USIA - Kalicki: U.S. Supports Caspian Energy Resources, Pipelines, 97-02-20

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KALICKI: U.S. SUPPORTS CASPIAN ENERGY RESOURCES, PIPELINES

(Text: American-Turkish Council conference remarks) (2010)

Addressing the annual conference of the American-Turkish Council in Washington February 20, Kalicki said the Caspian basin along with the Middle East "are probably the most promising new sources of supply for Turkey." The development of multiple pipeline routes, he noted, "will enhance stability and support the independence of states in the region."

Kalicki said transportation of Caspian basin gas will benefit from oil pipelines from the Caspian already agreed and being prepared for use, including a northern route from Azerbaijan's Caspian fields to Novorossisk and a western route transiting Georgia to Supsa.

"If increased gas supplies can reach Israel, as well as Jordan and the Palestine territories, from Egypt as well as from Qatar," Kalicki added, "they could also be transported at a reasonable cost for the limited additional distance to southern Turkey."

He pointed out that the companies who will develop, transport and market these resources, and the financial institutions that will finance both the pipelines and the field development "are the best judges of the most economic, efficient ways" of turning all this potential into reality.

The United States, Kalicki said, believes a close commercial energy relationship with Turkey "will reinforce the long-time alliance and partnership for development and peace between our two countries."

Following is the text of Kalicki's remarks:

(Note: In the following text, "trillion" equals 1,000,000 million, "billion" equals 1,000 million.)

(begin text)

As you have heard from Under Secretary Eizenstat, Ambassador Grossman, and others, we in the U.S. government think Turkey's development is vitally important and, indeed, in the economic and strategic interest of the United States. We view Turkey as one of the ten "big emerging markets" and a close, long-time friend, ally and partner in three regions -- Europe, Central Asia and the Middle East. More immediately, we are confident that American companies have much to offer and much to gain in helping to meet Turkey's energy needs. We have been working on a range of initiatives especially designed to promote our bilateral cooperation in strengthening the Turkish energy sector.

Just two months ago, in December, I had the opportunity to lead a U.S. government delegation to Turkey which visited American and Turkish energy industry executives, including the heads of BOTAS and power generation and distribution companies, as well as high-level Turkish officials, including the Minister of Energy.

There were a number of purposes for this visit:

• To assure Turkey of strong U.S. government and company interest in helping it meet its electric power needs and in investing in the power sector and to gather views on how to make this happen;
• To underscore our desire for an intensified public/private sector dialogue on specific energy projects;
• To reiterate strong USG interest in development of multiple export routes from the Caspian;
• To discuss opportunities for demand management and plant leasing in meeting Turkey's power needs; and very importantly,
• To explore ways in which Turkey could diversify its gas supplies, both piped and LNG.

Turkish officials expressed a strong desire to increase and diversify their gas supply. In general, they reacted favorably to many of our ideas and to proposals to work with the U.S. private sector. Our effort, along with the Department of Energy, and the hard work of Ambassador Grossman and his staff have advanced the prospects for concrete solutions.

U.S. companies have a long history of working with the Turkish energy sector, including with existing power plants, and want to expand cooperation. Our firms can make major additional contributions to efficiency in supply, transmission and consumption; cogeneration; improving the use of existing plants with clean coal technology; increasing power generation by participating in BOT and BOO schemes; and supporting Turkey's focus on the expansion of gas-fired power generation. In addition, U.S. firms are heavily engaged in oil and gas exploration, production and transportation in and through Turkey's neighbors.

Let me turn to a review of pipelines with a look eastward to the enormous hydrocarbon resources of the Caspian basin. The United States strongly supports the rapid, environmentally-safe production of these resources and the development of multiple export pipelines on sound commercial principles -- including transportation from Baku to Ceyhan, from the Caspian to the Mediterranean. From the standpoint of both cost and reliability, the Caspian basin along with the Middle East are probably the most promising new sources of supply for Turkey.

Just at the time the Central Asian and Caucasus states became independent, the late Turkish president Turgut Ozal initiated a policy of close ties, including the development of energy relations. President Demirel put into practice the vision of close relations with these countries, and Turkish companies are already playing a role in several major energy projects. The United States has always supported these close relationships, and we agree with Turkey that the development of multiple pipeline routes will enhance stability and support the independence of states in the region.

Azerbaijan has substantial gas resources, much associated with oil production already under development in the Caspian, that would be ideal for Turkey. According to preliminary estimates, Azerbaijan has potentially over a billion cubic meters (bcm) in gas reserves from currently producing or planned fields. Industry estimates suggest that Azerbaijan could be able to produce for export up to 30-40 bcm/year, if these resources are developed as quickly as possible.

In addition to Azerbaijan, Kazakstan will also have substantial exportable gas. Much of this would be associated gas produced with oil from Tengiz (which alone in the next decade could be producing at full production some 15 bcm of gets a year) or the Caspian shelf, which could be transported north around the Caspian, or attached ultimately to a trans-Caspian pipeline to link up with routes from Azerbaijan.

Finally, of particular importance for the future are Turkmenistan's enormous proved gas reserves of 4.4 trillion cubic meters and possible additional resources of a like amount, some of which could be transported across the Caspian and fed into a trans-Caucasus pipeline system. While Turkmenistan now produces 30 bcm/year, new transportation outlets would permit it to increase its production at least to the 80 bcm/year level achieved in the heyday of Soviet production.

Transportation of Caspian basin gas will benefit from oil pipelines from the Caspian already agreed and being prepared for use. A "northern route" agreed between Russia and Azerbaijan would bring oil from Azerbaijan's Caspian fields to the Black sea port of Novorossisk. A "western route" for oil is being prepared which will transit Georgia to Supsa, also on the Black Sea. These oil routes and the existing gas pipelines along the "western route," parts of which go all the way to the Black Sea, have raised the prospect of the so-called "Georgian energy corridor" to eastern Turkey. Once export is under way, continued oil and gas development will provide substantial hydrocarbon resources that can be carried into Turkey, both for onward transit and for domestic use.

The signing in December of an agreement restructuring the Caspian Pipeline Consortium, a now-well-balanced, multinational public-private project to transport oil from Kazakstan to western markets, initially via Novorossisk, was also an important step in unlocking Caspian basin resources. Production growth would strengthen the potential of the Georgian corridor or other oil pipeline routes through Turkey. Furthermore, development of the Georgian route would enhance the possibility of Russian gas coming through Georgia to Eastern Turkey.

I want to mention one more potential route for the long term. If increased gas supplies can reach Israel, as well as Jordan and the Palestinian territories, from Egypt as well as from Qatar, they could also be transported at a reasonable cost for the limited additional distance to southern Turkey. This would be a bonus for Turkish energy security as well as the cause of peace and development in the Middle East.

In any event, liquefied natural gas (LNG) is an important additional energy option for Turkey's future development. U.S. companies are world leaders in LNG projects. LNG can provide a key secondary source of supply to Turkey, with ultimate capacities of perhaps one-quarter to a third of total projected needs. Once regasification facilities are in place, there are excellent prospects from new as well as traditional sources. These are large new fields in Egypt, and an important agreement was signed at the Cairo Economic Conference last November, which would supply the currently proposed LNG projects. This could be an important supplement to expanding supplies from Algeria, as well as in the future from Qatar and Yemen, where U.S. companies are actively developing this resource.

In turning all this potential into reality, however, it is important to remember that the companies who will develop, transport, and market these resources and the financial institutions that will finance both the pipelines and the field development are the best judges of the most economic, efficient ways of doing this.

One option, in our view, is not a good one. The United States has deep concerns about energy and other transactions with Iran. There are several reasons for Turkey to be concerned. One is reliability of supply. Iran's energy relations with its customers can be readily affected by Iran's agenda above and beyond commercial considerations. The prospect for international finance of such projects is limited. Of course, there are security concerns. In addition, Iran can be expected to use its revenues to continue to pursue unacceptable international behavior, including undermining the Middle East peace process, acquiring weapons of mass destruction, and supporting terrorism. A boost to Iran's income would also send the wrong message to Iran that Turkey accepted this behavior. For these reasons, we believe Turkey should consider whether its interests are not best served by working with more reliable energy partners that share its basic values.

Looking ahead, we plan to continue advocacy for the power and other projects proposed by U.S. companies; we hope to meet with many of you this week in private/public sector energy meetings, at the ATC, and in separate meetings.

One of our major goals this week is meeting with Turkish officials to move forward with the US-Turkey Business Development Council headed on the U.S. side by Acting Assistant Secretary of Commerce Will Ginsberg. We also plan to organize an energy subcommittee of the BDC in the near future. BDC's have proven effective vehicles for promoting as well as removing any obstacles to increased trade and investment with key commercial partners of the United States -- which Turkey most certainly is.

To conclude, the US government will maintain a robust engagement with Turkey and its energy industry on oil and gas pipelines as well as other elements of the power generation chain. We believe this will pay off handsomely for both sides, in increasing cooperation between U.S. and Turkish firms, and in helping Turkey to diversify prudently its energy supply needs through safe, reliable and friendly sources. A close commercial energy relationship will, in turn, reinforce the long-time alliance and partnership for development and peace between our two countries.

(end text)

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