Identifier
Created
Classification
Origin
06BAKU1807
2006-12-11 15:12:00
CONFIDENTIAL
Embassy Baku
Cable title:  

BP AND GOAJ CONFIRM DEAL REACHED ON SHAH DENIZ GAS

Tags:  ENRG EPET PREL PGOV RU GG TU AJ 
pdf how-to read a cable
VZCZCXRO1792
PP RUEHAG RUEHDBU RUEHROV
DE RUEHKB #1807/01 3451512
ZNY CCCCC ZZH
P 111512Z DEC 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 1953
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 1903
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 BAKU 001807 

SIPDIS

SIPDIS

DEPT FOR EUR DAS BRYZA, EB DAS SIMONS
EUCOM PLEASE PASS TO AMB DERSE; ANKARA FOR AMB WILSON

E.O. 12958: DECL: 12/11/2016
TAGS: ENRG EPET PREL PGOV RU GG TU AJ
SUBJECT: BP AND GOAJ CONFIRM DEAL REACHED ON SHAH DENIZ GAS

REF: (A) BAKU 1794 (B) BAKU 1789 (C) BAKU 1771

Classified By: CHARGE D'AFFAIRES JASON P. HYLAND, PER REASONS 1.4 (B, D
)

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 001807

SIPDIS

SIPDIS

DEPT FOR EUR DAS BRYZA, EB DAS SIMONS
EUCOM PLEASE PASS TO AMB DERSE; ANKARA FOR AMB WILSON

E.O. 12958: DECL: 12/11/2016
TAGS: ENRG EPET PREL PGOV RU GG TU AJ
SUBJECT: BP AND GOAJ CONFIRM DEAL REACHED ON SHAH DENIZ GAS

REF: (A) BAKU 1794 (B) BAKU 1789 (C) BAKU 1771

Classified By: CHARGE D'AFFAIRES JASON P. HYLAND, PER REASONS 1.4 (B, D
)


1. (C) SUMMARY: According to BP Azerbaijan President Bill
Schrader, during a December 9 meeting with SOCAR President
Rovnaq Abdullayev, SOCAR officially informed BP as the Shah
Deniz Operator that that the Energy Ministers of Turkey,
Azerbaijan and Georgia had agreed to redistribute Turkey's
2007 Shah Deniz volumes. According to Abdullayev, Azerbaijan
will take 1.3 billion cubic meters (bcm),Georgia will take
0.8 bcm, and Turkey will take 0.7 bcm. Minister of Energy
Natiq Aliyev confirmed this information in a December 11
telephone call with Charge. Aliyev added that the sales and
purchase agreement would be finalized in a December 14
expert-level meeting in Baku. Schrader said that as part of
this new agreement, Georgia and Azerbaijan are eager to move
forward with First Gas ceremonies December 21-23 in Baku;
Azerbaijan reportedly seeks high-level representation from
the USG, UK Government and BP. Schrader said SOCAR seemed
'elated' that Azerbaijan, Turkey and Georgia cooperation
would result in "beating the beast back" and buying no gas
from Gazprom. However, MinEnergy Aliyev worries that Turkey
may back out of the deal and asked for USG help in shoring up
Guler's support. BP also notes that the deal still leaves
Azerbaijan with a a daily shortage of some 200-300 million
standard cubic feet per day (scf/d) of gas in January. End
summary.


2. (C) On December 9 the Ambassador spoke with BP Azerbaijan
President Bill Schrader about his meeting earlier that day
with SOCAR President Rovnaq Abdullayev. Schrader said that
as operator for the Shah Deniz field, he had been called in
to see Abdullayev to receive a message from the GOAJ via
SOCAR, subsequent to the December 8 Energy Minister Tbilisi
Trilateral summit.


Shah Deniz Agreement Reached - First Gas to Follow?
-------------- --------------


3. (C) Abdullayev told Schrader that at the December 8
trilateral meeting, the Energy Ministers of Turkey,
Azerbaijan and Georgia had agreed to re-distribute Turkey's
2007 Shah Deniz volumes. According to Abdullayev, Azerbaijan
will take 1.3 billion cubic meters (bcm),Georgia will take
0.8 bcm, and Turkey will take 0.7 bcm.


4. (C) Energy Minister Natiq Aliyev confirmed this
information in a December 11 telcon with Charge. Aliyev said
the GOAJ will host an expert level meeting in Baku on
December 14 in which the gas redistribution volumes between
the three countries would be finalized as a sales and
purchase agreement. Aliyev also said that Turkey would not
take its volumes until July 1, 2007. Aliyev expressed
uncertainty to Charge regarding Turkish Energy Minister
Guler's commitment to the deal and urged USG support to
ensure Turkey's participation, noting that the US Embassy in
Ankara has very good relations with Guler.


5. (C) Separately, Schrader informed us December 11 that at
the December 8 trilat, Georgia proposed that Azerbaijan host
First Gas ceremonies in Baku December 21-23. Schrader said
that in a December 11 meeting, Presidential Energy Advisor
Ali Asadov announced to BP that President Aliyev supports
Georgia's proposal and seeks high-level representation from
BP (Lord Browne),the British Government, and the U.S.
Government. Schrader said the timing is bad for BP, and
asked for USG support in trying to change the dates for the
ceremony. If the GOAJ persists in holding the First gas
celebration December 21-23, Schrader said that he most likely
would be the highest level BP official in attendance.
Schrader told Charge December 11 that he believed Georgian
President Saakashvili was the biggest proponent of this
event, even though BP had been counseling him not to take
these steps that would attract Russian ire. (We are trying
to reach Presidential Energy Advisor Ali Asadov to discuss
the GOAJ proposal for a December 21-23 First Gas
celebration.)

"Beating Back the Beast"
--------------

BAKU 00001807 002 OF 003




6. (C) Schrader told the Ambassador that the most remarkable
aspect of his meeting with SOCAR was the attitude of defiance
towards Russia, and of elation that "all three worked
together to beat the beast back." Schrader said that per
SOCAR, Azerbaijan and Georgia's stated objective was to "buy
no gas from GAZPROM." According to Schrader, Azerbaijan was
upset that Russia signed a gas deal with Armenia for USD 110
per thousand cubic meter (mcm),with Rovnaq saying the most
Azerbaijan would pay Russia is USD130/mcm. Abdullayev said
Azerbaijan would "burn crude if we have to" to avoid buying
from Russia.


7. (C) According to Schrader, Azerbaijan might well have to
"burn crude," since "no matter which way you cut it and how
much gas you try to squeeze out of what is available," there
will be a daily shortage of some 200-300 million standard
cubic feet per day (scf/d) of gas equivalent in January
(approximately 300,000 barrels, or about 50,000 barrels a
day, of crude - a lot.) February and March will be easier
and by April "we'll be out of the woods," Schrader told the
Ambassador (repeating comments made in Ref).


8. (C) Schrader said Azerbaijan understands it must "suffer
for a month to teach GAZPROM a lesson," but it seems prepared
and even eager to do so to avoid buying gas from Russia. He
said SOCAR wants to keep this deal a secret - it does not
want GAZPROM to learn of the decision. In this connection,
Abdullayev expressed concern about the Turkish Minister, who
Rovnag said "agreed reluctantly" to the arrangement in
Tbilisi, and who left "not feeling great about the outcome,"
perhaps feeling "he gave something up" by agreeing to sell
some Turkish gas to Georgia for $120 per mcm. SOCAR did not
reveal any details of discussion in Tbilisi concerning
compensation for Turkey. According to Schrader, SOCAR is
fearful Turkey may "flake on the deal" and not show up in
Baku on December 12.


9. (C) Schrader acknowledged openly to the Ambassador that
the whole problem this winter was created because "we are
five to six months late with Shah Deniz." He said Abdullayev
delivered a "warning" to Schrader for the ACG partners to
increase the delivery of associated gas from the ACG field to
SOCAR to support this nascent deal. To this end, BP said
SOCAR asked for an additional 1.5 bcm in associated gas from
ACG, in addition to the 1.5 bcm of free ACG gas it already is
slated to get in 2007. BP's reply to SOCAR was that it will
"give Azerbaijan as much as we can physically get to you
(likely to be up to 300m scf/d) while Shah Deniz production
is ramping up (BP expects to be fully on schedule with three
wells by April 2007) and to get through the crisis period of
January through March." However, BP won't agree to a blanket
additional 1.5 bcm/a for all of 2007, which it says it needs
for reservoir maintenance. Schrader was confident this
difference can be worked out because SOCAR and BP are both
looking at the January-March period as one that must be
managed on a daily, not a yearly, basis. In BP's view, it is
question of how much gas can be made available on any one day
through the crisis period.


10. (C) Schrader said that BP and SOCAR's working group on
the shorter-term gas needs will work "all day on Monday"
(December 12) on technical details. SOCAR tasked BP to make
sure the ACG partners are on board. ( As reported reftel,
Schrader had told the Ambassador that he was likely to get
flak from his ACG partners for this offer of extra free
associated ACG gas to SOCAR, but that he saw no other viable
option.) Schrader told the Ambassador that SOCAR itself
would work the commercial aspects of the re-distribution of
Shah Deniz volumes with STATOIL as the marketer. Turkey has
a contract for 300bcm from Shah Deniz, and "we'll let them"
split it up any way they want," Schrader said.

BP's Next Steps
--------------


11. (C) Schrader said he has a meeting with Aliyev's energy
advisor Ali Asadov on December 11 to present BP's plan, and
that he has requested and expects to meet President after
meeting Asadov, at which point he will brief Aliyev on the BP
proposal to help Azerbaijan and Georgia through the winter.
BP will keep trying to get Shad Deniz wells up and running as

BAKU 00001807 003 OF 003


quickly as possible, and will get maximum ACG associated gas
to Azerbaijan until the first three Shah Deniz wells are up
and running. BP will also work with SOCAR on technical ways
to get more out of the fields SOCAR is working.

COMMENT
--------------


12. (C) Schrader told the Ambassador that he is not planning
for a December 14 meeting, as things are developing
positively. Given that this meeting will be at an
experts-level, simply to simply to finalize already-agreed
volumes, it does not appear necessary to have USG
representation at this meeting.
HYLAND