Cablegate: Cera Energy Conference Highlights Caspian Gas Transient And

DE RUEHAK #1723/01 1870941
R 060941Z JUL 07





E.O. 12958: N/A
SUBJECT: CERA Energy Conference Highlights Caspian Gas Transient and
Clean Energy

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1. (SBU) Summary. Over 250 government and industry
representatives attended the tenth annual "East Meets West"
Executive Conference in Istanbul, June 26-27, for two full days of
presentations and discussions of energy security, resource access,
oil and gas transit, and the impact of climate change on energy
markets. The Presidents of the Republics of Ukraine, Georgia,
Azerbaijan, and Turkey opened the conference with strong calls for
regional energy cooperation and freedom from "monopolistic
pressures" for energy transit. Turkey's Energy Minister Hilmi Guler
announced that Azeri gas will flow to Turkey within a month,
Turkey's gas interconnector to Greece will open on August 10, and a
"big potential" exists for wind and hydroelectric power.

2. (SBU) The OPEC President described the dual challenges ahead to
increase oil production by 6.9 million bbl/d and to attract over
$130 billion investment to achieve this expansion. Iraqi Energy
Advisor Thamir Ghadhban clearly and proudly described the new
hydrocarbon law. For the first time at CERA, nearly half of the
sessions focused on clean energy technologies, with CERA Chairman
Daniel Yergin concluding, "The carbon tipping point has been
reached." The weekend's news of the "South Stream" gas pipeline
project, which was jointly announced by Gazprom and Italian oil firm
Eni, gave cause for much discussion on regional transit strategy.
Nevertheless, except as a reminder of Gazprom's resource clout
allowing it to guarantee supply for new pipeline projects, no one
suggested the announcement altered the value of alternate supply
routes like the Nabucco pipeline. End Summary.

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Four Presidents Call for Energy Cooperation
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3. (U) After a rousing performance by the Tekfen Black Sea
Philharmonic Orchestra with musicians from 23 Caspian and
Mediterranean countries, CERA Chairman Yergin welcomed participants
and noted the historic tenth anniversary of the Istanbul Conference.
Ten years ago, the late President Heydar Aliyev of Azerbaijan
addressed the first CERA "East Meets West" conference with his calls
to overcome obstacles and complete the Baku-Tbilisi-Ceyhan (BTC) oil
pipeline. Yergin then introduced opening speakers including
Ukrainian President Victor Yushchenko, Georgian President Mikhail
Saakashvilli, Azeri President Ilham Aliyev, and Turkey's President
Ahmet Necdet Sezer. The four presidents called for regional energy
cooperation, open and transparent oil markets, multiple pipelines,
uniform and just rules of fairness, and freedom from monopolistic
energy pressures.

4. (U) While the four presidents shared common themes, each also
made individual appeals.

-- Ukraine's Yushchenko called for Russia to ratify the EU Energy
Charter, pledged Ukraine's "guarantee" as a reliable transit
country, called for the Odessy-Brody pipeline to be filled with
Caspian Oil to Poland, and explained the opportunity for new nuclear
power cooperation in Ukraine under the "strictest requirements" for

-- Georgia's Saakashvilli explained, "We are all interlinked." He
thanked Azerbaijan for "coming to the rescue" last winter and noted
this "was more than friendly" being also in Azeri strategic
self-interest. Saakashvilli also thanked Europe, and especially
Poland, for their support aimed at reducing energy dependence on

-- President Ilham Aliyev explained, "Azerbaijan is much different
today than ten years ago." Aliyev noted that "no country is more
reliable" than Azerbaijan as an energy supplier; he warned of a
difficult winter ahead while also pledging Azeri support for the
energy security of its neighbors; he boasted of increasing oil and
gas production and of the fastest growing economy of the world; he
acknowledged the UN Public Service Award for oil revenue
transparency was given on June 26 to the State Oil Fund of
Azerbaijan (SOFAZ); and he promised Shah Deniz gas will be delivered
to Europe.

-- Turkey's President Sezer explained that achieving global energy
security and preventing "undeniable" global warming are problems
that can only be solved through international cooperation. Sezer

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stated, "Energy supply diversification is key." He defined
diversification as: the BTC pipeline, the soon-to-be-operational
Baku-Tbilisi-Erzurum (BTE) gas pipeline, the interconnector to
Greece and then to Italy, the need to start Nabucco, trans-Caspian
flow of Kazakh oil and Turkman gas, the repair and expansion of
Iraqi transportation after "the legal framework is in place to
insure oil wealth helps all Iraqi people," and the attractiveness of
the Samsun-Ceyhan bypass to avoid environmental accidents in the
Aegean Sea.

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World and Regional Energy Leaders on Stage
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5. (U) CERA keynote and plenary speakers included several world
and regional energy leaders. Highlights included:

-- Turkey's Minister of Energy and Natural Resources Hilimi Guler
presented Turkey's vision of pipelines and announced that Azeri gas
will flow to Turkey within a month, Turkey's gas interconnector to
Greece will open on August 10, oil and gas transit from Iraqi when
the hydrocarbon law has been approved, and Samsun-Ceyhan will be an
vital bypass. Guler called his recent visit to Turkmenistan
"promising" and emphasized the importance of environmental safety.
Concerning climate change, a "big potential" exists for wind and for
as many as 970 hydroelectric power projects.

-- OPEC President and UAE Energy Minister Mohamed bin Dhaen Al
Hamili described the importance of technology advances upstream, for
new resources, and downstream, for environmental reasons. OPEC
"welcomes the development of new energy sources and welcomes
improvements to end-use efficiency." But Al Hamili also gave
warning that policies for new energy technology should not cause
demand uncertainty that may delay the "large investments" needed to
expand oil production nor burden economic growth of developing

-- Thamir Ghadhban, Energy Advisor to Iraqi PM al-Maliki, clearly
described the pending hydrocarbon law using a detailed flow chart
showing municipal and central government responsibilities, the use
of the "Future Fund" for oil revenue management, and Iraqi desire to
cooperate with international oil companies and bring needed
investment for additional production.

-- Lin Zhenya, President, State Grid Corporation of China, spoke of
strategic planning for electricity. The State Grid Corporation is
China's largest company and the largest utility in the world. Zhenya
described the huge challenge facing China's power sector that will
likely grow from 650 GW today to 1,100 GW installed capacity by
2010. While most power will be from coal-fired plants, Zhenya spoke
of China's desire for sustainable development, enhanced efficiency,
and plans to construct an "electricity super highway" (an
ultra-high-voltage transmission grid) that will bring hydroelectric
power from the west and also power from distant coal and nuclear
plants to eastern cities.

-- Stefan Judisch, CEO of RWE Gas Midstream, spoke of changes in the
gas business due to increasing imports and contract complexity. He
announced his company's interest in securing Caspian gas for Europe,
and suggested that compressed natural gas (CNG) tankers may be the
most promising trans-Caspian gas route because of Iranian
demarcation objections to a pipeline.

-- Ann Pickard, Shell's Regional Vice-President for Africa, began
her presentation noting the three "critical discontinuities"
described in Shell's recently released Global Energy Scenarios to
2025: links between energy consumption and economic growth,
deepening energy security and supply concerns, and the emergence of
the carbon marketplace. Pickard then explained that Nigeria will
soon overtake Norway as a hydrocarbon exporter and that deep water
wells and LNG are keys to expansion. West Africa faces the challenge
of meeting its own development and security needs while also
honoring its supply commitments.

-- Fatih Birol, Chief Economist, IEA, discussed "uncertainties in
the oil markets" caused by four challenges: rapid economic growth in
China and India, the declining role of the international oil company
(IOC), inaccessible oil field data, and price inelasticity in major
oil consuming nations.

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-- Andris Piebalgs, Energy Commissioner, European Commission,
explained that European energy is "much more complicated that
pipelines and supplies." In addition to supply security, EU energy
policy will address sustainability and "competitive" energy
technology initiatives to address climate change. Piegbals said,
"Europe must speak with one voice" in its external energy
relationships. He concluded by noting EU's emphasis on climate
change issues and stating, "All paths forward are needed," including
decarbonization, hydrogenation, zero carbon energy, and demand

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Energy and Climate Change: Carbon Tipping Point Crossed
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6. (U) The impact of climate change on energy policy and the
development of technology to reduce greenhouse gas emission was a
second theme of CERA Istanbul. Speakers from industry, finance, and
academia addressed the development of renewable energy like solar
and wind, prospects for future deployment, renewable energy
financing, and carbon trading. Featured speakers included Julian
Mylchreest, Head, Citigroup's Emerging Markets who emphasized the
necessity of financial incentives for wind and solar deployment,
Martin Berkenkamp, GE's Marketing Director for Renewables who spoke
of today's improved wind technology and the potential for continued
wind power growth, Duygu Erten, Adjunct Professor at Koc University,
and President of a Turkish consulting firm that brings efficiency
technology to buildings, and Erol Demirer of whose firm has
installed two wind farms in Turkey. Dr. R. K. Pachauri, Chairman of
the Intergovernmental Panel on Climate Change (IPCC) described the
links between carbon dioxide emission and climate change. Jefferson
Science Fellow and Columbia University Professor of Applied Physics,
Michael Mauel, illustrated how international partnerships, like the
Asian Pacific Partnership for Clean Energy Development, can aid the
deployment of clean energy technology, showed the potential for
breakthroughs stemming from basic research in biosciences,
nanotechnology, and fusion energy, and explained that "the race to
clean energy is a marathon not a sprint". The latter point was
re-emphasized by Daniel Yergin during his closing remarks when he
declared energy to be at the "carbon tipping point" but the
transformation to carbon-neutral energy will be long and gradual.

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Eurasian Transportation Forum: Caspian Energy from a CERA Viewpoint
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7. (SBU) In contrast to the policy presentations made during the
CERA Istanbul conference, the Eurasian Transportation Forum on June
25 was technically focused. CERA'S Russian, Eurasian, and Caspian
Energy experts presented their views on Bosphorus bypass issues,
Caspian oil exports, Russian gas development, and Caspian gas
transit to Europe. The Transportation Forum was a closed meeting
for over fifty CERA clients and included executives from
Gazprombank, Lukoil, Transneft, TNK-BP, Agip, PetroKazakhstan,
Hellenic Petroleum, Rompetrol Group, TPAO, and the major IOCs.

8. (U) CERA expects Russian gas production to continue to
increase, supplied from the smaller gas and condensate fields in the
Nadym-Pur-Taz (NPT) region and produced from "independent" gas
producers and oil companies. CERA also expects Gazprom to "turn its
full attention" to the new Yamal gas fields and to the costly
construction of its five, high-pressure pipes capable of moving 300
bcm westward. CERA's presentation gave little reason to doubt
Russian gas could supply Europe's growing demand that may require an
additional 200 bcm by 2020.

9. (U) CERA's presentation of Caspian gas transit noted the region
has now returned to Soviet-era gas production levels (more than 160
bcm) and predicts additional production of at least 60 bcm by 2020.
However, CERA suggests that growing regional gas consumption,
including re-injection needs for Kazakh oil fields and Georgia's
desire to sever gas ties to Russia, may limit gas exports.

10. (U) CERA also provided commentary on the "changing prospects"
for Caspian gas transit to Europe. CERA publicly and privately
acknowledged the importance of supply diversity and of Caspian gas
through Turkey to Greece and Italy. However, more important to
CERA's Russia and Eurasian group is how expanding Russian gas
volumes will flow to Europe. The weekend's joint announcement by
Gazprom and Italian oil firm Eni to begin a feasibility study for

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the proposed "South Stream" gas pipeline project gave a sense of
urgency to Turkey's gas transit options. The South Stream Pipeline
would extend from Beregovaya, Russia and under the Black Sea to
Bulgaria. If built, South Stream would provide the Balkans a direct
source of Russian gas without passing through Turkey. CERA Chairman
Yergin and Vice-President Daniel Hobbs viewed South Stream as
"simply another project" and stressed the importance of multiple
routes and sources. Hobbs said, "Turkey will not be excluded from
the energy race, and the Nabucco pipeline does not seem to be
threatened" by the South Stream announcement. In private
discussions, CERA analysts contrasted Russia's "heat" with Caspian
"warmth" and noted South Stream's supply "guarantee" by Gazprom
gives the project at least some degree of significance in spite of
its formidable technical obstacles.

11. (U) Comment. The tenth annual CERA "East Meets West"
conference contained a historic call for regional cooperation from
the Presidents of Turkey, Azerbaijan, Georgia, and Ukraine. The
presidential statements emphasized neighbor-helping-neighbor and
transparent open markets to relieve Russian monopolistic pressures
in energy supply. The conference concluded the "carbon tipping
point" has arrived with the growing importance of efficiency and
renewable energy. However, near-term concerns over oil and gas
supply security seemed more pressing than longer-term goals to
deploy carbon-neutral technology. The South Stream pipeline
announcement, and Russian President Putin's participation at the
Black Sea Economic Cooperation (BSEC) meeting just days before in
Istanbul, gave Russia a "presence" at the meeting that made the
absence of presentations by high-level U.S. officials from
Washington more noticeable. End Comment.

12. (U) Attending the CERA Istanbul conference were Ambassador to
Turkey Ross Wilson, Ambassador to Azerbaijan Anne Derse, and
Jefferson Science Fellow Michael Mauel, who drafted this report.

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