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Cablegate: Bosphorus Bypass Pipelines -- The Situation In

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 003419

SIPDIS

SENSITIVE

ISTANBUL -- PLEASE DELIVER TO AMBASSADOR MANN

E.O. 12958: N/A
TAGS: ECON EPET ETRD SENV TU
SUBJECT: BOSPHORUS BYPASS PIPELINES -- THE SITUATION IN
TURKEY

REF: A. ISTANBUL 262
B. ANKARA 2071

Sensitive But Unclassified -- Not for Internet Distribution

1. (SBU) Summary: The Turkish Government supports
construction of a bypass pipeline to reduce the rising volume
of oil tanker traffic through the Turkish Straits. Two
consortia are promoting bypass projects in Turkey -- one via
Thrace and the other from Samsun to Ceyhan -- and have
applied for licenses to proceed. However, many observers
doubt that a bypass will be built because it is still cheaper
to ship via the Straits and because of the free rider
problem. The Thrace proposal is the cheapest option but
faces some environmental concerns and possible resistance
from the MFA; the more expensive Samsun project is closer to
the east Black Sea oil export ports and will take advantage
of the established oil port at Ceyhan. End Summary.

The Bosphorus Bottleneck

2. (U) Tanker traffic in the Turkish Straits continues to
rise. The amount of oil shipped through the Straits has more
than doubled since 1997, from 60 million tons in 1997 to 134
million tons in 2003. This has meant not only more tankers
but also larger tankers making their way through the narrow
and congested Straits. (More than 2,000 vessels per day
transit the Straits.) Turkish officials are increasingly
concerned that the Straits are approaching the maximum safe
limit for oil tanker traffic and fear that increasing traffic
will lead to a serious tanker accident.

3. (SBU) Turkish officials continue to stress that they have
no intention to modify the Montreaux Convention, under which
Turkey is obligated to maintain free passage for all vessels.
However, they have implemented several safety requirements
to reduce the risk of the largest oil tankers. For example,
because the largest tankers must frequently cross the
channel, Turkish authorities allow them to transit in one
direction at a time, effectively limiting the number to 6 per
day. With more and more traffic funneling through the
Straits, delays are becoming more frequent and severe,
raising the cost to the oil companies. For example, last
winter bad weather caused long delays in tanker traffic,
costing the oil companies hundreds of thousands of dollars
per tanker (ref a). Russian oil companies complained that
Turkey was using safety concerns to unnecessarily reduce
tanker traffic, and Transneft called for construction of a
bypass pipeline.

4. (SBU) Although most observers agree that bypass pipelines
are desirable, most of our contacts are skeptical that any
will be built soon. First, most observers maintain that,
even with rising costs due to insurance and delays transiting
the Bosphorus, it is still significantly cheaper to ship
through the Straits than to commit to using a pipeline.
Second, there is the problem of free riders. If some
companies begin to transport oil via a bypass pipeline,
delays will be reduced, reducing the cost to the shippers who
opted out of the bypasses. Many contacts told us that,
without the agreement of all the oil companies to use a
bypass, individual oil companies will not commit. Former
Energy U/S Yigitguden told us that oil companies will be glad
to support a bypass pipeline, but they will only use it as a
relief valve -- when temporary delays in the Straits make
using the bypass a viable option. However, the Chairman of
Thrace Development Corporation (the Thrace bypass developer)
assured us that the Thrace pipeline is already price
competitive and a number of oil companies have expressed
their willingness to use the pipeline.

Bypass Pipelines

5. (SBU) Plans for bypass pipelines have been in the works
for a number of years. There are currently four proposals to
offload oil in the Black Sea and transfer it to the
Mediterranean: 1) from Burgas in Bulgaria to Vlore in
Albania; 2) from Burgas to Alexandropoulis in Greece; 3) via
Thrace; and 4) from Samsun to Ceyhan.

-- The Thrace pipeline would run 195 km across Thrace
(northwest of Istanbul), and would be able to transport 1.5
mbd of crude from the Black Sea to Saros Bay in the Aegean,
at a total cost of about USD 615 million. The Thrace plan is
the shortest and cheapest option. However, there are no port
facilities for large oil tankers; the project will include
Single Port Mooring buoys for off- and on-loading the crude.
Environmental groups have voiced opposition to the project,
claiming that tanker traffic would harm the delicate
ecosystem in Saros Bay. Thrace Chairman Lowe told us that he
has financial banking for the project and adequate throughput
commitments from several oil companies.

-- There have been frequent reports that Transneft is
involved in the Thrace bypass. Lowe confirmed that Thrace
has no relationship with Transneft. Transneft supported a
Thrace copy-cat project with a Turkish firm, Anadolu Energy.
However, this project has not gotten off the ground, and a
recent press report from Moscow indicated that Transneft has
abandoned this option, though Lowe told the Ambassador
recently that he understood Transneft was in Ankara lobbying.


-- The Samsun-Ceyhan project will run from the Black Sea port
of Samsun to the oil export port of Ceyhan. (The
Kirkuk-Yumurtalik pipeline from Iraq terminates at Ceyhan as
will the BTC pipeline when it begins operation next year.)
The pipeline would be able to transport 1.1 mbd, at a cost of
USD 1.1 billion. The lead company is Calik Energy, a Turkish
firm with a number of energy projects in Turkmenistan. In
the initial stage, the project could use an existing pipeline
from a large refinery complex near Ankara to Ceyhan. The
Samsun line, although more expensive, has two advantages: it
will use deepwater ports, and Samsun is much closer to the
major oil exporting ports in the eastern Black Sea. Both
Thrace and Calik have license applications pending before the
GOT.

Where Does Turkey Stand

6. (SBU) Turkish officials in the MFA and Energy Ministry
have voiced support for a bypass, and the MFA has quietly
floated a proposal to solve the free rider program. MFA
Energy Chief Hakki Akil has asked the oil companies to agree
on a statement of voluntary principles (ref b), expressing
their commitment to use bypass pipelines that come available.
However, a Western oil company official told us that
although the Western oil companies publicly support the idea,
in private they are concerned that the Russian companies will
not abide by the voluntary principles. He added that the
principles would publicly commit the Western companies to a
high standard, that could be used as a precedent for their
operations worldwide -- significantly increasing their costs.


7. (SBU) Energy Ministry U/S Demirbilek told us the Ministry
recommended that the Council of Ministers approve licenses
for Thrace and Calik. He explained that the licenses were
conditional and would give the companies six months to
evaluate and address the environmental impact, demonstrate
throughput guarantees, arrange financing. In this way, the
Turkish state assumes no risk for either project and will
allow them to go forward is they can demonstrate that they
are commercially viable. However, the Thrace application has
been stuck in the Council of Ministers for nearly two months.
Calik just recently submitted their application.

8. (SBU) We have not been able to get an explanation for the
delay, but Thrace official Yilmaz Oz learned from a
government contact that MFA was the only Ministry not to
approve. It may be that some in the MFA prefer the
Samsun-Ceyhan project or want to ensure an important role for
Turkish companies. BOTAS CEO told us that no bypass project
had much of a chance without BOTAS participation, and that he
personally favored the Samsun-Ceyhan route. (Under
legislation passed in 2001, BOTAS was to be broken up and
privatized, but GOT has taken steps in recent months to
preserve BOTAS as a major player in energy.)
EDELMAN

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