AZERBAIJAN: BP EXEC MEETS PRESIDENT ALIYEV, SOCAR

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 001717

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/19/2016
TAGS: EPET AJ PREL
SUBJECT: AZERBAIJAN: BP EXEC MEETS PRESIDENT ALIYEV, SOCAR
PRESIDENT ABDULLAYEV

REF: A. 11/03/06 BAHL EMAIL


B. 11/03/06 YOUNG EMAIL

BAKU 00001717 001.2 OF 002


Classified By: Ambassador Anne. E. Derse, Reasons 1.4 (b,d)


1. (C) SUMMARY: This cable relays for broader distribution
informed shared earlier in ref email. In a November 2
meeting, BP Executive Vice President Andy Inglis gave the
Ambassador his read-out of separate meetings earlier that day
with President Aliyev and with SOCAR President Rovnaq
Abdullayev. Aliyev seemed resolute in his desire to provide
Georgia with gas, despite any possible negative repercussions
it would have on Gazprom gas sales to Azerbaijan. Aliyev
agreed to the formation of a joint BP-SOCAR working group to
address short-term gas issues. Abdullayev told of his just
completed visit to Turkey, where he was unsuccessful in
getting Energy Minister Gular to agree to forgoing 2007 Shah
Deniz gas deliveries. Inglis asked for USG help in
persuading Turkey to work with Azerbaijan to find a mutually
satisfactory solution to the short-term gas shortage such
that longer-term gas deliveries to Turkey and Europe are not
imperiled. BP believes this problem needs to be fixed by
December. Embassy will continue to engage with the
appropriate GOAJ interlocutors to help ensure that a mutually
satisfactory solution is found to any upcoming regional gas
shortage. END SUMMARY


2. (C) On November 2 the Ambassador met with BP Azerbaijan
President David Woodward (outgoing),BP Azerbaijan President
Bill Schrader (incoming),BP Executive Vice-President and
Deputy Chief Executive of Exploration and Production Andy
Inglis, BP Group VP for Caspian/Middle East/Africa Richard
Paniguian, and UK Ambassador Laurie Bristow, to discuss the
BP group's separate meetings earlier that day with President
Aliyev and SOCAR President Rovnaq Abdullayev.

READOUT OF BP - ALIYEV MTG
-------------- --


3. (C) Inglis explained that he had met most recently with
President Aliyev approximately three months previously, and
met with him this trip to discuss the four main themes of a
white paper BP presented to him, focused on past and future
BP assistance to Azerbaijan. Inglis said the four main
themes of this white paper (a copy of which was subsequently
given to the Ambassador) were:

- resolving current ACG-related issues to maximize recovery
-developing a gas strategy to accelerate GOAJ energy
self-sufficiency
- supporting SOCAR in developing its capabilities
- furthering BP's broader commitment to Azerbaijan (i.e. BP
social programs)


4. (C) Inglis said that President Aliyev was pessimistic
about the GOAJ receiving gas from Russia in 2007 (this
meeting took place before Aliyev's November 9 Moscow meeting
with Putin, during which they were reportedly unable to come
to an agreement on gas sales). Aliyev believed it quite
possible that the GOAJ would receive no gas from Gazprom in
2007, or at best, only 1.5 billion cubic meters (bcm) at USD
230 per thousand cubic meters (tcm). Aliyev thought that
Russia sought to cut gas flows to Georgia for political
reasons, and that if the GOAJ supplied Georgia with gas for
the 2007 winter it too would be deprived of Russian gas, a
fate to which Aliyev was resigned. ("Even in our darkest
days, we never bowed," Aliyev told the executives). In this
regard, Inglis told the Ambassador that BP thinks that Aliyev
will not take Gazprom gas under the stipulation that
Azerbaijan provide no gas to Georgia. (In a separate meeting
with the BP Caspian Development Advisory Panel on November 2,
President Aliyev reportedly said that GOAJ would seek to
supply Georgia up to one bcm).


5. (C) Concerning possible 2007 Azerbaijan gas shortages,
Inglis said that President Aliyev agreed to a proposal
included in the BP White Paper for a joint BP-SOCAR working
group to identify possible solutions for reducing potential
gas shortfalls over the coming 2006/2007 winter. This group
will report to President Aliyev and Inglis before the end of

2006. As for possible alternative supplies of gas for
Azerbaijan, Inglis said that with 'early access' to ACG deep
gas, GOAJ could produce 1-3 bcm/a from this source by 2008-9.
(Comment: BP and SOCAR have distinctly different priorities
when discussing how best to tackle Azerbaijan's short-term
domestic gas needs. BP highlights the possibility of GOAJ

BAKU 00001717 002.2 OF 002


agreeing that BP exploit ACG deep gas, not part of the
current PSA, while SOCAR prefers that BP give Azerbaijan more
associated gas from the current ACG exploitation, which BP
seeks to use for re-injection).


6. (C) Concerning his impression of President Aliyev, Inglis
said that President Aliyev 'gets' the oil/gas industry, and
displays a mastery of the related details. Inglis said
Aliyev seemed more confident about Azerbaijan's increasing
ability to act independently regionally than he did in
previous meetings. Inglis said he was concerned that GOAJ's
self-confidence might extend itself into unwarranted GOAJ
hubris. Inglis also said that Aliyev had the correct
strategic vision about what Azerbaijan had to do to ensure a
prosperous and stable future, but there was a serious
question as to whether there was sufficient implementation
capacity in the GOAJ to successfully implement his vision.
(Comment: Other senior visitors who have met recently with
Aliyev including the annual EBRD delegation and the Caspian
Development Advisory Panel echoed this view of Aliyev's new
confidence and mastery of the issues.)

READOUT OF BP-SOCAR MTG
--------------


7. (C) Inglis told the Ambassador that he had met with SOCAR
President Aliyev immediately after his meeting with President
Aliyev. Abdullayev had just returned from the trip he and
DPM Abid Sharifov had made to Turkey, where they met with
Energy Minister Gular and Botas to inform them of the GOAJ's
desire to amend their agreement on delivering Shah Deniz gas.
Abdullayev told Inglis that upon hearing of the GOAJ's
short-term gas problems, Gular commiserated but reminded
Abdullayev that Turkey had a valid contract, and was
expecting delivery of the contracted gas (Comment: Abdullayev
apparently did not tell Inglis of Turkey's counter-proposal,
in which Turkey offered to delay acceptance of some 2007 Shah
Deniz gas, as long as the delayed amounts were delivered in
subsequent years at the agreed upon price of USD 120/tcm.
Giving his impression of the SOCAR meeting to the Ambassador,
Inglis said that it seemed there was no meaningful dialogue
between Abdullayev/Sharifov and their Turkish interlocutors).

BP ASSESSMENT
--------------


8. (C) Inglis told the Ambassador and UK Ambassador Bristow
that BP needs both USG and UK help in moving Turkey toward a
mutually satisfactory solution with Azerbaijan regarding 2007
Shah Deniz gas supplies to Turkey. BP also needs help in
getting the political signals down to the working levels that
Turkey wants to help Azerbaijan and Georgia. He stressed
that the question of how much 2007 Shah Deniz gas Turkey is
to get and at what prices "needs to be fixed by December,"
otherwise all concerned will start to panic as January 01,
2007 approaches. Inglis said that he did not think that
Turkey was technically ready to receive the Shah Deniz gas,
and that due to the approaching winter, completion might
'slide' until spring. "While the Turks are great at laying
pipe, they have problems with things like block valves."
(Note: In a subsequent meeting, BP President Woodward told
the Ambassador that Turkey could accelerate its preparation
to receive Shah Deniz gas by ignoring international standards
and doing a 'rush job').
DERSE