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P 051553Z OCT 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 3949
INFO RUCNCIS/CIS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0347
RUEHIT/AMCONSUL ISTANBUL 3385
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHDC
RUEUITH/ODC ANKARA TU
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 04 ANKARA 002491 
 
SIPDIS 
 
SIPDIS 
 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
EEB FOR A/S SULLIVAN 
EUR FOR DAS BRYZA 
SCA FOR MANN 
DOE FOR HEGBURG 
USTDA FOR DAN STEIN 
 
E.O. 12958: DECL: 10/04/2017 
TAGS: ENRG EPET XF XG ZK TU
SUBJECT: US EUROPEAN/CASPIAN/EURASIAN ENERGY STRATEGY 
 
REF: A. ANKARA 1785 
     ¶B. ANKARA 2273 
 
Classified By: AMBASSADOR ROSS WILSON FOR REASONS 1.4 (B) AND (D) 
 
¶1. (SBU) On September 20-22, Istanbul hosted a Eurasia 
regional energy Chiefs of Mission conference.  Participants 
included representatives from the supplier country posts of 
Ashgabat, Astana, Baghdad and Baku; posts in countries that 
are on key transit routes and/or are major buyers, including 
the Nabucco capitals, Berlin, Paris, Rome, Tbilisi, and 
others; Moscow; and USEU.  Washington policymakers who 
attended included E U/S Jeffrey, EEB A/S Sullivan, and senior 
officials from EUR, SCA, DOE, and other agencies and offices. 
 The goals of the conference were to gain a common 
understanding of the economics and politics of energy, and to 
develop new ideas and make recommendations for US strategy in 
this area.  The conference addressed five main topics:  gas 
supply, demand and transit, oil, and key regional and 
external actors.  This message summarizes key conclusions, 
recommendations and outstanding questions. 
 
Why We Care 
----------- 
 
¶2. (C) The conference opened with a discussion on US 
achievements, goals and objectives regarding Eurasian energy. 
 Participants identified four key US interests: 
 
-- Supporting the independence of the states of the former 
Soviet Union and the new EU members in East-Central Europe 
that remain heavily dependent for their economic well-being 
on Russian-controlled energy resources and means of supply. 
Russia's resurgence after the 1990s, its promotion in many 
cases of opaque business practices, and its aggressive 
attempts to dominate Eurasian markets and Central Asian 
supply give this special urgency. 
 
-- Support for Iraq's energy development and export 
connections to Europe can similarly improve its economic 
prospects and stimulate more European interest in its success. 
 
-- Supporting European energy security via additional and 
multiple sources of production and transit routes to bring 
that energy to the European marketplace and ensuring open, 
competitive markets for energy in Europe.  Engaging the EU 
and individual states in the sustainability and independence 
of the energy-affected states of the FSU and New Europe 
speaks to similar goals. 
 
-- Countering Iran's influence in the region, reducing the 
attractiveness of its gas and supporting US diplomacy to 
block investment there by promoting alternative energy 
sources in the Caspian Basin, Central Asia, Iraq and 
elsewhere. 
 
Key Conclusions 
--------------- 
 
¶3. (C) Participants agreed that the US and Europe today face 
challenges quite different from those 5-15 years ago when we 
worked to develop Kazakh and Azerbaijani energy and the CPC 
and BTC main oil export pipelines.  Now the focus is 
increasingly on gas.  New factors include the greater 
complexity of gas development and transit infrastructure 
finance that require long lead times to realize; the much 
larger number of players involved in the development and 
transit of Eurasian gas to market (as the range of COM 
conference participants demonstrated); Russia's resurgence; 
increased Chinese activity; and Iran's continuing efforts to 
develop and export its own gas. 
 
¶4. (C) There was recognition of Russia's importance to 
regional energy issues and complications that flow from that 
fact, but views among conference participants varied. 
 
ANKARA 00002491  002 OF 004 
 
 
 
-- Russia is ruthlessly competitive and it is little 
harnessed by checks and balances in the FSU and many New 
Europe states.  It continues to pressure Caspian Basin 
supplier countries not to send gas to Europe via non-Russian 
pipelines and has bullied Europeans, as well.  It is 
determined to maintain control of Turkmen gas exports, for 
example. 
 
-- Russian plans to build the Nordstream and South Stream gas 
pipelines directly into Europe and to invest downstream there 
demonstrate an unfettered sense of commercial opportunity 
that could transform into a worrisome political presence 
abroad.  Russia is using energy as a tool to continue to 
exert influence on former Warsaw Pact EU member states, whose 
dependence on Russian energy is double that 
of more diversified "Old Europe." 
 
-- While Russian behavior challenges our interest in 
supporting the former Warsaw Pact and USSR states and with 
regard to European energy security, Russia is and must remain 
a major supplier of energy to Europe for a long time to come. 
 Countering or excluding it as a major regional source of 
energy supply is neither practical nor realistic. 
Nevertheless, the US should continue pushing for alternative 
European sources of supply (including alternative fuels) and 
for competitive energy markets in Europe, avoid the 
appearance that we are trying to drive Russia out, encourage 
Russia/Russian firms to play by international rules, and 
maintain a frank, senior, and quiet dialogue with Russia on 
these matters.  Our public remarks should avoid the 
suggestion that US policy is this area is anti-Russian as 
this would feed Russia's sense of unwarranted encirclement 
and result in mainly negative reactions. 
 
¶5. (C) Gas Supply:  Regional gas reserves are plentiful, but 
extraction and delivery to market present complex problems. 
In the short term, there may be supply constraints because 
Russian commitments to deliver gas to Europe have not been 
matched by investment in upstream development.  Azerbaijan is 
committed to developing and exporting its gas to Europe 
(10-16 bcm by 2013-16) and to serving as a transit country; 
the commitments of Kazakhstan and especially Turkmenistan are 
less clear.  The time is right for more intense engagement 
with Turkmenistan, 
especially regarding upstream development.  Some 4 bcm of 
Western Iraq gas may be available for export via Syria to 
Turkey and Europe within two years, and Northern Iraq may 
have potential to export 8-10 bcm within several years. 
 
¶6. (C) Gas Demand:  By some estimates, gas demand in Europe 
will double by 2030.  European awareness of the security and 
economic importance of diversifying gas sources and routes is 
increasing.  However, EU and member state energy policies 
remain fractured.  EC energy strategy doesn,t address 
day-to-day calculations by member states, individual state's 
energy policies may actually hinder EU gas market 
competition, and countries and companies are making their own 
deals with Gazprom that defy Commission rulings. 
 
¶7. (C) Gas Transit:  We have made progress on non-Russian 
routes to Europe. 
 
-- The Azerbaijani government is committed to the Southern 
Corridor project.  Gas has begun to flow to Georgia and 
Turkey, and a symbolic amount will go to Greece this year. 
 
-- The Turkey-Greece interconnector will open this year, and 
a transit pipeline on to Italy should follow soon after. 
 
-- Achieving the full potential of these projects, as well as 
Nabucco and the Trans-Caspian Pipeline (TCP), is complicated 
by the number of countries involved, financing needs, lack of 
clear and commercially viable transit arrangements 
(especially through Turkey), Caspian delimitation, and other 
 
ANKARA 00002491  003 OF 004 
 
 
problems.  Increased US support is necessary to get completed 
soon the commercial and political arrangements required to 
realize these projects.  We need to encourage a simpler way 
to put Nabucco together and gain a better understanding of 
the complex, long-term financing that is required to make 
this deal work.  TCP depends on identifying reliable, 
long-term supplies of gas to fill a future pipeline, as well 
as on progress in Caspian delimitation, for which there is 
some hope. 
 
-- There are uncertainties about the sources of supply for 
Nabucco and the Turkey-Greece-Italy (TGI) pipelines and when 
those supplies will come on stream. 
 
¶8. (C) Oil:  Maximizing oil output and minimizing oil prices 
are in our national interest.  High volumes, especially of 
Kazakh oil, are set to come online soon, 
though Kashagan may face delay.  Continued Russian blockage 
of CPC expansion is raising the importance of the 
trans-Caspian shipment of Kazakh oil to Baku and onward 
across the Caucasus to the Black Sea or via BTC to the 
Mediterranean.  Bosporus bypass pipelines may become 
increasingly urgent as more oil comes into the Black Sea. 
Participants agreed that the market, not the USG, should 
drive decisions on bypass routes. 
 
Recommendations 
--------------- 
 
¶9. (C) Chiefs of Mission identified a number of 
recommendations to bolster the effectiveness of US energy 
policy and efforts in the region, starting with the need for 
greater prioritization among our energy goals in the region. 
Other recommendations include the following. 
 
-- With all the countries involved, the US needs more 
dedicated engagement at a senior level to leverage 
step-by-step progress and the resolution of problems. 
Regional leaders need an unequivocal sign of high-level US 
commitment to next-phase Caspian development. 
 
-- Focus on upstream development in Turkmenistan by working 
with the government, American and other private developers 
and helping the Turkmen address key investment climate 
issues.  Work intensively with Turkmenistan, Azerbaijan and 
the private sector to signal that there is a way forward on a 
trans-Caspian gas pipeline. 
 
-- Get completed gas transit arrangements between Azerbaijan 
and Turkey, which are essential for Turkey-Greece-Italy gas 
flows and Nabucco. Participate at a senior level in the 
Turkey-Greece interconnector opening ceremony later this year 
to highlight progress. 
 
-- Continue US-Turkey-Iraq trilateral efforts to promote 
cooperation on gas and gas trade.  Explore using the November 
2007 Iraq ministerial in Istanbul and 
visit later that month to Turkey by Energy Secretary Bodman 
to advance this dialogue.  Promote Iraq with the Europeans as 
a source for energy diversity that would also give the 
Europeans a more direct stake in Iraq,s future. 
 
-- Increase US engagement with the EU and EC on energy.  Get 
them more engaged with Caspian Basin supply countries, 
transit countries and "New Europe" on energy issues and 
cooperation.  For example, the proposed trilateral 
US-Ukraine-EU dialogue would focus Europeans on energy 
security and gas transit issues. 
 
-- Support the Kazakhstan Caspian Transit System to bring 
large new Kazakh oil volumes to market via Baku to the Black 
or Mediterranean Seas.  Support the expansion of CPC and BTC. 
 
Resource Requirements 
--------------------- 
 
ANKARA 00002491  004 OF 004 
 
 
 
¶10. (C) To expand on the first recommendation above, 
conference participants believed that more dedicated 
diplomacy is required for US efforts to succeed.  Energy 
issues are central to our foreign policy; our staffing and 
support of this function need to reflect that more. 
Participants proposed the following: 
 
-- Creation of a dedicated, senior-level Eurasian energy 
envoy whose job it would be to engage with the leaders and 
countries of the region and with American and other private 
firms to advance the US energy agenda on a more intensive and 
sustained basis than present staffing permits. 
 
-- Creation of an energy office at State to support the envoy 
and posts overseas.  It would assist in coordinating our 
Eurasian energy diplomacy and provide expertise on such 
issues as production-sharing agreements, pipeline financing, 
delimitation of the Caspian, etc., so that our posts can 
engage on these issues more effectively. 
 
-- Revision of FSI's Oil and Gas Course to focus less on 
extraction technologies and more on the politics and 
economics of upstream, midstream and downstream oil and gas 
development, the major energy players and current US energy 
policy. 
 
-- Revival of the annual Eurasian energy officers conference, 
which Embassy Sofia offered to host in December to ensure 
effective coordination in developing and 
implementing US energy strategy regionally. 
 
Policy Questions 
---------------- 
 
¶11. (C) Participants identified several key issues on which 
views were mixed, where trade-offs and choices may be needed, 
and/or where US policy decisions may be necessary. 
 
-- Nabucco:  What are our priority countries for gas supply? 
Knowing that Azerbaijan can supply the first tranche may not 
be enough to make the deal work.  If Iran joins Nabucco, how 
will the US distance itself from the project?  What is our 
view on Russian participation in Nabucco?  Is there more to 
be gained by bringing the Russians in, including as a way to 
foster their greater conformity to Western business practices? 
 
-- TGI vs. Nabucco:  Is there enough gas for both Nabucco and 
TGI?  If there is not, should we choose one project?  Or do 
we leave picking winners and losers to the market, 
recognizing that the economics of gas could very 
substantially delay the loser or force it toward Iran? 
 
-- Iraqi Gas and Syria:  What is our position on Iraqi gas 
transit thru Syria to Turkey and Europe? 
 
-- Turkmen Gas to China:  Should we encourage Turkmen exports 
to China?  China may spur upstream development and diversify 
Turkmenistan's markets, but large-scale exports to the east 
may come at the expense of gas for Europe.  How far east 
should the East-West corridor go? 
 
¶12. (C) COM conference participants agreed that timing is 
key.  Critical political and commercial arrangements to 
support diversified sources of energy, especially gas, need 
to be put in place soon.  This post and others that 
participated look forward to hearing Washington's views soon 
on next steps to intensify 
our Eurasian energy efforts as soon as possible. 
 
 
Visit Ankara's Classified Web Site at 
http://www.state.sgov.gov/p/eur/ankara/ 
 
WILSON