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

UNCLAS SECTION 01 OF 03 ANKARA 001306 
 
SIPDIS 
 
SENSITIVE 
 
NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR CHUCK WASHINGTON 
 
E.O. 12958: N/A 
TAGS: ENRG EPET TU
SUBJECT: TURKEY: BP TIES UP LOOSE ENDS WITH GOT 
 
REF: A. ANKARA 703 
 
     ¶B. ANKARA 566 
     ¶C. ANKARA 131 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU) SUMMARY: BP has engaged in a recent flourish of 
outreach to Turkey.  With the BTC consortium having agreed to 
cover cost over-runs in Turkey, BTC remains on track for 
first oil at Ceyhan at the end of September.  BP and the GOT 
will then turn attention in Turkey to the Shah Deniz gas 
pipeline.  While the GOT is perceived as better managing 
Turkish Straits traffic, there seems to be a growing industry 
consensus on the need for a bypass.  End Summary. 
 
BP Will Cover Over-runs 
----------------------- 
 
¶2.  (SBU) According to Turkey and Azerbaijan - based BP 
officials, the BTC consortium has agreed to extend loans of 
$160 million to BOTAS to cover cost overruns on BTC 
construction in Turkey.  The loans would be repaid from 
future cash flow from the project and are intended to avoid a 
sensitive call on the GOT Treasury guarantee to cover costs 
over the fixed price construction contract.  This apparently 
resolves a brewing dispute with the GOT over responsibility 
for the over-runs (Ref B), which had the potential to mar the 
good feeling surrounding BTC opening later this year. 
 
First Tanker Load at Ceyhan at End of September 
--------------------------------------------- -- 
 
¶3.  (SBU) BP officials confirmed that BTC was on track for 
first tanker loading at Ceyhan at the end of September.  BP 
Azerbaijan President, David Woodward, told the Ambassador 
February 28 that BP had worked closely with BOTAS to work out 
problems with construction subcontracts for troubled Lots A 
and B (Ref C).  Whereas BOTAS had taken over the subcontract 
from Turkish firm TEPE in Lot A - adjacent to Georgia (TEPE 
is still taken care of pumping stations), more recently 
surfacing commercial problems in the Lot B sub-contract with 
Turkish firm Alarko were being handled with closer 
intervention by BOTAS.  Woodward added that BOTAS' actually 
taking over the additional contract might have gone beyond 
BOTAS' capacity.  The remaining Lot C and the Ceyhan port 
facility are very close to completion.  Woodward stated that 
the Turkish pipeline would be ready to start filling at the 
end of June. 
 
¶4.  (SBU) Turning to the upstream end, Woodward said that 
Azerbaijan offshore production had commenced.  Noting that 
the Azerbaijan portion of BTC would be ready at the beginning 
of May, he said that existing pipelines would be used in the 
meantime for transport of product.  Woodward lamented 
extensive sub-contractor woes in Georgia, but observed that 
they had worked through claims and the pipeline would be 
ready at the Georgian border with Turkey around the end of 
May. 
 
Other Oil and Gas 
----------------- 
 
¶5.  (SBU) Woodward also noted positive discussions with 
Kazakhstan on arranging egress of Kashagan crude oil via 
Aktau to Baku, initially by tankers.  He stated that BTC 
capacity could almost be doubled by 2012, using drag reducing 
agents and incremental pumping stations to accommodate 
increased oil.  Woodward also noted that construction had 
started on the South Caucasus (Shah Deniz) natural gas 
pipeline, which is planned to run parallel to BTC.  He 
anticipated that construction would be complete to the 
Turkish border by the end of 2005, and ready for first gas 
flow in 2006.  The BP official stated that there would be 
plenty of time for Turkey to complete its portion from the 
border to connect to the Turkish grid at Erzurum, noting that 
Turkey would be able to use BTC construction camps and 
facilities. 
 
Wildcat Drilling in the Black Sea 
---------------------------------- 
 
¶6.  (SBU) On exploration in Turkey, BP officials said that BP 
aimed to start exploratory drilling in the eastern Black Sea 
in June using a rig leased from the American company Santa 
Fe.  They noted that there was favorable geology on both 
sides of the maritime border between Georgia and Turkey where 
BP had garnered drilling rights from both countries.  While 
Woodward commented that the two countries had not yet 
mutually recognized their deep sea border, he expected that 
this would be worked out and would not affect development. 
He expected initial results from the drilling later in the 
summer, noting that this well was a "wildcat" in that it was 
new territory.  Woodward admitted that success in exploration 
here would provide increased impetus for a Bosphorus bypass. 
 
Bosphorus Bypass 
---------------- 
 
¶7.  (SBU) Turkish MFA Energy and Water DDG Mithat Rende 
confirmed recent positive discussions between TNK-BP and GOT 
officials (Ref A) on Bosphorus bypass options.  GOT and most 
oil shippers perceive that Turkish Straits are at capacity - 
2004 shipping is marginally higher than 2003 at 2.1 million 
bpd (2.8 million bpd including refined and related products) 
- and acknowledge the need for a bypass.  Rende pointed out 
that this was contrary to the views of some other Russian 
companies, which have focused only on cheapest route. 
Various oil companies and shippers have told EconOff that 
after over a year of using new VTS (Vessel Tracking System) 
technology, GOT has made great progress in safely and 
efficiently managing traffic, but there was room for 
additional improvement in straits management.   Mithat Rende 
expressed concern that the number of tankers had grown to 
9,399 in 2004, reflecting more tankers less than 200 meters 
long, and potentially posing greater risk.  Rende was 
positive on both BP and ChevronTexaco's serious pursuit of 
Bosphorus bypass options.  However, he emphasized that 
companies needed to look at all options, including 
trans-Thrace routes.  Rende described GOT concerns about the 
Burgos-Alexandropolos route under consideration by TNK-BP, 
emphasizing environmental and large tanker access concerns. 
Rende repeated the long-standing GOT position that a 
Samsun-Ceyhan bypass would be the best option, but stated 
that the project would have to stand on its own commercial 
merit.  He asserted that the market could eventually support 
two different bypass projects: one each for Kazakhstan and 
Russia sourced crude oil. 
 
Energy Dialogue 
--------------- 
 
¶8.  (SBU) Mithat Rende expressed strong support for building 
the U.S. Turkey Energy Dialogue, but emphasized the need for 
both GOT MFA and U.S. State Department to be closely involved 
- along with the Energy Ministries - under the umbrella of 
the Economic Partnership Committee.  Rende said he got a 
positive read-out from Ambassador Akinci's recent visit to 
Washington, including his meetings with Ambassador Mann and 
DOE DAS Brodman.  He said both sides expressed strong support 
for Turkey as an energy hub.  Rende said they shared U.S. 
concern about Gazprom acquiring the natural gas network in 
Georgia, as part of an overall concern about the risk of 
monopolies in the region.   He said he would be willing and 
able to travel to Washington this year if it would help 
facilitate the bilateral energy dialogue. 
 
Comment 
------- 
 
¶9.  (SBU) BP officials (from Istanbul, Baku, and Moscow 
TNK-BP) have been actively soliciting meetings with the 
Embassy in the count-down to first oil at Ceyhan and to 
promote the full range of BP activities in Turkey and the 
region.  Given the scale and complexity of the three-country 
BTC construction project, everyone will be happy to declare 
victory with oil flow at the outlet sometime in fourth 
quarter 2005.  In the meantime, the date for celebration in 
Ceyhan is not yet fixed. 
EDELMAN