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DE RUEHAK #1692/01 3281302
ZNY CCCCC ZZH
P 241302Z NOV 09
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 1316

INFO RUEHAH/AMEMBASSY ASHGABAT PRIORITY 1977
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 1516
RUEHKB/AMEMBASSY BAKU PRIORITY 1638
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY

C O N F I D E N T I A L ANKARA 001692 
 
SIPDIS 
 
DEPARTMENT FOR S/EEE RICHARD MORNINGSTAR 
 
E.O. 12958: DECL: 11/23/2019 
TAGS: ENRG EPET PREL TU
SUBJECT: SCENESETTER FOR SPECIAL ENVOY MORNINGSTAR: FOURTH U.S.-TURKEY ENERGY WORKING GROUP MEETING 
 
REF: ANKARA 1566 
 
Classified By: Amb. James Jeffrey for reasons 1.4 (b,d). 
 
SUMMARY 
------- 
 
¶1. (C) Over the past several months, Turkey has been actively 
exploring its energy options--from Azerbaijan and Russia to 
Iran and Qatar (reftel).  As the GoT prepares next steps in 
several areas of its energy relations, your bilateral meeting 
with Energy Minister Yildiz and the fourth round of the 
U.S.-Turkey Energy Working Group will be good opportunities 
to remind Turkey of key points of concern for the U.S. and 
the international community. 
 
POINTS TO RAISE 
--------------- 
 
¶2. (C) You should raise the following points during the 
Working Group meeting: 
 
--Conclusion of a fair, transparent gas pricing and transit 
agreement with Azerbaijan will jump start the Southern 
Corridor and help with Azeri-Armenian relations.  The Turks 
understand the urgency and, by all indications, are serious 
about reaching an agreement soon. Encourage them to identify 
the specific areas in which we can help the process. (para 4) 
 
--Development of Iraq's energy sector is a shared priority 
for the U.S. and Turkey. Expect to hear ideas of how to 
deepen our cooperation in working toward this goal. (para 7 
and 8) 
 
--Turkey should be cautious of the Iran Sanctions Act as it 
considers potential Turkish Petroleum Company (TPAO) 
investment in Iran's energy sector. (para 9) 
 
--The U.S. has a sincere interest in having Turkey choose the 
best possible technology to meet its needs for nuclear power 
generation. (para 10) 
 
WATCH OUT FOR 
------------- 
 
¶3. (C) The Turks are likely to raise the following points: 
 
 
--Further assurances that negotiations with the Azeris will 
be concluded soon without any concrete progress toward doing 
so. (para 4) 
 
--Interest in acting soon to secure an oil and/or gas field 
in northern Iraq.  There is some concern in the GoT that 
Turkey is missing out on opportunities while waiting for 
passage of the Iraqi Hydrocarbons Law. (para 7 and 8) 
 
--Expectation that some Iranian gas deals will be excluded 
from U.S. sanctions because Europeans need the gas and 
because the deals would be useful as a bargaining chip in 
U.S.-Iranian negotiations. (para 9) 
 
 
Caspian Gas 
----------- 
 
¶4. (C) For many months the Turks have been telling us they 
are close to reaching agreement with Azerbaijan on Shah Deniz 
gas pricing and transit.  The increased specificity with 
which they have made this claim in recent weeks leads us to 
believe it is now more than just wishful thinking.  All of 
the officials with whom we have spoken recently have stressed 
that they understand the urgency of concluding this deal, and 
most have expressed optimism that it will happen soon. 
Energy Minister Yildiz told Amb. Jeffrey and Mark Parris a 
delegation would travel to Baku for further negotiations the 
week of November 23, and he was hopeful significant steps 
would be taken before PM Erdogan's December 7 visit to 
Washington.  For the first time, Yildiz said Turkey may be 
flexible on price in order to reach agreement.  He has 
traveled to many potential supplier countries in the past 
several months and has concluded that no other deals can go 
ahead until the agreement with the Azeris is decided.  Other 
officials have told us PM Erdogan wants an Azeri deal in hand 
for his next visit to Moscow, expected sometime later this 
year or in early 2010. 
 
¶5. (C) Turkish interest in Turkmen gas remains strong.  Hakki 
Akil, the newly appointed deputy undersecretary for economic 
affairs at MFA, believes the Turkmen now realize they need a 
third alternative--other than Russia and China--for gas 
exports, and they may decide Turkey and Europe are that 
alternative.  On October 26 Turkey and Iran signed a 
memorandum of understanding that included transit of Turkmen 
gas through Iran to Turkey, reviving a decade-old proposal. 
The item comprises just a couple sentences in the MOU, 
however, and includes no detail.  MFA officials have told us 
Iran is not their preferred route, and some are skeptical 
Iran would allow Turkmen gas to transit if it cannot export 
its own gas to Turkey.  In a meeting with econ counselor 
November 2, TPAO President Mehmet Uysal speculated a swap 
would be arranged: Iran would import Turkmen gas in the north 
and export Iranian gas to Turkey from the south, although MFA 
officials maintain their preference remains for Turkmen gas 
to transit the Caspian.  The Turks are exploring options to 
do so without breaching the territory demarcation dispute. 
 
Domestic Factors 
---------------- 
 
¶6. (SBU) Although supply for the domestic market continues to 
be the top objective in Turkey's energy dealings, the country 
has seen a significant drop in demand for gas due to the 
economic crisis and the rise in prices as the automatic 
pricing mechanism has taken effect over the past year.  This 
fall in demand, combined with deficiencies in the State 
Pipeline Company's (BOTAS's) infrastructure, have left Turkey 
facing sizable take-or-pay obligations--as high as USD 2 
billion for 2009 and potentially reaching a cumulative 14 
billion cubic meters (USD 3.5 billion assuming an average 
price of USD 250/thousand cubic meter) in 2010, according to 
some sector analysts. 
 
Iraq 
---- 
 
¶7. (C) Turkish government and industry representatives 
repeatedly indicate that Iraqi energy is a priority.  In a 
November 18 meeting, Yildiz stressed to the ambassador that 
Turkey wants a field in Iraq, preferably from the central 
government.  He noted that the private sector, however, is 
very anxious to go into northern Iraq and many feel Turkey is 
being excluded from some of the best offerings because it is 
not dealing now with Erbil.  (Note: Although Yildiz did not 
offer details, he most likely meant the GoT wants a field in 
Iraq for Turkish Petroleum Company (TPAO), as it was the only 
Turkish company found eligible to bid on Iraqi tenders.) 
 
¶8. (C) The Turks realize that development of a national gas 
system in Iraq would help Turkey, as it would address 
infrastructure development and determine Iraq's own energy 
needs, thereby clarifying export potential.  MFA officials 
have indicated they would like to share some ideas with us at 
the Energy Working Group meeting about deepening our 
cooperation on Iraqi energy development.  We have indicated 
we would be receptive to their suggestions. 
 
Iran 
---- 
 
¶9. (C) In November 2008, Turkey and Iran signed a one-year 
memorandum on energy.  In October this year, they agreed to 
extend the MOU by three months to mid-February.  The MOU 
covers three items: transit of Turkmen gas (mentioned above), 
import of Iranian gas for Turkish and European markets, and 
TPAO development of South Pars gas field blocks.  The 
three-month extension was made to allow more time for TPAO 
and Iran to come to agreement on details of the third item. 
Uysal, however, has low expectations of reaching agreement 
but told us TPAO will continue the talks at the GoT's 
request.  Uysal also told us that both the Iranians and the 
Europeans expect the South Pars gas field will be exempt from 
U.S. sanctions because Europe needs the gas and because a 
deal could be a useful bargaining chip the in the 
U.S.-Iranian negotiations.  You should dispel this assumption 
if raised. 
 
Nuclear Tender 
-------------- 
 
¶10. (C) With the now final decision to cancel the nuclear 
tender won by the Russian-led consortium, the GoT is 
preparing to tender two nuclear plants at the same time, in 
Akkuyu and Sinop.  Yildiz told the ambassador they would 
 
expedite the tenders, as he wants the projects to begin in 
¶2010.  The ambassador told Yildiz we want Turkey to choose 
the best technology for its needs, whichever company provides 
it.  In prior conversations, Energy Ministry officials have 
told us any new tender would have a public-private structure, 
completely different from the canceled tender.  When asked by 
the press about the new tenders, Yildiz said, "let's not call 
it a 'tender process,' but a 'process.'"  According to Faruk 
Demir, an energy sector advisor close to the government, such 
comments may allude to a plan whereby the GoT would create a 
new public nuclear power company that would invite various 
foreign private companies to take part in joint projects. 
 
Renewables 
---------- 
 
¶11. (C) Draft legislation currently in parliament would amend 
the existing renewable energy law to include higher and 
differentiated feed-in tariffs for plants that go into 
operation before the end of 2015.  The parliament is not 
expected to pass the legislation this year, however, and 
Deputy PM Babacan has raised objections to the overall cost 
of the legislation--particularly the solar tariffs--both for 
public finances and for the GoT's overall aim of lowering 
energy costs in Turkey.  Analysts expect the solar tariffs 
will be revised downward, likely to levels too low to spur 
investment, but they do not expect significant changes to the 
other tariffs proposed in the current draft. 
 
JEFFREY 
 
           "Visit Ankara's Classified Web Site at http://www.intelink.s 
gov.gov/wiki/Portal:Turkey"