US embassy cable - 04ANKARA4110

UNCLAS SECTION 01 OF 02 ANKARA 004110 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG, EPET, ETRD, PREL, TU 
SUBJECT: AMBASSADOR MANN DISCUSSES CASPIAN ENERGY ISSUES AT 
ISTANBUL ENERGY CONFERENCE 
 
 
Sensitive But Unclassified -- Not for Internet Distribution 
 
1.  (U) Summary: Caspian Basin Energy Development Ambassador 
Steven Mann met with energy officials on the margins of the 
June 16-17 Tale of Three Seas Energy Conference in Istanbul. 
(Septel reports on Mann,s meeting with Turkish Energy 
Minister Guler.)  Mann was joined by Turkish MFA Deputy U/S 
Alev Kilic to jointly encourage Kazakhstan and Greek company 
officials to play a more active role in developing the 
East-West Energy Corridor.  Mann met separately with Statoil 
officials to discuss the Shah-Deniz pipeline and spoke with 
Calik Energy about the prospects for Turkmenistan 
contributing to the East-West Energy Corridor.  End Summary. 
 
Kazakh Oil and BTC 
 
2.  (SBU) Ambassador Steven Mann joined with Turkish MFA 
Deputy U/S Alev Kilic to encourage Kairgeldiy Kabyldin, 
General Director of Kazakhstan,s state oil and gas company 
Kazmunaigaz, to complete the Aktau-BTC agreement to feed 
Kazakh crude into the BTC pipeline.  Mann and Kilic stressed 
that the Intergovernmental Agreement between Azerbaijan and 
Kazakstan had languished too long and it was time to finish 
it.  Kabyldin said the draft agreement, under consideration 
by the GOK since April 2004, was delayed by four issues: 
work visas for foreign project personnel; entry and exit 
procedures for project personnel; duty-free import and export 
of equipment and profit repatriation; and competition among 
shippers, including non-Kazakh shippers.  He added that the 
most recent draft would permit competition among shippers. 
Mann and Kilic responded that the state companies in 
Azerbaijan and Kazakhstan should reach agreement now, not 
delay the signing until after parliamentary ratification. 
Kabyldin agreed to convey their views to the GOK. 
 
Greece,s Place in the East-West Energy Corridor 
 
3.  (U) Mann and Kilic met with Michale Caramanis, Deputy 
Chairman of the Greek Gas Company DEPA, and urged that now is 
the time for DEPA to promote natural gas exports from the 
Caspian region via Turkey and Greece into Balkan markets. 
Mann explained the successful history of East-West corridor 
energy projects and pointed out that the private sector led 
the way.  With the completion of the connector pipeline 
between Turkey and Greece in 2006, we look to DEPA to take 
the lead in the next expansion of Caspian gas 
exports/transit, he said.  Caramanis said he would consult 
with DEPA and reply within the next six to eight weeks. 
 
The Nabucco Pipeline 
 
4.  (U) Mehmet Bilgic, General Manager of BOTAS, Turkey,s 
national gas company, updated Mann on the Nabucco natural gas 
pipeline project to connect Turkey to Austria and the 
European market.  He said the Hungarian partner, MOL, wanted 
to change Nabucco,s structure ) from a consortium to a 
confederation of national pipeline companies.  Bilgic worried 
that such a change would make the project less feasible 
because decisions would require individual negotiations with 
each of the national gas companies, instead of with a single 
Nabucco project head.  Mann reminded Bilgic of the political 
and legal dangers of using Nabucco to export Iranian gas. 
 
Shah-Deniz Pipeline and Transit Fees 
 
5.  (SBU) Ambassador Mann met with Statoil officials, Georg 
K. Gundersen, President, Statoil-Azerbaijan; Peter Lindberg, 
Senior Vice President, Natural Gas; Peter Mellbye, Executive 
Vice President, Natural Gas; and Kjetil Tungland, Vice 
President, Statoil-Turkey.  The Statoil execs complained that 
after 18 months, Turkey still has not chosen a methodology 
for determining the tariffs/pricing for the transit of Shah 
Deniz natural gas through Turkey and asked for USG support to 
urge Turkey to make a decision.  Statoil needs to know the 
tariff system before it can prepare cost estimates to present 
to investors and customers, they emphasized.  Statoil prefers 
a methodology that would set a fixed rate tariff for natural 
gas transiting the country by any route ) regardless of 
distance traveled. 
 
6.  (U) On Nabucco, the transit countries have not yet agreed 
on tariff rules for each country,s section of the proposed 
natural gas pipeline.  The Greek Interconnector opens up the 
Greek -- and potentially -- the Italian market, but the Greek 
market is small and the Italian market is saturated, the 
Statoil officials said.  Therefore, the 18-20 BCM/y capacity 
of Shah Deniz phase 1, will be sufficient.  Mann pointed out 
that the Nabucco project will need 20-30 bcm/year of natural 
gas, much more than Shah Deniz alone can supply.  The most 
likely candidates are Iran, Iraq and Egypt, but Mann reminded 
them that the USG opposes any Iranian gas being a part of 
this project. 
 
Turkmenistan Gas 
 
7.  (U) Mann met with Ahmet Calik of Calik Energy, which is a 
partner in one of the Bosphorus Bypass proposals and which 
has extensive energy projects in Turkmenistan.  Calik 
reported that the Trans-Afghanistan natural gas pipeline 
proposal to transport Turkmenistani natural gas via 
Afghanistan to Pakistan has been delayed because the 
Turkmenistan government had not prepared an audit of its 
natural gas reserves, as requested by the Asian Development 
Bank.  Calik conceded that the chance of success for the 
Trans-Afghanistan project is low ) it can not be done 
without strong USG support.  He encouraged Ambassador Mann to 
lend his support to the project.  Mann told Calik that the 
U.S. supports the idea of a trans-Afghanistan pipeline; we 
are waiting for the private sector to prepare a proposal that 
we can support. 
 
8.  (SBU) Mann told Calik that he was skeptical about 
proposals to link Turkmeni gas to the Shah-Deniz pipeline. 
Mann reminded Calik that President Niyazov killed the Trans 
Caspian Pipeline deal by refusing to sign at the last minute. 
 Niyazov is unwilling to follow through on any international 
or inter-governmental project for a natural gas pipeline, 
since he is afraid of the Russians.  The U.S. does not want 
to be used as a bargaining chip in Niyazov,s negotiations 
with Gazprom.  Nevertheless, the USG would be willing to 
continue the dialogue with Calik and with the Turkmens.  Mann 
encouraged Calik and the Turkmenistan government to consult 
with Statoil and British Petroleum on the possibility of 
reviving a trans-Caspian natural gas pipeline route for 
Turkmen gas. 
 
9.  (SBU) Mann said the Turkish government has never lost 
interest in a trans-Caspian natural gas pipeline and the 
Turkish government has a romantic view of Niyazov.   The 
Government of Azerbaijan in principle has an open mind on the 
trans-Caspian project ) the first realistic step would be to 
get an agreement on delimitation of the Caspian seabed. 
Kazakhstan, Azerbaijan, and Russia have already agreed on a 
reasonable methodology, but Turkmenistan still wants to use 
the &Land8 instead of the &Maritime8 methodology.  There 
is a need for a dialogue between Azerbaijan and Turkmenistan 
on this issue.  Mann told Calik that he is well suited to 
have private discussions with Niyazov about these ideas and 
encouraged Calik to be in touch with the Nabucco project.  It 
would be positive if Calik could promote a 
Turkmenistan-Azerbaijan rapprochement, he said. 
 
Russian Gas to Israel 
 
10.  (SBU) Calik informed Mann that Russia had signed an MOU 
to supply Israel with natural gas using the Bluestream 
pipeline.  Calik said Israel had allocated USD 1 million for 
a feasibility study. 
 
11.  (U) Ambassador Mann cleared this cable. 
DEUTSCH