US embassy cable - 04ANKARA4443

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004443 
 
SIPDIS 
 
STATE ALSO FOR EB/CBED AND EUR/SE 
 
E.O. 12958: DECL: 08/05/2014 
TAGS: ENRG, EPET, ETRD, IR, GA, UK, TU 
SUBJECT: TURKEY AND IRAN GAS, BOSPORUS BYPASS, AND BTC 
PIPELINE CHALLENGES 
 
REF: ANKARA 4421 
 
Classified By: CDA Robert Deutsch, E.O. 12958, reasons 1.4 (b) and (d) 
 
1. (C)  Summary: In a August 5 meeting with Charge, MFA 
Deputy U/S for Economic Relations Alev Kilic expressed 
general support for U.S. goals for regional energy 
development - with one exception.  While Kilic stressed that 
Turkey,s priority for natural gas was for realizing transit 
from the Caspian, he noted that long-term Turkey would be the 
natural egress for Iran,s substantial reserves of gas to 
reach Europe.  As reported in the press and reftel, PM 
Erdogan was unable to reach agreement with Iran on any 
changes to the current gas deal with Iran.  Kilic emphasized 
that GOT and the U.S. were on the same wavelength on assuring 
timely completion of the Baku-Tblisi-Ceyhan (BTC) oil 
pipeline and assured Charge that PM Erdogan would deliver a 
strong message to the Georgia President on his visit August 
11.  Kilic would welcome feedback from President 
Saakashvili,s visit to Washington.  Kilic expressed 
frustration about more indications that reversal of the 
Odessa-Brody oil pipeline in the Ukraine may occur, further 
aggravating oil tanker congestion in the Bosporus.  He noted 
that the GOT would take a more active role in facilitating 
Bosporus bypass options, but emphasized that there would be 
no state guarantees for any projects.  Kilic agreed that 
there needed to be movement in the permitting process.  End 
summary. 
 
Iran Natural Gas 
---------------- 
 
2. (C)  In a August 5 meeting with Charge, MFA Deputy U/S for 
Economic Relations Alev Kilic spoke about PM Erdogan,s 
recent trip to Teheran.   As reported in the press and 
reftel, PM Erdogan was unable to reach agreement with Iran on 
any changes to the current natural gas deal.  According to 
Kilic, Turkey was focused on gaining a reduction in price 
and/or a reduction in take-or-pay commitments.  Iran was 
focused all-or-nothing on gaining a significant (Kilic told 
us 25-year - and 15 billion cubic meter p. a.) commitment for 
transmission of gas to Europe via Turkey.  Kilic noted that 
GOT would continue to pursue its claims regarding price of 
natural gas from Iran in international arbitration and 
meanwhile the contract would be suspended. 
 
3. (C)  While Kilic stressed that the GOT,s priority and 
commitment was to facilitate egress of gas from the Caspian, 
he noted that Iran has huge reserves of natural gas and 
Turkey would be the natural and best outlet.  He stated that 
Turkey would not oppose or put up obstacles for Iran,s 
ultimate desire to export gas to Europe via Turkey.  He 
stressed that this would happen only long-term; in the 
short-term Turkey,s capacity is geared only to facilitate 
Caspian sourced gas.  Timing and modalities for adding 
capacity for Iran sourced gas are all undecided, he said. 
Kilic stated that negotiations would continue with Iran, but 
timing is as yet undetermined.  According to Kilic, the Shah 
Deniz gas pipeline was proceeding on schedule for end of 2006 
construction completion and 2007 gas flowing. 
 
4. (C)  Econoff,s separate discussions with contacts at the 
Energy Ministry*and earlier Poloff discussions with other 
MFA officials--dove-tailed with these comments on lack of 
success in the gas negotiations with Iran.  They described 
Iran as an intense &bargainer8.  However, Poloff's reftel 
reporting of MFA views on increasing importing gas from Iran 
were much more negative and couched as not in Turkey's 
interests.  Energy contacts added that Turkey sought to 
discuss ways to reduce its trade deficit with Iran, but 
Teheran considered natural gas as a special resource, rather 
than just a tradable product.  The current deal for natural 
gas with Iran provides for gradual ramping up to 10 billion 
cubic meters p.a. 
 
Keeping BTC on Track in Georgia 
------------------------------- 
 
5. (C)  Kilic emphasized that GOT and the U.S. were on the 
same wavelength on assuring timely completion of the 
Baku-Tblisi-Ceyhan (BTC) pipeline and assured Charge that PM 
Erdogan would deliver a strong message to the Georgia 
President on his visit August 11.  Kilic noted that he would 
be accompanying the PM on his trip.  Kilic fully endorsed 
Charge,s expression of the strategic importance of bringing 
the pipeline to completion, and sought continued 
collaboration and discussions on progress and strategy. 
Moreover, he said he would appreciate any feedback on 
President Saakashvili,s visit to Washington.   He applauded 
the strong messages delivered by U.S. officials in Georgia. 
Like us, Kilic had heard of some positive results in terms of 
permission to restart digging and welding with additional 
work on security at the surface; however, he express concern 
that GOG would still have a 28-day option to reassess.  He 
referred to GOG actions as &extortion8, but noted that an 
incremental 5 million usd &community development8 funds may 
resolve the problem. 
 
Getting More Serious on Bosporus Bypass Options 
--------------------------------------------- -- 
 
6. (C)  Charge delivered a strong message on the need for the 
GOT to move forward on permitting Bosporus bypass projects 
for oil.  He stated that we were still looking at the 
&Voluntary Principles8.  Charge stressed that project 
sponsors needed assurances in order to gain financing and 
commitments and to allow the marketplace to make a 
determination on viability of projects.  Kilic accepted 
Charge,s (and Amb Mann,s previous) observation that the 
permitting process had stalled and the onus was on the GOT to 
push it forward.  He stated emphatically that it was not GOT 
policy to stall bypass projects.  Moreover, he stated that 
current GOT thinking accepted that the BTC project was 
&irreversible8.  While Kilic noted that this change in 
official policy had not yet been &put on paper8, GOT was 
now clearly in position to support bypass solutions.  He 
stressed that bypass projects would be private and without 
state guarantees.  Kilic reiterated that there was no policy 
obstacle, but accepted that there was lamentably a 
&stagnation of immobility8, so the GOT could no longer be 
aloof and needed to be active.  Despite the clear recognition 
that the GOT would not provide a state guarantee, Kilic noted 
that some officials might still be inappropriately focused on 
throughput commitments/guarantees.  (In a separate meeting at 
the Energy Minstry, Econoff was told that permitting 
required: 1. commitments on source and amounts, 2. 
intergovernmental agreements, 3. acceptable commercial terms, 
and 4. technical competence and experience.   According to 
these contacts, existing permit applications have been 
&thin8 on experience and substance.  Embassy will continue 
to work on clearing up this disconnect.) 
 
Odessa-Brody Blues 
------------------ 
 
7. (C) Charge and Kilic were in complete agreement that 
movements toward reversing the Odessa-Brody pipeline in 
Ukraine were very troubling; therefore, both governments 
needed to continue pressure on the GOU to not reverse the 
pipeline, which would add to Bosporus congestion.  Both Kilic 
and Energy Ministry contacts expressed particular concern 
about BP,s involvement in the Odessa-Brody reversal proposal 
(through TNK-BP) at the same time that it shared proprietary 
information as BTC lead partner. 
 
 
 
DEUTSCH