143705 2/29/2008 13:34 08ANKARA402 Embassy Ankara CONFIDENTIAL 08ANKARA35|08BUCHAREST88 VZCZCXYZ0000 RR RUEHWEB DE RUEHAK #0402/01 0601334 ZNY CCCCC ZZH R 291334Z FEB 08 FM AMEMBASSY ANKARA TO RUEHC/SECSTATE WASHDC 5428 INFO RUCNMEM/EU MEMBER STATES COLLECTIVE RUEHAH/AMEMBASSY ASHGABAT 1953 RUEHTA/AMEMBASSY ASTANA 0028 RUEHKB/AMEMBASSY BAKU 1558 RUEHBM/AMEMBASSY BUCHAREST 1063 RUEHKV/AMEMBASSY KYIV 0038 RUEHMO/AMEMBASSY MOSCOW 5587 RUEHSI/AMEMBASSY TBILISI 3141 RUEUITH/ODC ANKARA TU RUEAIIA/CIA WASHDC RHEHAAA/NSC WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC RHEBAAA/DEPT OF ENERGY WASHINGTON DC C O N F I D E N T I A L ANKARA 000402
EEB FOR SULLIVAN, MANN, GALLOGLY EUR FOR DAS BRYZA NSC FOR CATIPON DOE FOR HEGBURG
STATE PASS TO USTDA STEIN
E.O. 12958: DECL: 02/28/2018 TAGS: ECON, EFIN, ENRG, EPET, PREL, RO, TU SUBJECT: TURKEY'S VIEW ON LNG THROUGH THE BOSPORUS STRAITS
REF: A. BUCHAREST 00088 B. ANKARA 00035
Classified By: Economic Counselor Dale Eppler for reasons 1.4 (B) and (D)
1. (U) This is a joint Embassy Ankara/Consulate General Istanbul report.
2. (C) Summary and comment: In reference to proposed liquefied natural gas (LNG) terminal in Constanza (ref A), we researched LNG transit through the Bosporus and Dardanelles Straits. Currently, no LNG transits the Bosporus Straits; however, a small amount of heavily-regulated liquefied petroleum gas (LPG) is allowed passage. Through the Dardanelles, a small amount of LNG passes. The Turks said they cannot prohibit the passage of LNG through the Bosporus, but believe they can implement additional restrictions because it is considered hazardous cargo under the Montreaux Convention, and the Bosporus already is at capacity for hazmat transit. According to Chevron, long waiting times for LNG transit through the Bosporus could sink the business case for the Constanza terminal. To our surprise, the Romanian Embassy in Ankara told us they expect the U.S. to negotiate LNG transit terms with Turkey. We believe Romania should take the lead in discussing the project with the Turks. If the project is on the agenda for the NATO forum in April, Romania should consult with the Turks prior to that meeting. The Turks will be looking at many factors regarding LNG transit, such as whether proposed Bosporus bypass oil pipelines will reduce Bosporus tanker traffic. They also will be sensitive to political pressure from Istanbul to reduce hazmat traffic. End summary and comment.
LNG Through the Bosporus Straits?
3. (U) According to MFA Maritime Undersecretariat Navigation Safety Department Head Okay Kilic and Vessel Transit System Captain Tuncay Cehreli, the GOT already regulates the transit of a small amount of liquefied petroleum gas (LPG) through the Bosporus and a small amount of liquefied natural gas (LNG) through the Cannakale Straits or Dardanelles. There are currently two LNG re-gasification and storage terminals in Turkey -- one in Izmir and one on the Sea of Marmara -- that can only be reached by transiting the Dardanelles.
4. (U) LPG and LNG are considered hazardous cargo under the Montreaux Convention, the regulatory regime governing the straits. Vessels carrying hazardous cargo must adhere to strict safety and security measures. If the vessels call at Turkish ports, they must allow a Turkish pilot to board the ship and be guided by tug boats. For vessels passing through the straits without a port call, pilots and tugs are recommended but not mandatory. In addition, ships with hazardous cargo must provide a minimum of 24-hour advance notification, pass only during daylight hours, and hazardous traffic through the straits can only flow in one direction at a time.
5. (C) No LNG currently passes through the Bosporus straits. Since the Straits are even more narrow and difficult to navigate than the Dardanelles, Kilic speculated that the GOT could introduce additional safety measures for LNG transit but did not think the GOT could prohibit LNG transit altogether. Cehreli told us that the Bosporus is "at capacity" for hazardous cargo. Approximately, 150 vessels carrying 920,000 million tons (M/T) of cargo pass daily through the Bosporus. Of these, 27 ships carry 395,000 M/T of hazardous cargo. Two of the 27 hazardous cargo tankers are LPG tankers. Annual LPG transit through the Bosporus was 4,644,903 M/T in 2006. Because hazardous cargo requires the Straits to close to cross traffic, the effect of increased hazardous cargo transit would be a 50% reduction in capacity of the Straits, and/or very long wait times.
Is LNG through the Straits Economic?
6. (C) We understand that Iran's gas cut off to Turkey in January caused Turkey to increase its LNG purchase on the spot market (ref B). According to Chevron shipping captain Kjell Landin, the Turks now give special shipping priority to LNG cargo. Landin said that as a result, LNG cargo through the Dardanelles has jumped to the front of the line, delaying other ships, perhaps in violation of WTO principles of equal access. Landin speculated that Turkey would not likely grant this preferential treatment to ships from other countries and may face legal challenges if it were to continue this practice. Landin said without a steady flow of LNG cargo, the economics of the Constanza LNG terminal might not work. Due to safety regulations that would shut down the Straits to allow for the transit of an LNG ship, LNG passage would increase congestion and shipping times in the Straits. Already, in the winter months, oil tankers can wait up to 30 days for a Straits transit slot. Landin speculated that the cost of having an LNG terminal sit idle that long would be prohibitive. He thought that a gas liquefaction terminal build on the Black Sea, perhaps on the Georgian border, would improve the economic prospects of the Constanza project. However, in a separate meeting with StatOil Turkey General Manager Sverre Mala, we heard that neither LNG nor LPG transited across the Black Sea would be economic compared to building a pipeline such as the proposed White Stream project.
Romania Expects U.S. to Negotiate LNG transit
7. (C) Romanian Economic Counselor Dmitri Radoi told us he is under strict instructions from the Romanian Foreign Ministry not to discuss the LNG terminal proposal with the GOT. He said the transit of LNG through the Straits is a very sensitive issue and, since this would be a joint U.S.-Romanian project, it would be "incumbent upon" the U.S. to negotiate the transit terms with Turkey. He said Romania understands the best way to gain Turkey's acceptance is to invite them to join the project, although he declined to provide any details on what role the Turks could play.
8. (C) Comment: Turkey probably would look more favorably on the Constanza project if they are included as a partner in the early stages, although we don't believe it would be the deciding factor. Conversely, if Romania decides to back White Stream or other gas projects that bypass Turkey, that would almost certainly reduce the likelihood of getting a favorable Turkish response on LNG. There are many other factors that will affect Turkey's thinking on LNG transit, such as a possible reduction in oil tanker traffic if and when a Bosporus bypass oil pipeline becomes a reality, or a shipping accident in the Straits that increases political pressure from Istanbul to further restrict hazardous cargo.
Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey