AS THE HUB IN THE EAST-WEST ENERGY CORRIDOR 
-- A PROGRESS REPORT 
 
REF: A. ANKARA 1160 
     ¶B. BAKU 760 
     ¶C. ANKARA 1061 
 
 
(U) Classified by Econ Counselor Scot Marciel for reasons 1.4 
(b) and (d). 
 
 
¶1.  (SBU) Summary: Turkish officials say they continue to 
strongly support the East-West Energy Corridor and are 
positioning Turkey to become the transit hub for Caspian and 
Middle East natural gas to Europe.  Turkey is pushing two 
pipeline projects to export gas to Europe and exploring 
options for new supply sources.  MFA DDG for Energy Hakki 
Akil stressed that European companies were eager to buy gas 
from Iran, and urged the U.S. to work with Turkey on 
developing alternatives supply sources, such as Turkmenistan. 
 End Summary. 
 
 
BTC 
--- 
¶2.  (SBU) In recent months, BOTAS has taken a number of steps 
to get construction of the Turkish portion of the pipeline 
back on schedule, and its efforts appear to be paying off. 
MFA DDG for Energy Hakki Akil told us that the most 
problematic stretch in the north will be back on schedule by 
July.  BTC CEO Michael Townshend told Ambassador Edelman May 
7 that he is much more optimistic about BOTAS getting back on 
schedule.  He said a series of meeting among the BTC partners 
was "an eye-opening experience for BOTAS," which has adopted 
a better attitude about its responsibilities to complete the 
project on time.  BOTAS Managing Director Bilgic told us that 
BOTAS had been acting like a client rather than a partner 
(ref a).  Townshend said pipelaying operations look to be 
completed on schedule, but there remain some concerns about 
completing the four pump stations along the Turkish route. 
He also said that Turkey has not adequately trained the 
jandarma (federal police), who will provide security for the 
pipeline. 
 
 
Natural Gas Pipelines 
--------------------- 
¶3.  (SBU) Drawing on concerns voiced by Azeri Presidential 
Energy Advisor Asadov (ref b), Econ Counselor asked Akil 
about Turkey's support for pipeline projects to transport 
Caspian gas to Europe.  Akil responded that the government's 
support remains strong as evidenced by Turkey's role in 
promoting two gas pipelines to Europe -- the Turkey-Greece 
Interconnector, which could include an extension to Italy, 
and the Nabucco project to bring gas from Turkey through 
southeast Europe to Austria.  Akil pointed out that these 
projects could provide Europe with important alternatives to 
Russian gas, up to 30-35 bcm gas per year. 
 
 
¶4.  (U) Turkey and Greece signed a Sales and Purchase 
Agreement in December 2003 calling for initial deliveries of 
750 mcm beginning in 2006.  But Turkey hopes to increase gas 
throughput to 11 bcm and is supporting the efforts of Greek 
national gas company DEPA and Italy's Edison Gas to build an 
extension to Italy. 
 
 
¶5.  (U) The Nabucco Project would provide a second branch of 
the East-West Energy Corridor to Europe.  In 2002, BOTAS 
agreed with OMV of Austria, MOL of Hungary, Transgaz of 
Romania, and Bulgargaz of Bulgaria to explore building a gas 
pipeline complex from Turkey to Baumgarten, Austria -- an 
important natural gas hub into the main European lines.  The 
partners project that Europe will need between 25 and 30 bcm 
from the pipeline when it is completed in 2009. 
 
 
¶6.  (SBU) Turkish officials tell us they want Turkey to be an 
energy hub, providing a fourth supply route (after North Sea, 
Russia and North Africa) for natural gas to Europe.  However, 
Demirbilek said Turkey is still pondering what kind of hub to 
become.  In the case of Greece, Turkey operates as a 
wholesaler -- Greece will buy its natural gas from Turkey. 
In the case of the Nabucco pipeline, the partners will 
operate as transit countries.  European gas companies will 
contract directly with source countries like Azerbaijan and 
Iran, and pay Turkey and the other partners a transit fee. 
 
 
¶7.  (C) Our GOT contacts identified some obstacles to 
Turkey's goal to become an energy hub.  Although Turkey 
currently has an oversupply of natural gas, Akil said Turkey 
will need to find additional sources of natural gas to fill 
the combined demand of the Greece/Italy and Nabucco 
pipelines, which he estimated at 30-35 bcm/year.  Energy 
experts expect Turkey's energy consumption to increase 
significantly in the coming decade.  Natural gas will grow 
fastest as more cities connect to the gas grid, reducing the 
widespread practice in Turkey of burning very dirty lignite. 
Akil pointed out that most of the new supply from Shah-Deniz 
will be used to satisfy this growing demand, leaving about 
2-3 bcm available for export.  He added that European gas 
companies are very interested in the prospect of buying gas 
from Iran, and suggested that Turkey will have a hard time 
opposing that pressure unless it can offer better 
alternatives.  He said Turkey wants to explore feeding 
Turkmen gas into the Shah Deniz pipeline, and urged the U.S. 
to consider working with Turkey to promote this option. 
Energy U/S Demirbilek said Turkey is looking at other 
longer-term options, such as gas from Iraq, Syria, Qatar and 
Egypt. 
 
 
¶8.  (SBU) Demirbilek cautioned that Turkey needed to "get its 
domestic market in order" before it could enter into new 
export obligations connected to these projects.  He said 
Turkey's Gas Market Law, which mandated the break-up of 
BOTAS's monopoly over natural gas, was impractical because no 
one could figure out how to unbundle state-to-state 
take-or-pay agreements.  The implication was that this 
situation creates uncertainty about the future energy mix and 
demand in Turkey and about who will have the authority to 
enter into new supply contracts.  Demirbilek wants BOTAS to 
remain the principle importer and exporter of natural gas; 
the Ministry has proposed appropriate amendments to the Gas 
Market Law. 
 
 
Bypasses 
-------- 
¶9.  (SBU) Closely related to the pipelines issue is rising 
oil tanker traffic bringing Russian and Caspian crude through 
the Turkish Straits to world markets.  Turkish officials 
assert that traffic through the Straits is near its maximum 
safe level and are exploring options to encourage diversion 
of some of the oil through bypass pipelines.  Last year, for 
example, the MFA asked for U.S. support to stop the GOU from 
agreeing to reverse the flow of the Odesa-Brody pipeline. 
Several bypass options have been proposed, including two in 
Turkey -- the first crossing Thrace west of Istanbul, and the 
second running from the Black Sea port of Samsun to central 
Turkey, where it will connect to an existing pipeline to the 
port of Ceyhan.  The Thrace option appears to be the first 
out of the gate, but the Turkish government has held up a 
license to allow the company to proceed. 
 
 
¶10.  (C) In parallel, the MFA has been exploring with oil 
companies an agreement on Voluntary Principles, in which all 
the shippers would agree to use existing bypass pipelines and 
support construction of new bypasses to avoid further 
increases in Straits traffic.  Akil said several of the oil 
companies have voiced support for the idea.  However, Kjell 
Landin of Chevron-Texaco told us that, while several western 
oil companies have expressed support, in private they are 
reluctant to sign.  He pointed out that Akil has not received 
support from the Russian shippers, which operate the most 
dangerous vessels.  He said the Russians will be happy to see 
their western competitors bear the extra cost of using a 
bypass pipeline, freeing up more space for the Russian 
companies to use the less costly Straits. Landin added that 
the western companies are also concerned that although the 
Voluntary Principles would apply only to the special case of 
the Bosphorus, there would be heavy pressure to assume these 
standards for their operations world-wide, raising their 
operating costs. 
EDELMAN