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FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 7958
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUEHIT/AMCONSUL ISTANBUL 1093
RUEHNO/USMISSION USNATO 5089
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEHBS/USEU BRUSSELS
RUEKJCS/SECDEF WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 004728 
 
SIPDIS 
 
SIPDIS 
 
DEPT ALSO FOR EUR MATT BRYZA 
 
E.O. 12958: DECL: 08/13/2016 
TAGS: ENRG EPET PREL TU AZ GR RU
SUBJECT: TURKEY AND MAKING PROGRESS ON THE SOUTHERN GAS 
CORRIDOR 
 
REF: A. BAKU 1193 
 
     ¶B. ATHENS 2078 
     ¶C. ANKARA 4241 
 
Classified By: ECONOMIC COUNSELOR THOMAS GOLDBERGER FOR REASONS 1.4 (B 
AND D) 
 
¶1.  (C) SUMMARY: In August 8 meetings in Ankara with State 
Department (S/P) energy advisor Steve Hellman on southern 
energy corridor issues, Turkish officials made clear that 
they were not insisting on a role for Turkey as market 
&consolidator8 that would buy natural gas produced in 
Azerbaijan for resale to end-users in southern Europe via the 
Turkey-Greece Interconnector (TGI) gas pipeline.  Turkish 
officials are open to a more traditional fee for transit 
arrangement, providing that Turkey receives what it believes 
is a fair deal, which would in turn require commercial 
negotiations with all the parties to the arrangement.  They 
would also be prepared to accept USTDA assistance in 
identifying suitable models, such as the U.S. Henry Hub, for 
developing Turkey,s potential as a gas distribution hub.  At 
the same time, BOTAS officials claim that the Turkey link to 
the South Caucasus Pipeline terminating in Erzurum will be 
completed befre the end of the year, and that TGI 
construction is similarly on track.  Russian pressure on 
Turkey to accept Russian gas to fill the TGI also continues, 
with a Gazprom team expected in Turkey August 15.  It is 
therefore important that we continue to work behind the 
scenes to bring together TGI partners to agree in the short 
term on a symbolic agreement to transit Azeri gas to Greece. 
End Summary. 
 
------------------------------------ 
The Message ) Establish Transit Deal 
------------------------------------ 
 
¶2.  (C) Hellman emphasized the shared U.S. and Turkish goal 
of facilitating southern egress of Caspian gas to Turkey and 
on to Europe.  This would increase competition and security 
of supply by diversifying sources of supply and lessening 
reliance on Russia,s Gazprom as single dominant supplier. 
He called for Turkey to send a clear signal that it is &open 
for business8 by quickly facilitating a symbolic direct 
contract between Greece and Azerbaijan for provision of gas 
through the Turkey-Greece Interconnector (TGI) based on a 
transparent transit arrangement with and fees to Turkey per 
international norms.  He said this would counter perceptions 
that Turkey aimed to act like Gazprom, buying and re-selling 
as a &consolidator.8  Hellman stressed that this would 
immediately show Turkey,s willingness to serve as a key 
transit network with a clear transit regime.  Moreover, he 
suggested that the U.S. &Henry Hub8 could serve as a model 
for a transit system in Turkey and offered the assistance of 
USTDA in familiarizing Turkish officials with the Henry Hub. 
 
------------------------------- 
We Support the Corridor, But... 
------------------------------- 
 
¶3.  (C) Energy Ministry (MENR) U/S Sami Demirbilek agreed in 
principle, but said Turkey needed to better understand the 
plans and intent of Azerbaijan, Greece, Italy, and the 
consortium before it could clearly identify its transit 
regime.  In order for Turkey not to be taken advantage of, 
Demirbilek thought there needed to be some sort of overall 
and simultaneous commercial agreement among all parties.  He 
rejected as false the &rumor8 that Turkey intends to be a 
consolidator or monopolist.  He attributed the rumor to: 1) 
Azerbaijan showing some hesitation on following through with 
providing gas at agreed prices (facing Russian threats on 
supply and pricing), and 2) confusion with Turkey,s separate 
efforts to slow down a deal between Austria,s OMV and Iran 
on gas for Nabucco by inserting Turkey into the deal. 
Demirbilek said Turkey would do its best to make a deal with 
Azerbaijan and the others, and Hellman offered to facilitate 
a meeting of the key partners to reach agreement for TGI. 
Demirbilek also said he would be happy to learn more about 
the Henry Hub. 
 
--------------------------------- 
Nabucco Challenges ) OMV and Iran 
 
ANKARA 00004728  002 OF 003 
 
 
--------------------------------- 
 
¶4.  (C) Demirbilek was highly critical of Austrian OMV,s 
&greedy8 and ill-advised efforts to strike a direct deal 
with Iran using the Nabucco pipeline, but without talking to 
Turkey about transit.  He cited Turkey,s own problems with 
Iran, which put in question Iran,s reliability as a 
supplier.  In response to the direct talks between OMV and 
Iran, he said Turkey had insisted on creation of a joint 
stock company with Turkish participation that would negotiate 
with Nabucco suppliers.  Demirbilek lamented that Turkey,s 
reasonable concerns about Nabucco and OMV have created the 
false impression that Turkey aims to act like a monopolist in 
the case of TGI. 
 
------------------------------------------- 
BOTAS Ready to Play ) Claims on Time on SCP 
------------------------------------------- 
 
¶5.  (C) In an earlier meeting, BOTAS Acting DG Saltuk Duzyol 
told Hellman that BOTAS supported a fee for transit 
arrangement, but deferred to the MENR for a political 
decision.  Duzyol and his assistant Sakir Arikan were adamant 
that BOTAS would complete the Erzurum link to the South 
Caucasus Pipeline (SCP) by October-November, just within the 
contractual window.  Arikan strongly criticized SCP 
Consortium David Woodward,s public claim that BOTAS was 
facing a &considerable delay.8  Noting that the project had 
been started late, but was being completed at a cost of 
one-fifth of what BP would spend, Arikan said that a 2-3 
month delay was entirely reasonable for a project of this 
scale. 
 
¶6.  (C) The BOTAS officials said that the TGI had overcome 
some delays in both Turkey and Greece and they expected to 
complete the last hurdle of the Meric River crossing and 
achieve TGI completion by March 2007.  The BOTAS officials 
said that there was plenty of additional capacity in the 
BOTAS grid to transit the 11 BCM contemplated for the full 
capacity TGI when ultimately linked to Italy.  Sarikan noted 
that with investment in looping and compressors, BOTAS had 
significant additional capacity, but claimed that the number 
is commercially sensitive because of the current Nabucco 
negotiations.  Duzyol was enthusiastic about the approximate 
5 BCM of Egyptian gas which he said would begin flowing to 
Turkey in 2008. 
 
----------------------------------- 
Statoil Bearish ) but Ready to Help 
----------------------------------- 
 
¶7.  (C) In a separate meeting, Statoil Turkey Manager Per 
Myrvang told us that he had been prepared to approach Turkey 
on behalf of the SCP-Shah Deniz consortium, but had held off 
because of all the noise and uncertainty about Turkey,s 
intent on a transit arrangement.  He said that the Azeris 
were under extreme pressure from the Russians, who were 
threatening to reduce in kind any amounts sold (cheaply per 
the contract) to Turkey with much higher priced (o/a $200) 
gas.  Mryvang said that Energy Minister Hilmi Guler was the 
sole decision maker on gas issues and thought that there were 
still people around him pushing for the scheme of hub as 
consolidator.  (Corroborating this, one of Guler,s senior 
advisors separately presented Energy Officer with a detailed 
scheme for an Ankara &Ahiboz8 hub with &Ahiboz up8 and 
&Ahiboz down8 pricing.)  Mryvang observed that Turkey was 
no longer over-contracted for gas, so Turkey, Azerbaijan, and 
Georgia would have to work out whose gas initially goes on 
the Greece.  Mryvang said that Statoil was prepared to play a 
commercially facilitative role for the EU where it had a lot 
of contacts and experience in marketing gas.  He thought that 
the EU competition rules proscribing joint marketing of gas 
could be overcome, maybe by SOCAR doing the marketing. 
 
--------------------------- 
Russian Blue Stream and LNG 
--------------------------- 
 
¶8.  (C) Seeking to creatively help Turkey meld its positive 
east-west vision with Russian ambitions to expand Blue Stream 
as part of a north-south corridor, perhaps linked to Israel, 
 
ANKARA 00004728  003 OF 003 
 
 
Hellman asked Turkish officials about potential to use the 
existing BOTAS grid and the unused Izmir gas processing 
facility, investing in it as a brown-field conversion to an 
LNG exporting facility.  Both BOTAS and MENR were reserved 
about this idea, and skeptical that the Russians would be 
interested.  They were interested in the notion of LNG export 
to the U.S., but reverted to the standard dream of Ceyhan as 
the energy hub of choice, noting the potential for Iraqi gas 
to be processed there. 
 
----------------------------------------- 
Comment and Next Steps ) Russian Pressure 
----------------------------------------- 
 
¶9.  (C) Embassy will work Hellman,s themes with MFA 
(unavailable during the Hellman visit) and MENR, particularly 
to gauge the support of Minister Guler.  If it is clear that 
Minister Guler is supportive, the USG should seek to 
facilitate a negotiated agreement between Turkey, Azerbaijan, 
and perhaps Greece.  Embassy will work with TDA to explore 
support to Turkey on a Henry Hub type approach; i.e. 
implementing a &hub8 in a good way (transparent transit 
regime in accordance with international norms, vice a Gazprom 
approach).  Henry Hub is a physical pipeline node and a 
pricing point, but it clearly embodies a transparent, 
facilitative transit approach. 
 
¶10.  (C) Turkish press reports that Gazprom comes to Turkey 
on August 15.  There may be danger of a &grand bargain8 
trading Russian support for the Turkish Samsun-Ceyhan oil 
pipeline in exchange for more Gazprom gas in Turkish 
pipelines, potentially transiting onwards.  At the same time, 
Turkish officials are loathe to give up too much or fear 
leaving too much on the table in establishing Turkey,s 
energy hub and transit approach.  Therefore, it will be 
important that we continue to work behind the scenes to bring 
all the parties together, most likely starting with an 
Azeri-Turkish meeting to dispel misunderstandings and reach 
agreement on a transit regime. 
 
Visit Ankara's Classified Web Site at 
http://www.state.sgov.gov/p/eur/ankara/ 
 
WILSON