Identifier
Created
Classification
Origin
06BAKU947
2006-06-27 14:01:00
CONFIDENTIAL
Embassy Baku
Cable title:  

BP JUNE UPDATE ON EAST-WEST ENERGY CORRIDOR

Tags:  EPET ENRG PREL AJ KZ IR 
pdf how-to read a cable
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ZNY CCCCC ZZH
P 271401Z JUN 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0660
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000947 

SIPDIS

SIPDIS

DEPT OF ENERGY FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 06/23/2016
TAGS: EPET ENRG PREL AJ KZ IR
SUBJECT: BP JUNE UPDATE ON EAST-WEST ENERGY CORRIDOR


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

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000947

SIPDIS

SIPDIS

DEPT OF ENERGY FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 06/23/2016
TAGS: EPET ENRG PREL AJ KZ IR
SUBJECT: BP JUNE UPDATE ON EAST-WEST ENERGY CORRIDOR


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


1. (C) SUMMARY. In his regular brief for Charge and British
Ambassador, AIOC President David Woodward noted rising
production in the ACG field and the first tanker lifting of
BTC-delivered oil from Ceyhan. The gala ceremonies
officially opening BTC in Ceyhan will take place July 12-13
and the Georgian, Azerbaijani and Kazakhstani Presidents are
confirmed attendees. BP was unable to reach an agreement
with Azerbaijan to provide additional volumes of ACG
associated gas this winter, but Woodward believes Azerbaijan
will be able to make up the gap from other sources. Woodward
noted that SOCAR is becoming more assertive and difficult to
deal with, but also that agreement has been reached to house
the BP-offered macroeconomic modeling mechanism in the State
Oil Fund to assist with revenue management. In Woodward's
view the recently signed Inter-Governmental Agreement (IGA)
for trans-Caspian oil from Kazakhstan to Azerbaijan is
basically fine but he feels the start date for the project is
still some time in the future. Woodward also expressed
concern about news stories that Iran will soon attempt to
exploit the disputed Alov field in the south Caspian. END
SUMMARY.

-------------- --------------
FIRST LIFTING AT CEYHAN, RISING PRODUCTION AT ACG
-------------- --------------


2. (C) AIOC President David Woodward began his June 22
briefing for Charge and UK Ambassador Bristow by noting the
June 4 first lifting of BTC-delivered oil from Ceyhan. The
second lifting was taking place, said Woodward,
simultaneously with this briefing. The official celebrations
of the opening of the pipeline are planned for July 12-13,
said Woodward, beginning with a gala dinner at the Ciragan
Palace in Istanbul on July 12. Attendees will then travel by
air to Adana and coach onward to Ceyhan the following day,
with events planned from 1300-1500 at the terminal. BP is
inviting project partners and financiers, but the vast

majority of invitations are being issued by the Government of
Turkey, said Woodward. So far, Presidents Aliyev,
Saakashvili and Nazarbayev are confirmed as attending.


3. (C) Production at the Azeri-Chirag-Gunashli (ACG) oil
field, which feeds the BTC pipeline, has continued to
increase, said Woodward, having passed half a million barrels
per day just recently and well on course to target production
of one million barrels per day. BP installed a new
water-injection platform in the field recently, said
Woodward. This means BP has had less interest in recovering
the natural gas associated with the ACG oil and reinjecting
that gas into the field to create pressure and bring out more
oil. The associated gas not used for this purpose is piped
to shore for Azerbaijani domestic use. BP currently turns
over 1.4 bcma of this associated gas to Azerbaijan - the GOAJ
has asked this to be raised to 3.0 bcma, said Woodward, but
has been deaf to the argument that BP deserves some
compensation for the drop in oil production that would
result. A deal was not reached, said Woodward, therefore the
figure will stay at 1.4 bcma. The GOAJ went ahead and
planned for 3.0 bcma anyway and became angry with BP when it
became clear that the additional 1.6 bcm would not be
available. Woodward noted, however, that there may be more
volumes coming from Shah Deniz Phase I than expected, and
since Turkey and BOTAS will likely not be ready to accept
Shah Deniz gas before the end of the year, Azerbaijan should
be able to cover the 1.6 bcm "gap" this winter.

-------------- --------------
SOCAR GROWS ASSERTIVE, MACROECONOMIC MODEL MOVES FORWARD
-------------- --------------


4. (C) Woodward returned to a frequent theme and noted that
SOCAR is becoming increasingly more assertive and difficult
to deal with, especially in terms of asserting control over
secondary enterprises such as property leasing, site security
and similar areas (what Ambassador Bristow called "peripheral
privatization"). For example, SOCAR has created a 3,000-man
security force which SOCAR executives assert is for "pipeline

BAKU 00000947 002 OF 002


protection." The Presidential Security Service, with whom BP
already has an excellent working relationship, already
exercises this function. General Akhundov, commander of that
force, has quietly advised Woodward to ignore SOCAR on the
issue and if problems persist, to go to President Aliyev.
Woodward recalled some years ago when then-Minister of Energy
Mecid Kerimov was trying to interfere in BP operations,
Woodward complained to then-President Heydar Aliyev, who told
Kerimov to back off. However, Woodward considers going to
the President as a step to take only in extremis, because if
BP does so and receives no help, it has no further options.
In response to a question, Woodward said it is difficult to
state whether SOCAR is harder to deal with than BP's partners
in other countries. Woodward sees it as a situation where
one individual at the head of SOCAR and his circle are
seeking wealth.


5. (C) On the issue of BP's offer to assist Azerbaijan on
macroeconomic modeling, Woodward said that the Ministry of
Finance, the Ministry of Economic Development and the State
Oil Fund have all agreed that the macroeconomic model will be
housed in the State Oil Fund. BP is also trying to get the
National Bank of Azerbaijan involved and is planning a visit
by Oxford Economic Modeling (the contractor) for the end of
June. Woodward noted dryly that it is still an open question
whether the GOAJ will actually pay attention to the
macroeconomic model once it is in place.

--------------
TRANS-CASPIAN IGA LOOKS OKAY...
--------------


6. (C) When asked about the Azerbaijan-Kazakhstan
trans-Caspian oil project involving the Kashagan field,
Woodward said that, from what he has seen, the IGA recently
signed in Almaty "looks okay." Woodward cautioned that the
IGA is only a "first step" as two Host Government Agreements
(HGAs) still need to be negotiated so it will be a long time
before the project gets started.

--------------
...BUT ALOV DISPUTE MAY RESURFACE
--------------


7. (C) Finally, Woodward noted that he is reading more in the
open press about the deep-water rig being built on Iran's
Caspian coast. This rig, built with Chinese support, is
expected to sail out and work the disputed Alov field.
Iranian gunboats and planes chased an unarmed BP-chartered
Azerbaijani vessel from the Alov field area in late July

2001. The rig, according to Woodward, took longer to build
than expected and ended up more expensive, but will be ready
to sail out in October or November. President Aliyev is
aware of this, according to Woodward. Whether the Iranians
will actually launch the rig is unknown.
HYLAND