EUR DAS MATT BRYZA AND TURKISH ENERGY ENVOY MEET

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 001010

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/CARC AND EB/ESC
DEPT OF ENERGY FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 06/19/2016
TAGS: ENRG ECON EPET EFIN PREL KZ RU TR
SUBJECT: EUR DAS MATT BRYZA AND TURKISH ENERGY ENVOY MEET
SOCAR MARKETING VP ELSHAD NASIROV

REF: BAKU 736

Classified By: Charge d'Affaires Jason P. Hyland, reasons 1.4 (b),(d)
and (e).


1. (C) SUMMARY. EUR DAS Matthew J. Bryza and Turkish MFA
Special Energy Envoy Ambassador Mithat Balkan met with Elshad
Nasirov, Vice President (marketing) of Azerbaijan's State Oil
Company (SOCAR) on June 7 to discuss development of a new
"Southern Corridor" to help Europe diversify gas supplies
from the Caspian. Nasirov said that while Azerbaijan's
number one priority is assuring adequate domestic supplies,
Azerbaijan could certainly export gas volumes to Europe.
Eventually, Nasirov added, Central Asian gas volumes could
join this southern corridor, most likely from Kazakhstan.
Nasirov agreed that the project needs to move quickly, in the
face of Gazprom's rising prices and the prospect of
Kazakhstan obligating its volumes to China. Nasirov also
expressed concern that Turkey would want to buy and resell
the Azerbaijani gas at potentially non-commercial prices
rather than allow the gas to transit for a set fee. Nasirov
pointed out that such a Gazprom-like approach would render
the southern corridor non-viable. On the Inter-Governmental
Agreement for trans-Caspian oil between Kazakhstan and
Azerbaijan, Nasirov said that the demands of international
investors to settle all outstanding issues in this document
were "excessive." END SUMMARY.

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A NEW VISION: THE SOUTHERN GAS CORRIDOR
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2. (C) DAS Bryza, accompanied by Charge, S/P consultant Steve
Hellman and Energy Officer, began the meeting by discussing
the reinvigorated strategic partnership between the United
States and Turkey, including energy, and symbolized by the
joint presence of DAS Bryza and Ambassador Balkan. DAS Bryza
described the vision of a new "southern corridor" to bring
Caspian gas resources to Europe, specifically bringing
Azerbaijani gas to Greece, and introduced S/P consultant
Steve Hellman as someone with extensive commercial experience
who would provide subject-matter expertise. DAS Bryza said
it is important for Azerbaijan to "win the race" with Gazprom
for access to markets in Italy and Greece, with Greece being
the greater priority, by getting Azerbaijani gas into the
Turkey-Greece-Italy Interconnector (TGI). Ambassador Balkan
echoed this, pointing out that Azerbaijan could secure
serious market share in the future by making small, symbolic
sales now.

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AZERBAIJANI ENERGY POLICY - MARKET ACCESS, DOMESTIC NEEDS
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3. (C) Nasirov responded by relating Azerbaijan's energy
policy to its geostrategic position as a small country stuck
between two powerful neighbors - "it is difficult to be the
meat in the hamburger." BTC made sense for Azerbaijan - not
only politically, he stressed, but economically. Nasirov
pointed out that sending Azerbaijani oil either through
Russia or Iran would have placed that oil in direct
competition with Russian and Iranian volumes for limited port
and shipping facilities. Only through BTC had Azerbaijan
been able to achieve access to the international market. BTC
has the added benefit of being a Bosphorus bypass and assists
in stabilizing Georgia (a country, Nasirov dryly noted, which
seems "an ideal illustration of Trotsky's concept of the
permanent revolution").


4. (C) When it comes to gas, Nasirov said that Azerbaijan's
first priority is to satisfy its domestic needs (after
meeting its existing commitments to Georgia and Turkey). He
related again the story of how in 2005 Gazprom officials
unilaterally altered their negotiated gas sale agreement with
Azerbaijan from a price of USD 60 per cubic meter to a price
of USD 110 per thousand cubic meters (reftel). Nasirov noted
that some in Azerbaijan have advocated buying more Iranian
gas as a quick way of reducing dependence on Russian gas, but
as "the Iranians have been trading for three thousand years,"
it is doubtful that their price will be any better than
Russia's. Iran now supplies gas to Azerbaijan's exclave of

BAKU 00001010 002 OF 002


Nakchivan in exchange for Azerbaijani electricity to northern
Iran, Nasirov said. Nasirov added that Iran still "owes"
some gas to Azerbaijan, and at the Kiev GUAM summit, it was
proposed that this "returned" gas from Iran be funneled to
Georgia - but the Georgians and Iranians have to first agree
on price. Nasirov pointed out that Azerbaijan plans to
increase its own domestic, non-Shah Deniz gas production by 1
bcma in any event.

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GAS EXPORT LIKELY BUT NOT WITH A "TURKISH GAZPROM"
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5. (C) Nasirov said that he does not see Azerbaijan's
domestic gas needs preventing Azerbaijan from becoming a
major gas exporter. However, Nasirov expressed concern about
the possibility that Turkish state pipeline company BOTAS
would buy and resell Azerbaijani gas rather than allow the
gas to transit Turkey. Nasirov pointed out that there is no
point building a new gas route to avoid the Gazprom monopoly
if Turkey functions as a "second Gazprom." Ambassador Balkan
said he would convey these thoughts to Ankara.

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KAZAKHSTAN THE MOST LIKELY CENTRAL ASIAN PARTNER
-------------- ---


6. (C) Nasirov said that Kazakhstan should eventually be
added to the proposed southern gas corridor, and once a
Kazakhstan-Azerbaijan gas pipeline is built it could also
carry Turkmenistani or Uzbekistani gas. However, echoing a
common Azerbaijani theme, Nasirov pointed out that Kazakhstan
is tied to Russia in many ways and therefore must move
gradually on this project. The addition of Central Asian gas
to Azerbaijan's gas volumes, said Nasirov, could provide
enough gas to supply not only the TGI but also the Nabucco
project. Nasirov agreed that speed is vital for two reasons.
One is that Gazprom will continue to increase its gas prices
to Azerbaijan. The other is that Kazakhstan could end up
obligating all its available gas (which Nasirov estimated as
50-60 bcm) to China. Nasirov added that he does not feel
Turkmenistan is a realistic possibility for gas export under
its current leadership and that he does not expect that
situation to change for some time.

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IGA FOR TRANS-CASPIAN OIL
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7. (C) DAS Bryza noted that there is some concern that the
draft IGA for trans-Caspian oil between Kazakhstan and
Azerbaijan is insufficiently attentive to investor concerns.
Nasirov responded that the international partners had made
excessive demands that everything be settled in the IGA in
order to start investments. Nasirov said he had talked to
Kazakhstan's Deputy Energy Minister Kiinov who had agreed
that the pre-existing text had been "all about the
investors." Nasirov pointed out that the HGAs would yet be
negotiated and the IGA and HGA would be signed as a package.


8. (U) DAS Bryza has cleared this cable.
HYLAND