VZCZCXRO6662
RR RUEHAG RUEHDBU RUEHDF RUEHIK RUEHLN RUEHLZ RUEHROV RUEHVK RUEHYG
DE RUEHAK #1283/01 1451115
ZNR UUUUU ZZH
R 251115Z MAY 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 2270
INFO RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHGB/AMEMBASSY BAGHDAD 0947
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHIT/AMCONSUL ISTANBUL 2761
RUEHDA/AMCONSUL ADANA 1979

UNCLAS SECTION 01 OF 02 ANKARA 001283 
 
SIPDIS 
 
USDOE FOR CHARLES WASHINGTON 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET BEXP EINV TU
SUBJECT:  TURKISH-AMERICAN PROJECT LAUNCHES GAS PRODUCTION 
 
REF: ANKARA 187 
 
ANKARA 00001283  001.2 OF 002 
 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
¶1.  (SBU) SUMMARY.  With political speeches and fireworks alarmingly 
close to a heroic gas plume, the U.S. oil development company 
Toreador feted new gas production at its Black Sea facility on May 
¶20.  Toreador has overcome significant problems in bringing its 
production on line and connecting it to the national grid.  Even 
though the amount of gas is relatively modest and geared for 
domestic consumption, it serves a symbolic 'proof of concept' for 
hydrocarbon production while Turkey strives to build its place in 
the incipient "southern gas corridor".  END SUMMARY. 
 
----------------------------------------- 
Modest but Significant New Gas Production 
----------------------------------------- 
 
¶2.  (SBU) At the May 20 "first gas" ceremony for the 
Turkish-American joint production facility near the Black Sea town 
of Akcakoca, Energy Minister Guler and local officials feted the 
start of one-million cubic meters per day (cmpd) production with 
ignition of a plume of gas, fireworks, and political speeches, 
making frequent reference to Turkey's hoped for role in the 
"southern gas corridor".  Although the modest production will reach 
only 2 million cubic meters per day, it is nevertheless a proof of 
concept that foreign investors can bring hydrocarbons into 
production in Turkey.  With Turkey's overwhelming dependence on 
imported natural gas, every little bit helps. 
 
--------------------------------- 
Connecting to the Grid Ain't Easy 
--------------------------------- 
 
¶3.  (SBU) Dallas-based Toreador Resources is the project operator, 
with partners American Stratic Energy and the Turkish State Oil 
Company (TPAO).  The ceremony was held at the on-shore Cayagzi 
natural gas processing facility, which is fed by three shallow water 
offshore rigs, just in sight from the facility.  Toreador Country 
Manager Roy Barker joked that his hair had turned gray in bringing 
the project to fruition.  He and his CEO Nigel Lovett explained that 
achieving the connection to the Turkish natural gas grid was the 
most difficult hurdle, as it paved new ground for Turkey and 
involved the Energy Ministry, state pipeline company BOTAS, the 
energy regulator, and the gas purchaser AKSA.  With delays in 
gaining approval for the connection, complicated by the political 
election calendar, the opening was oft delayed, as the sponsors 
sought unsuccessfully to gain participation of the Prime Minister, 
ultimately settling for the Energy Minister. 
 
------------------------- 
New Hydrocarbon Law Stuck 
------------------------- 
 
¶4.  (SBU) Barker explained that Turkey's long-awaited new 
hydrocarbon law would have facilitated connection and marketing to 
the natural gas grid.  The industry-supported hydrocarbon law would 
provide greater incentives to investors and clarify regulations for 
new off-shore exploration and production (reftel).  President Sezer 
vetoed the legislation in late April over a few sections of the law, 
including national rights to oil production and revenue-sharing with 
provinces.  Although the law would have scaled back national 
champion TPAO's favored status, even TPAO was generally supportive 
of the effort to bring Turkey's hydrocarbon business environment up 
to international standards, recognizing that Turkey does not promise 
a geologic bonanza.  Even though Parliament could over-turn the 
President's veto, industry observers told us the government decided 
not to press on with the law during the current pre-election 
environment (to avoid feeding political criticism for favoring 
foreigners).  The law would also have helped Toreador with a 
long-standing lawsuit over its contractual rights to repatriate 
capital - with guarantees with respect to exchange losses. 
 
---------------------------- 
Southern Gas Corridor Hoopla 
---------------------------- 
 
¶5.  (SBU) Minister Guler's and local politicians' speeches all 
extolled the Akcakoca project in the context of the burgeoning 
"southern gas corridor" and Turkish transit to Europe, referring to 
Baku-Tbilisi-Ceyhan oil pipeline and other gas and oil projects 
underway.  In reality, the project is small and will most likely be 
 
ANKARA 00001283  002.2 OF 002 
 
 
designated for domestic consumption.  Despite the apparent failure 
of the BP-led eastern Black Sea drilling two years ago, the 
government holds out great hopes for Petrobras-TPAO exploration 
elsewhere in the offshore Black Sea.  (Recent announcements of 
licensing of Mediterranean exploration are really political 
rejoinders to the contentious licensing of Cypriot blocks.) 
 
¶6.  (SBU) COMMENT: Toreador has hyped and endured a "good news - bad 
news" story with its ground-breaking gas production, in the face of 
myriad legal and technical problems with capital repatriation, 
adjacent license disputes with TPAO, rig construction, national grid 
connection, and even accusations that the reserves are inflated. 
This is a modest but significant Turkish-American cooperation good 
news story.  It contributes to gas market liberalization and it 
reduces Turkey's import dependency.  As a proof of concept offering 
incremental gas molecules, it is a significant success that warrants 
celebration. 
 
Wilson