WITH GAS USAGE ACCELERATING, GOAM PREPARING FOR WORST

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000110

SIPDIS

DEPT FOR EUR/CACEN

E.O. 12958: DECL: 01/25/2016
TAGS: PREL RS GG IR AM ENGR AZ
SUBJECT: WITH GAS USAGE ACCELERATING, GOAM PREPARING FOR WORST

REF: YEREVAN 98

Classified By: DCM A.F. Godfrey for reasons 1.4 (b,d).

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SUMMARY
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1. (C) ArmRosGazprom (ARG) has drawn roughly half of Armenia's
useful reserves -- much quicker than initially expected -- since the
January 22 cut off of natural gas supplies from Russia (reftel).
Consumption accelerated after the GOAM temporarily reopened a
200-megawatt hydroelectric unit in Hrazdan to supply electricity
during the peak usage hours of 6:00 p.m. to 11:00 p.m. local time.
At a consumption rate of about 6.3 million cubic meters (mcm) daily
(approximately 25 mcm since the cut off),ARG estimates Armenia has
little more than 4 days remaining (until January 29) before the GOAM
initiates forced electrical outages and rationing measures.
According to Deputy Minister of Energy Areg Galstyan, the government
has not yet begun rationing gas supplies but some industrial
facilities, specifically gas filling stations, will be first on the
list if reserves reach critical levels. End Summary.

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ARMENIA BANKING ON QUICK FIX
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2. (C) ArmRosGazprom (ARG) has drawn roughly half of Armenia's
useful reserves since the January 22 cut off of natural gas
supplies from Russia (reftel),according to ARG spokeswoman Shushan
Sardaryan. At a consumption rate of about 7 million cubic meters
(mcm) daily (approximately 25 mcm since the cut off),ARG estimates
Armenia has little more than 4 days remaining before the GOAM
depletes 30 mcm of gas reserves and initiates forced electrical
outages and rationing measures. Deputy Minister of Energy Areg
Galstyan told us he had "just spoken" with his Russian counterpart
who assured him that the pipeline would be repaired "in a few
hours, if nothing extraordinary happens." According to PA
Consulting's Armen Arzumanyan, the Deputy Chief of Party for a U.S.
contractor that has provided consulting services to the GOAM for
energy sector restructuring since 1994, supplies to Armenia will
resume previous levels only after the pipeline has been fully
pressurized, a process which can take up to 24 hours after
repairs to the pipeline are completed.

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AVERAGE USAGE
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3. (C) Armenia imported and consumed about 1.15 billion cubic
meters of natural gas in the first 10 months of 2005, according to
ArmRosGasProm figures. Numbers for November and December are not
yet available, but Deputy Minister of Energy Areg Galstyan told us
historical natural gas consumption patterns in November and
December, generally the coldest months of the year in Armenia,
tended to result in an increase in consumption in the residential
sector and decrease in industry. In the first ten months of 2005,
consumption by sector included: power production (549 mcm for
operations at the Armenian Nuclear Power Plant and hydroelectric
power generators which use natural gas to create electricity);
industrial production (323 mcm),residential consumption (255 mcm),
"other consumers" (250 mcm),state budget items (25 mcm to heat
public buildings, schools, hospitals, and municipalities.) Though
Galstyan said he could not release the details because the document
is confidential, he asserts the GOAM will start rationing "large
industry" first with rolling blackouts a last resort.

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BURNING MORE GAS FROM RESERVES TO COVER PEAK USAGE HOURS
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4. (C) Consumption in the electricity production sector (the use
of hydroelectric power units) increased on January 24 as the GOAM
temporarily reopened one of its 200 megawatt hydroelectric units
in Hrazdan (reftel) to supply electricity during the peak usage
hours of 6:00 p.m. to 11:00 p.m. local time. According to
Galstyan, the GOAM will continue to operate the unit during peak
hours to cover demand for electricity.

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GOVERNMENT HOPEFUL, PRESS SPECULATES
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5. (C) The gas cutoff prompted speculation in Armenia's media
across the political spectrum. Although government officials
remain relatively quiet and with a few exceptions are refraining
from voicing conspiracy theories, some editorials are questioning
the value of Russia as Armenia's "strategic partner."

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COMMENT: ABOUT HALF WAY THERE
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6. (C) By most estimates, Armenia's depleted reserves will hold
for about four more days (until January 29),two days less than
initially expected because the GOAM has reopened one of its
hydroelectric units to cover demand for electricity during peak
usage hours. Armenians are banking on a quick fix from Russia,
which they say their Russian counterparts are promising. In the
meantime officials say they are drawing up contingency plans,
which will likely include forced outages and rolling blackouts if
the Mozdok - Tbilisi pipeline isn't pumping soon.

EVANS