VZCZCXRO7180
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHAK #6079/01 2961123
ZNY CCCCC ZZH
R 231123Z OCT 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 9569
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKB/AMEMBASSY BAKU 1416
RUEHSI/AMEMBASSY TBILISI 3067
RUEHAH/AMEMBASSY ASHGABAT 1914
RUEHBS/USEU BRUSSELS
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/NSC WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 006079 
 
SIPDIS 
 
SIPDIS 
 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
DOE FOR CHARLES WASHINGTON 
EUR ALSO FOR MATT BRYZA 
S/P FOR STEVE HELLMAN 
 
E.O. 12958: DECL: 10/23/2016 
TAGS: EPET ENRG EINV PREL TU GG AZ
SUBJECT: TURKEY VIEWS ON GAS POTENTIAL FROM CASPIAN 
 
 
Classified By: AMBASSADOR ROSS WILSON FOR REASONS 1.4 (B,D) 
 
¶1.  (C)  Summary: Using the opportunity of Senior Energy 
Analyst Bud Coote's briefing to Energy Minister Hilmi Guler 
on Caspian oil and gas potential, Ambassador and S/P Energy 
Advisor Steve Hellman advanced southern gas corridor 
diplomacy.  The Minister thanked Coote for clarifying what 
quantities of Azerbaijan and Caspian hydrocarbons may be 
potentially available for export to Europe via Turkey. 
Hellman - again - urged Turkey and Azerbaijan to meet ASAP to 
reduce uncertainty in the face of Russian pressure to stifle 
Azerbaijan's contractual export of cheap Shah Deniz I volumes 
to Georgia and Turkey.  In addition, he urged the two 
countries and Georgia to meet soon to work together on 
meeting short-term winter needs and to reach a common 
approach for Shah Deniz I until Azerbaijan reaches gas 
independence and a reduction in Russian leverage.  With 
respect to Turkey's long sought multi-lateral southern 
corridor meeting for all actors to lay out their plans, 
Hellman said the IEA convened meeting would be postponed to 
January to allow appropriate preparations for a successful 
meeting.  Turkey is well aware of Moscow's pressure on 
Azerbaijan and Georgia.  In a side conversation with 
Ambassador, Guler said Turkey is very worried about Russian 
behavior and its short- and long-term implications.  He 
appealed for U.S. leadership and help.  End Summary. 
 
--------------------------------------------- ------- 
Azerbaijan's Gas Potential - Catalyzing the Corridor 
--------------------------------------------- ------- 
 
¶2.  (C)  Senior Energy Analyst Bud Coote gave two separate 
briefings on Azerbaijan and Caspian hydrocarbon potential: 
one for the Minister and senior staff and another for a 
larger inter-agency group of fifteen officials, including 
state pipeline company BOTAS and state oil company TPAO. 
TPAO Azerbaijan Projects Manager Tayfun Uzucu protested that 
Coote's (upside case) numbers for Azerbaijan reserves and 
production were overly optimistic.  Hellman urged Turkey and 
TPAO to be more active in upstream oil and gas development, 
including Iraq and Turkmenistan, where Turkey would have 
greater linkages. 
 
¶3.  (C)  The Minister noted many obstacles to realization of 
the southern gas corridor: Gazprom's close relationship with 
Germany and Hungary; Gazprom's divide and conquer strategy 
with other Europeans, who lack common approach and 
initiative; European dalliance with Iran; and Italy's links 
with Blue Stream, to name a few.  However, he noted that 
Coote's presentation was effective in lessening one 
previously identified obstacle: doubts about Azerbaijan's 
potential as a source of supply.  Coote observed that Shah 
Deniz Phase II potential would be clearer with completion and 
analysis of the exploratory-appraisal SDX4 well, currently 
underway. 
 
---------------------------------------- 
Turkey is Open for Business - Next Steps 
---------------------------------------- 
 
¶4.  (C)  The Minister called for the USG to be more visibly 
"present" and supportive of both a Bosphorus bypass and the 
southern gas corridor; i.e., active, not just an observer. 
He asked for a written proposal from the USG depicting an 
effective transit regime for Turkey.  Hellman promised to 
provide this and called for Turkey to show that it is "open 
for business."  One way to do this is for Turkey and 
Azerbaijan to meet soon to reach agreement short term on 
approach on Shah Deniz Phase I and longer term to establish 
an IGA for transit of Shah Deniz Phase II gas volumes, 
ultimately allowing Azerbaijan to strike a direct deal with 
Greece.  Hellman stressed that this would show a clear signal 
to producers, consumers, and investors that Turkey was 
serious and not seeking to obstruct the corridor by buying 
and re-selling gas.  Moreover, he stated that the market 
needed to Turkey to act as a leader in advancing the southern 
corridor. 
 
¶5.  (C)  The Minister and Energy U/S Demirbilek were quite 
 
ANKARA 00006079  002 OF 003 
 
 
clear that Turkey does not seek to act like Gazprom; it wants 
knowledge of price of transited volumes and it wants a stake 
in the business.  Stressing that Turkey was not greedy, they 
argued that Turkey could not just be the chauffeur; it needed 
some of the tangible and intangible benefits.  Demirbilek 
gave the example of BTC where Turkey had a 6.5% share through 
TPAO.  Hellman repeated the USG offer to join bilateral or 
trilateral meetings if that would be helpful.  He told the 
Minister that Azerbaijan had been slow in responding to 
Turkey's invitation to MOF Sharifov, because it is not sure 
what it wants to say. 
 
--------------------------------------------- ------ 
IEA Convened Multi-lateral Working Group - and Iraq 
--------------------------------------------- ------ 
 
¶6.  (C)  Hellman informed the Minister that the IEA convened 
multi-lateral southern corridor working group would be 
postponed to January to allow time to adequately prepare and 
to assure a successful outcome.  He again urged that Turkey 
and Azerbaijan meet in advance of this meeting. 
 
¶7.  (C)  We informed the Minister that we were working on 
creating a U.S.-Turkey-Iraq gas working group.  The early 
November Turkey-Iraq Joint Economic Commission did not seem 
to be the appropriate venue, so we would work on a 
stand-alone meeting of experts, perhaps in Istanbul, and 
perhaps including U.S. energy experts based in Baghdad. 
Given the positive reaction to the Coote briefing, another 
idea would be bringing an energy analyst to give a briefing 
on Iraq oil and gas potential. 
 
----------------------------------- 
TDA Projects Advancing the Corridor 
----------------------------------- 
 
¶8.  (C)  Hellman said TDA had approved the Henry Hub, 
Louisiana study tour (as a "good" energy hub example) for six 
GOT officials (and one from the Embassy) at a time to be 
determined this year.  U/S Demirbilek suggested three Energy 
Ministry officials, two from BOTAS, and one rom TPAO as 
participants.  Hellman stated that TDA could provide 
technical assistance on stablishing an IGA for an effective 
transit rgime.  He admitted that open third party access 
could be problematic with respect to Iran, so he advocated an 
IGA and a joint stock company approach, perhaps including a 
"netback" pricing arrangement, to satisfy Turkey's desire for 
a stake in the business and information on price.  Finally, 
Hellman reminded the Minister that in 2007 TDA would complete 
a pre-feasibility study for a trans-Caspian Pipeline (TCP) 
for oil and/or gas focused first on Kazakhstan, with later 
potential linkage to Turkmenistan.  TDA would be seeking 
assistance from the GOT and others for participants for a 
technical advisory group. 
 
------------------------------ 
Samsun-Ceyhan Bosphorus Bypass 
------------------------------ 
 
¶9.  (C)  The Minister repeated calls for support for Turkey's 
preferred Bosphorus bypass project - Samsun-Ceyhan, arguing 
that tanker traffic in the Turkish Straits was at capacity 
and at risk for a significant accident.  Hellman urged the 
Minister to promote the project in a more commercial way, 
noting that it was twice the distance of 
Burgos-Alexandropolos and was not now economic without oil 
throughput commitments.  He also reminded the Minister of the 
classic "free rider" dilemma that made the economics even 
more difficult.  The Minister also asked the USG to share all 
the information it had about Caspian and Iraqi reserves, as 
well as information on Turkey's domestic oil and gas 
potential. 
 
--------------------------------- 
Other Meetings on Gas and Georgia 
--------------------------------- 
 
¶10.  (C)  In a separate meeting, BP Country Manager Djan 
Suphi insisted that Turkey is not ready to accept South 
 
ANKARA 00006079  003 OF 003 
 
 
Caucasus Pipeline gas, countering BOTAS' claims that it is 
ready or imminently ready.  The BP official told us that the 
metering station, block valves, and significant sections of 
the pipeline were still construction zones.  He admitted that 
Shah Deniz was not ready to deliver volumes.  BP and BOTAS 
separately told us that they were negotiating a flexible 
"run-in" period through the balance of this year for the 
transition to operation. 
 
¶11.  (C)  Joining us after participating in a separate 
meeting of the Turkish and Georgian Energy Ministers, Turkish 
officials related the Georgian's fears that Russia planned to 
sabotage Georgia's winter energy security - even to the point 
of aiming to change the government.  BOTAS Dep DG Sakir 
Arikan said Turkish leaders had committed to help Georgia, 
but Turkey politically cannot sell its share of Shah Deniz 
gas at less than the price of its most expensive gas, about 
$270.  Hellman emphasized that Turkey, Azerbaijan, and 
Georgia should meet as soon as possible to seek a united 
front for addressing the coming winter.  He said the 
discussion should focus more on volumes, rather than price, 
assuming that the Georgians would ultimately pay what they 
have to pay.  Both Azerbaijan and Georgia may need 
contingency plans such as power plant conversion to fuel oil. 
 Hellman also encouraged them to address a strategy for the 
three countries to work together over the next two years 
until Azerbaijan can reduce its dependence on Russian gas, 
thereby reducing Russian leverage. 
 
-------------------------------------------- 
Guler's Grave Concern about Russian Behavior 
-------------------------------------------- 
 
¶12.  (C)  In a separate one-on-one meeting with Ambassador, 
Guler expressed grave concern about Russian behavior.  He 
lamented that the combined gas needs of Turkey, Georgia and 
Azerbaijan vastly exceed supply, and he worried about what 
would happen this coming winter.  He said Turkey is very 
uncertain how to proceed and appealed for U.S. leadership. 
Ambassador identified the various actions underway (as 
described above), urged Turkish leadership in the region 
toward ensuring that short-term decisions did not unduly 
undermine longer term objectives, and made clear that the USG 
is seized of the broader issues.  He highlighted Hellman's 
involvement as reflecting our intention to be more engaged. 
 
Visit Ankara's Classified Web Site at 
http://www.state.sgov.gov/p/eur/ankara/ 
 
WILSON