STATOIL EXECUTIVES ON SCP COMPLETION AND FURTHER

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000659

SIPDIS

SIPDIS

USDOE FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 05/01/2016
TAGS: EPET ENRG PREL AJ TX KZ
SUBJECT: STATOIL EXECUTIVES ON SCP COMPLETION AND FURTHER
SHAH DENIZ EXPLOITATION


Classified By: acting DCM Joan A. Polaschik, reasons 1.4 (b),(d) and (
e).


1. (C) SUMMARY. Statoil executives in Baku cautioned about
on-time completion of the South Caspian Pipeline (SCP) and
expressed concern about conditions in both Azerbaijan and
Turkey that could be obstacles to further large-scale energy
projects. SOCAR has requested that its share of Shah Deniz
gas be removed from the export stream before the point of
sale, complicating the sales picture. Long term, the Statoil
executives believe Azerbaijan should open Shah Deniz to
full-field development and, after then adding gas from
Kazakhstan and/or Turkmenistan, will be able to export
significant quantities to Europe. New infrastructure beyond
the current SCP line will be required to make this happen.
END SUMMARY.

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DIFFICULTIES IN TURKEY AND AZERBAIJAN
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2. (C) Senior Baku Statoil executives Georg Gundersen, Jan
Heiberg and Sverre Olden Mala invited EUR Ambassador Steven
Mann to lunch April 20 and used the opportunity to update
emboff on SCP developments. The executives were cautious as
to whether SCP could be completed on time. They pointed out
the long delays plaguing BTC and noted that BOTAS, the
Turkish state pipeline company, had gotten a late start with
SCP as well. However, Gundersen argued that the situation is
different for BOTAS in the case of SCP. "With BTC, they are
building a pipeline for someone else," he said. But Turkey
will actually own the Turkish segment of SCP and will
actually obtain gas for domestic use from it. This gives
BOTAS an incentive to work quickly, an incentive that does
not exist with BTC. BOTAS is late on both pipeline and
compressor station construction but SCP can supply initial
volumes even without a Turkey-based compressor station as
long as the line is successfully completed.


3. (C) Gundersen expressed concern over what he characterized
as a new Turkish ban on BOTAS signing new gas contracts with
existing suppliers. This would prevent Turkey from
participating in exploitation of Shah Deniz beyond Phase I.
In addition to getting around this obstacle, Turkey will need
to sign an "extended" Inter-Governmental Agreement if it
wants to participate in further gas export projects from
Azerbaijan. The current IGA only covers Phase I. Gundersen
feels that any attempt to get over these hurdles will be met
with pressure from Russia. He also feels that further
exploitation of Shah Deniz presents a great opportunity for
Turkey of which the Turks should take advantage.


4. (C) Turkey is not the only area where Statoil sees
difficulty. The Statoil executives echoed many in the
international energy community here when they bemoaned what
they see as a "leadership vacuum" on energy issues in
Azerbaijan. While some in SOCAR and the GOAJ appear
interested in new projects, they argued, others seem content
to rest on their laurels. The President should instruct
SOCAR to identify new personnel and devote sufficient
personnel resources to next phase gas development.

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FURTHER EXPLOITING SHAH DENIZ
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5. (C) The Statoil executives noted one recent disturbing
development. SOCAR, the state oil company of Azerbaijan, has
requested that Azerbaijan's share of Shah Deniz gas be
removed from the gas flow before the gas leaves Azerbaijan.
While understanding that Azerbaijan needs gas for domestic
use, the Statoil executives pointed out that removing the gas
before the point of sale will made the amount of gas
available for sale less predictable and less certain. This
issue is still unresolved.


6. (C) As far as getting more Caspian gas into Europe, the
Statoil executives argued that the best way to begin would be
with full-field development of the Shah Deniz field, in other
words, beyond Phase II. Once this process begins, they feel,
it will be easier to bring in participation by Turkmenistan
and/or Kazakhstan. In any event, new infrastructure will be
needed. The existing SCP line, according to the Statoil

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executives, will be able to transport at most 20 bcma. This
will not be enough both to meet projected future domestic
needs in Azerbaijan and Georgia and to transport significant
volumes to Europe. Therefore, a new gas line will be
necessary if cross-Caspian volumes becomea reality. The
executives did not believe, howeer, that a second pipeline
would be infeasible.
HYLAND