Identifier
Created
Classification
Origin
06YEREVAN393
2006-03-20 04:04:00
CONFIDENTIAL
Embassy Yerevan
Cable title:
DAS BRYZA: BALANCING ENERGY INTERESTS IN THE
how-toVZCZCXRO6078 RR RUEHBC RUEHDBU RUEHDE RUEHFL RUEHKUK RUEHKW RUEHLA RUEHMOS RUEHROV RUEHSR DE RUEHYE #0393/01 0790404 ZNY CCCCC ZZH R 200404Z MAR 06 FM AMEMBASSY YEREVAN TO RUEHC/SECSTATE WASHDC 2721 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE RUCNIRA/IRAN COLLECTIVE RUCNCIS/CIS COLLECTIVE RHMFISS/DEPT OF ENERGY WASHINGTON DC RUEHLMC/MILLENNIUM CHALLENGE CORP
C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 000393
SIPDIS
SIPDIS
DEPT FOR EUR/FO, EUR/CARC
DEPT ALSO FOR EUR/PRA, ISN/RA AND NEA/ARPI
E.O. 12958: DECL: 03/15/2016
TAGS: KNNP ENRG PARM PREL IR RS AM
SUBJECT: DAS BRYZA: BALANCING ENERGY INTERESTS IN THE
CAUCASUS A PRIORITY
REF: YEREVAN 312
YEREVAN 00000393 001.2 OF 003
Classified By: Amb. John M. Evans for reasons 1.4 (b, d).
-------
SUMMARY
-------
C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 000393
SIPDIS
SIPDIS
DEPT FOR EUR/FO, EUR/CARC
DEPT ALSO FOR EUR/PRA, ISN/RA AND NEA/ARPI
E.O. 12958: DECL: 03/15/2016
TAGS: KNNP ENRG PARM PREL IR RS AM
SUBJECT: DAS BRYZA: BALANCING ENERGY INTERESTS IN THE
CAUCASUS A PRIORITY
REF: YEREVAN 312
YEREVAN 00000393 001.2 OF 003
Classified By: Amb. John M. Evans for reasons 1.4 (b, d).
--------------
SUMMARY
--------------
1. (C) During March 7-8 meetings in Yerevan, DAS Bryza found
broad consensus for the need to diversify Armenia's sources
of energy and general concern about GazProm's overwhelming
influence in the sector. Bryza urged support for regional
solutions to energy issues, including increased electricity
export to Georgia and joint Georgian and Armenian development
of a gas storage facility outside of Yerevan. Bryza's
interlocutors asked for U.S. support for discussions about a
replacement for Armenia's aging, unsafe nuclear power plant;
they saw nuclear power as the only real option for improved
energy security for the South Caucasus. Bryza agreed to
consider the idea, but also urged Armenia to consider how
resolution of the NK conflict would increase options to
diversify energy supply. End Summary.
--------------
ENERGY ISSUES TOP POLICY AGENDA
--------------
2. (C) Armenia's near miss during January's gas crisis has
clearly motivated all of Armenia's leaders to search for
energy supply options other than Russia's Gazprom. In
meetings with President Kocharian, FM Oskanian, Defense
Minister Sargsyan and at a luncheon of top energy
policymakers, Bryza explained his view that Gazprom would not
change its monopolistic behavior until it was forced to do
so. States of the South Caucasus should seek regional
solutions to diversify energy supply to reduce their
dependence. Unchecked by free market competition, Russian
energy monopolies and Russia's acquisition of energy
infrastructures throughout the South Caucasus threatened the
stability of supplies for the entire region, Bryza said.
-------------- --------------
ONE SOLUTION: PROSPECTS FOR GAS STORAGE PARTNERSHIP
-------------- --------------
3. (C) The GOAM is interested in rehabilitating Armenia's
aging underground natural gas storage facility in Abovian
(twenty kilometers outside of Yerevan),Minister of Energy
Armen Movsisyan told Bryza. Though built with a design
capacity of 220 million cubic meters (mcm),enough reserves
to supply Armenia for about a month at normal consumption
rates, deterioration has reduced the facility to a storage
capacity of less than 90 mcm. Useful volume for the
facility, which requires at least 35 mcm to maintain internal
pressure for structural integrity, is even less -- about 10
days of supplies.
4. (C) A feasibility study conducted by ArmRosGazProm from
2002-2003 estimated that returning the facility to its design
capacity (220 mcm) would total approximately USD 28 million,
according to ArmRosGazProm Direct Karen Karapetyan. The
facility, constructed in four stages from the early 1960s to
1980, consists of 19 wells (3 operate at full capacity, 6
operate at much less than full capacity, 8 are not
operational, and 2 are used to hold waste water). An
additional 9 wells drilled in the 1980s were never
commissioned. ArmRosGazProm recently announced an ongoing
tender for a detailed feasibility study of the facility. DAS
Bryza suggested, and his interlocutors unanimously agreed,
that a joint Armenian-Georgian project could renovate the
storage facility to establish and provide a substantial
natural gas reserve with potential for regional distribution.
-------------- --------------
KOCHARIAN: THE GAZPROM "MONSTER" HAS TIGHT GRIP ON ENERGY
-------------- --------------
5. (C) President Kocharian told DAS Bryza that he still held
out hope that Russia would make the rise in gas prices more
gradual, but said that his meetings with the Russians were
"tough." Despite his reticence to speak out publicly on the
subject, Kocharian was harshly critical of the "monster"
GazProm had become and said that many Russians mistakenly
associated the strength of GazProm as Russia's strength. He
agreed strongly with Bryza's view that GazProm's focus on
YEREVAN 00000393 002.2 OF 003
distribution was short sighted; the transportation portion of
the firm should become a properly-regulated utility and the
company's energies should be more appropriately directed
toward production. "Then the President of Armenia would not
have to negotiate with the President of Russia about the
price of gas," explained Kocharian. He was skeptical that
GazProm would lessen its control over distribution and onward
sale of gas from Central Asia.
6. (C) Kocharian explained that during Soviet times, Armenia
served as a center for electricity production for the South
Caucasus. Armenia's nuclear power plant, good thermal
production capacity and strong distribution infrastructure
were a legacy of this. Armenia's universities still have
strong programs in the energy field. He hoped that, with
development help from the international community, Armenia
could regain this role. He welcomed the idea of developing
jointly with Georgia the gas storage facility outside of
Yerevan, but asked that DAS Bryza wait to develop the idea,
at least in public, until he had come to an agreement on the
price of gas with Russia. He asked that the international
community take seriously the idea of replacing Armenia's
nuclear power plant with a new facility, capable of exporting
throughout the region.
-------------- --------------
MOVSISYAN: DISRUPTIONS NOT THE FIRST, AND NOT THE LAST
-------------- --------------
7. (C) January 22 was not the first and will not be the last
time Armenia suffers from disruptions in natural gas
supplies, Energy Minister Movsisyan told Bryza during a lunch
meeting that included ArmRosGazProm's Director Karen
Karapetyan, Armenian Nuclear Power Plant Director Gagik
Markosyan, and Presidential Chief of Staff Armen Gevorkian.
(Note: The January 22 explosions along the Mozdok-Tbilisi
pipeline cut Russian gas supplies for ten days. End Note.)
"We cannot get gas from other countries, that's why we have
reserves and that's why we use them," Movsisyan said. As a
result, Armenia is eagerly awaiting the completion of the
Armenia-Iran pipeline, though the pipeline capacity "will not
be enough" to significantly offset Armenia's dependence on
Russian supplies, according to Movsisyan. Armenia was
currently exploring alternative energy sources which include
additional hydro, thermal, geothermal, and wind capacity,
none of which could make up for Armenia's energy gap.
-------------- --------------
SARGSIAN: RUSSIANS CONTROL THE VALVE AND THE SOURCE
-------------- --------------
8. (C) Defense Minister Serzh Sargsian, who chairs Armenia's
Security Council, proved to be well-briefed on energy
security issues. He reiterated the need to diversify
Armenia's energy supply, but lamented the fact that Russia,
through ArmRosGazProm, already controlled the pipeline from
Iran now under construction. The gas may come from two
different sources, he explained, "but the handle on the
shutoff valve is in one country."
-------------- --------------
OSKANIAN: DIVERSIFICATION THE KEY TO STABILIZING SUPPLIES
-------------- --------------
9. (C) Minister of Foreign Affairs Vartan Oskanian told Bryza
that the anticipated April 1 price hikes in GazProm's natural
gas supplies were "a foregone conclusion." Though
negotiations with Russia were "ongoing," Oskanian said, the
best result Armenia could obtain would be "Russian
compensation for the difference until 2008." Faced with
limited options for energy self-sufficiency, multiple
limitations on trade with Iran (reftel),and "differences
with Azerbaijan," (septel) the only viable alternative,
Oskanian said is "an 800 megawatt modern, safe nuclear power
facility with double the capacity we already have."
"Diversification is the key to security in the region,"
Oskanian told Bryza, though Armenia's geopolitical situation
severely limited access to foreign markets other than Iran.
Armenia's "nuclear culture" should make it the natural center
of a regional energy strategy and a natural candidate for
foreign assistance in this area.
-------------- --------------
BAGHDASARIAN: PROHIBIT SALE OF STRATEGIC ENERGY ASSETS
-------------- --------------
YEREVAN 00000393 003.2 OF 003
10. (C) Agreeing with Bryza about the necessity of a regional
approach to energy security in the Caucasus, National
Assembly Speaker Artur Baghdasarian said Gazprom and RAO-UES
monopolies threatened Armenia's energy security.
Baghdasarian said he was considering legislation which would
prohibit any further sale of strategic energy infrastructure,
a move he claimed would allow Armenia to develop its own
domestic supply and insulate the country against regional
problems like the January 22 disruptions.
11. (U) DAS Bryza has cleared this cable.
EVANS
SIPDIS
SIPDIS
DEPT FOR EUR/FO, EUR/CARC
DEPT ALSO FOR EUR/PRA, ISN/RA AND NEA/ARPI
E.O. 12958: DECL: 03/15/2016
TAGS: KNNP ENRG PARM PREL IR RS AM
SUBJECT: DAS BRYZA: BALANCING ENERGY INTERESTS IN THE
CAUCASUS A PRIORITY
REF: YEREVAN 312
YEREVAN 00000393 001.2 OF 003
Classified By: Amb. John M. Evans for reasons 1.4 (b, d).
--------------
SUMMARY
--------------
1. (C) During March 7-8 meetings in Yerevan, DAS Bryza found
broad consensus for the need to diversify Armenia's sources
of energy and general concern about GazProm's overwhelming
influence in the sector. Bryza urged support for regional
solutions to energy issues, including increased electricity
export to Georgia and joint Georgian and Armenian development
of a gas storage facility outside of Yerevan. Bryza's
interlocutors asked for U.S. support for discussions about a
replacement for Armenia's aging, unsafe nuclear power plant;
they saw nuclear power as the only real option for improved
energy security for the South Caucasus. Bryza agreed to
consider the idea, but also urged Armenia to consider how
resolution of the NK conflict would increase options to
diversify energy supply. End Summary.
--------------
ENERGY ISSUES TOP POLICY AGENDA
--------------
2. (C) Armenia's near miss during January's gas crisis has
clearly motivated all of Armenia's leaders to search for
energy supply options other than Russia's Gazprom. In
meetings with President Kocharian, FM Oskanian, Defense
Minister Sargsyan and at a luncheon of top energy
policymakers, Bryza explained his view that Gazprom would not
change its monopolistic behavior until it was forced to do
so. States of the South Caucasus should seek regional
solutions to diversify energy supply to reduce their
dependence. Unchecked by free market competition, Russian
energy monopolies and Russia's acquisition of energy
infrastructures throughout the South Caucasus threatened the
stability of supplies for the entire region, Bryza said.
-------------- --------------
ONE SOLUTION: PROSPECTS FOR GAS STORAGE PARTNERSHIP
-------------- --------------
3. (C) The GOAM is interested in rehabilitating Armenia's
aging underground natural gas storage facility in Abovian
(twenty kilometers outside of Yerevan),Minister of Energy
Armen Movsisyan told Bryza. Though built with a design
capacity of 220 million cubic meters (mcm),enough reserves
to supply Armenia for about a month at normal consumption
rates, deterioration has reduced the facility to a storage
capacity of less than 90 mcm. Useful volume for the
facility, which requires at least 35 mcm to maintain internal
pressure for structural integrity, is even less -- about 10
days of supplies.
4. (C) A feasibility study conducted by ArmRosGazProm from
2002-2003 estimated that returning the facility to its design
capacity (220 mcm) would total approximately USD 28 million,
according to ArmRosGazProm Direct Karen Karapetyan. The
facility, constructed in four stages from the early 1960s to
1980, consists of 19 wells (3 operate at full capacity, 6
operate at much less than full capacity, 8 are not
operational, and 2 are used to hold waste water). An
additional 9 wells drilled in the 1980s were never
commissioned. ArmRosGazProm recently announced an ongoing
tender for a detailed feasibility study of the facility. DAS
Bryza suggested, and his interlocutors unanimously agreed,
that a joint Armenian-Georgian project could renovate the
storage facility to establish and provide a substantial
natural gas reserve with potential for regional distribution.
-------------- --------------
KOCHARIAN: THE GAZPROM "MONSTER" HAS TIGHT GRIP ON ENERGY
-------------- --------------
5. (C) President Kocharian told DAS Bryza that he still held
out hope that Russia would make the rise in gas prices more
gradual, but said that his meetings with the Russians were
"tough." Despite his reticence to speak out publicly on the
subject, Kocharian was harshly critical of the "monster"
GazProm had become and said that many Russians mistakenly
associated the strength of GazProm as Russia's strength. He
agreed strongly with Bryza's view that GazProm's focus on
YEREVAN 00000393 002.2 OF 003
distribution was short sighted; the transportation portion of
the firm should become a properly-regulated utility and the
company's energies should be more appropriately directed
toward production. "Then the President of Armenia would not
have to negotiate with the President of Russia about the
price of gas," explained Kocharian. He was skeptical that
GazProm would lessen its control over distribution and onward
sale of gas from Central Asia.
6. (C) Kocharian explained that during Soviet times, Armenia
served as a center for electricity production for the South
Caucasus. Armenia's nuclear power plant, good thermal
production capacity and strong distribution infrastructure
were a legacy of this. Armenia's universities still have
strong programs in the energy field. He hoped that, with
development help from the international community, Armenia
could regain this role. He welcomed the idea of developing
jointly with Georgia the gas storage facility outside of
Yerevan, but asked that DAS Bryza wait to develop the idea,
at least in public, until he had come to an agreement on the
price of gas with Russia. He asked that the international
community take seriously the idea of replacing Armenia's
nuclear power plant with a new facility, capable of exporting
throughout the region.
-------------- --------------
MOVSISYAN: DISRUPTIONS NOT THE FIRST, AND NOT THE LAST
-------------- --------------
7. (C) January 22 was not the first and will not be the last
time Armenia suffers from disruptions in natural gas
supplies, Energy Minister Movsisyan told Bryza during a lunch
meeting that included ArmRosGazProm's Director Karen
Karapetyan, Armenian Nuclear Power Plant Director Gagik
Markosyan, and Presidential Chief of Staff Armen Gevorkian.
(Note: The January 22 explosions along the Mozdok-Tbilisi
pipeline cut Russian gas supplies for ten days. End Note.)
"We cannot get gas from other countries, that's why we have
reserves and that's why we use them," Movsisyan said. As a
result, Armenia is eagerly awaiting the completion of the
Armenia-Iran pipeline, though the pipeline capacity "will not
be enough" to significantly offset Armenia's dependence on
Russian supplies, according to Movsisyan. Armenia was
currently exploring alternative energy sources which include
additional hydro, thermal, geothermal, and wind capacity,
none of which could make up for Armenia's energy gap.
-------------- --------------
SARGSIAN: RUSSIANS CONTROL THE VALVE AND THE SOURCE
-------------- --------------
8. (C) Defense Minister Serzh Sargsian, who chairs Armenia's
Security Council, proved to be well-briefed on energy
security issues. He reiterated the need to diversify
Armenia's energy supply, but lamented the fact that Russia,
through ArmRosGazProm, already controlled the pipeline from
Iran now under construction. The gas may come from two
different sources, he explained, "but the handle on the
shutoff valve is in one country."
-------------- --------------
OSKANIAN: DIVERSIFICATION THE KEY TO STABILIZING SUPPLIES
-------------- --------------
9. (C) Minister of Foreign Affairs Vartan Oskanian told Bryza
that the anticipated April 1 price hikes in GazProm's natural
gas supplies were "a foregone conclusion." Though
negotiations with Russia were "ongoing," Oskanian said, the
best result Armenia could obtain would be "Russian
compensation for the difference until 2008." Faced with
limited options for energy self-sufficiency, multiple
limitations on trade with Iran (reftel),and "differences
with Azerbaijan," (septel) the only viable alternative,
Oskanian said is "an 800 megawatt modern, safe nuclear power
facility with double the capacity we already have."
"Diversification is the key to security in the region,"
Oskanian told Bryza, though Armenia's geopolitical situation
severely limited access to foreign markets other than Iran.
Armenia's "nuclear culture" should make it the natural center
of a regional energy strategy and a natural candidate for
foreign assistance in this area.
-------------- --------------
BAGHDASARIAN: PROHIBIT SALE OF STRATEGIC ENERGY ASSETS
-------------- --------------
YEREVAN 00000393 003.2 OF 003
10. (C) Agreeing with Bryza about the necessity of a regional
approach to energy security in the Caucasus, National
Assembly Speaker Artur Baghdasarian said Gazprom and RAO-UES
monopolies threatened Armenia's energy security.
Baghdasarian said he was considering legislation which would
prohibit any further sale of strategic energy infrastructure,
a move he claimed would allow Armenia to develop its own
domestic supply and insulate the country against regional
problems like the January 22 disruptions.
11. (U) DAS Bryza has cleared this cable.
EVANS