AZERBAIJAN: NABUCCO COMES TO BAKU LOOKING FOR TEN

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000132

SIPDIS

SIPDIS

DEPARTMENT FOR EUR DAS BRYZA

E.O. 12958: DECL: 01/25/2017
TAGS: ENRG AZ TU GA PREL PGOV
SUBJECT: AZERBAIJAN: NABUCCO COMES TO BAKU LOOKING FOR TEN
BCM


Classified By: Ambassador Anne E. Derse, Reasons 1.4 (b,d)


1. (C) SUMMARY: In a January 25 conversation with the
Ambassador, OMV Chief Executive Officer Wolfgang
Ruttenstorfer said that the purpose of his first visit to
Azerbaijan was to begin the quest for a contract with
Azerbaijan for ten billion cubic meters of gas annually
starting in 2012-2013, which would allow operations of the
Nabucco Pipeline to begin at that time. Another purpose was
to encourage arrangements for an equitable and transparent
transit regime through Turkey. Ruttenstorfer said that
'finding ten bcm of available gas' by the end of 2007 was
crucial for the timely enactment of the Nabucco project, and
that Azerbaijan was the first choice for this gas. He added
however that any gas that he could not get in Azerbaijan
would have to come from either Russia or Iran. While SOCAR
officials told Ruttenstorfer that Azerbaijan would have 13-14
bcma available for export to Europe by 2012, Statoil
officials (responsible for marketing Shah Deniz Gas)
separately told him that no decisions had been made yet
regarding Shah Deniz Phase Two sales. Ruttenstorfer's first
trip to Baku was an important one, as it begins a
relationship with GOAJ interlocutors that perforce will focus
their attention on decisions that need to be made imminently
in order for Azerbaijani gas from Shah Deniz Phase Two to
make it through Turkey and to Europe starting in 2012. END
SUMMARY

2.(C) On January 25 Ambassador Derse met with OMV Chief
Executive Officer Wolfgang Ruttenstorfer to discuss the
Nabucco pipeline. Also present were Nabucco Gas Pipeline
Managing Director Reinhard Mitschek, OMV board member Dr.
Werner Auli, EconGas Managing Director Michael Peisser, and
EnergyOff as notetaker.


3. (C) Ruttenstorfer told the Ambassador that this was his
first trip to Baku, but he would be traveling here regularly
henceforth. On this trip, he and the delegation had met
separately with SOCAR President Rovnaq Abdullayev and Statoil
(representing the Shah Deniz Consortium) thus far, and were
scheduled to meet with Energy Minister Natiq Aliyev later in
the day. They were interested in two issues during this
trip: 1) the need to secure provision of gas supply contracts
so that construction of the Nabucco pipeline can go forward;
2) the need to have a transit agreement that facilitates gas
flow across Turkey.

FINDING 10 BCM
--------------


4. (C) Ruttenstorfer said that Nabucco needs to secure
contracts for the provision of at least ten billion cubic
meters (bcm) of gas annually to allow the pipeline project to
go ahead, given the projected 30 bcm/a capacity of the
pipeline. The gas cannot come from Russia, getting gas from
Turkmenistan in the short-term is improbable, and there are
'issues' with Iranian gas: therefore the logical choice as
supplier of this ten bcm is Azerbaijan. Over the longer
term, once the pipeline is operational, perhaps the situation
with Iran and/or Iraq would change sufficiently to allow gas
from these countries to enter the pipeline. Ruttenstorfer
said that available quantities of gas in Azerbaijan are
relatively limited - Socar President Abdullayev told him that
Azerbaijan would have approximately 13-14 bcm available for
export to Europe in 2012, the projected start date of the
Nabucco pipeline. Abdullayev told Ruttenstorfer that
Azerbaijan would sell 8 bcm to Italy and two bcm to Greece,
leaving three bcm for Nabucco. Statoil (the marketer for
Shah Deniz gas under the company Azerbaijan Gas Supply
Company - AGSC) was surprised when Ruttenstorfer told them of
this statement by Abdullayev, saying that they knew nothing
about any deals to provide gas to Italy or Greece. Statoil
said that no decisions had been made yet as to where this
Shah Deniz Stage Two gas would go, discussions are ongoing,
and thinks that perhaps eight to ten bcm could be available
for export.


5. (C) Ruttenstorfer said that there is currently a 'race for
gas' within Europe. He stressed that the Nabucco project
needs a minimum of 10 bcm of committed gas to be ready by
2012-2013. When asked why, he said that the Nabucco pipeline
maximum capacity is 30 bcm/a, and that the minimum amount
needed to start the pipeline would be 10 bcm, going to

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15bcm/a within three to five years. He said that he needs a
commitment of 8-10 bcm/a from Azerbaijan in 2007. With a
contract in hand for 8-10 bcm, the Nabucco project would be
able to get bank financing. If Nabucco cannot come up with a
contract for ten bcm of gas from somewhere within 2007, a
2012 start date is unlikely. Ruttenstorfer added that
"whatever we don't get in Azerbaijan, we'll have to get in
either Russia or Iran." Ruttenstorfer said that he had no
problem with there being some Russian gas in the pipeline, as
long as there was European control of the pipeline. Russia
could be sold on involvement in Nabucco as a way to
circumvent Ukraine. Mitschek said that Russia knows that
Azerbaijani gas is the first option for Nabucco, which is why
it is putting so much pressure on Azerbaijan.

TURKISH TRANSIT
--------------


6. (C) Ruttenstorfer said that Europe must say to Turkey in a
unified voice that a fair transit regime for Caspian gas
through to Europe "is a must" for Turkey. However, Turkey
wants to either exact high transit fees, be a gas trader, or
extract a major political benefit with respect to accession
from allowing gas to transit to Europe. Ruttenstorfer
pointed out that approximately one-half of the three thousand
kilometer Nabucco pipeline would be in Turkey. Turkey cannot
be allowed to buy and re-sell the transiting gas. Mitschek
said that Turkey feels squeezed between Europe, Russia and
Iran, and wants to use the Nabucco project both as leverage
to speed up EU accession and also to lower the price of
Russian gas. When the Ambassador asked if any GOAJ
interlocutors had mentioned progress in transit talks with
Turkey, Ruttenstorfer replied that no one had, although Socar
had mentioned a Sales and Purchase agreement with Turkey to
buy and resell 8 bcm to Italy.

REFINING W/SOCAR
--------------


7. (C) Ruttenstorfer pointed out that due to OMV ownership of
a large chain of gas stations in Turkey, it was looking for
involvement with a refinery in Turkey. Socar President
Abdullayev had brought up its joint venture with Turkish oil
company Turcas to build a refinery in Ceyhan, and inquired as
to whether OMV would be interested in participating in some
way. Ruttenstorfer said that OMV was interested, and would
be pursuing this topic with Socar, which would bring a
"second dimension" to its relationship with Socar.


8. (C) COMMENT: Ruttenstorfer's first trip to Baku was an
important one, as it begins a relationship with GOAJ
interlocutors that perforce will focus their attention on
decisions that need to be made imminently in order for
Azerbaijani gas from Shah Deniz Phase Two to make it through
Turkey and to Europe starting in 2012. As such, it is
heartening to hear Ruttenstorfer say that this will be the
first of many trips to Baku. It is noteworthy that in
recounting his discussion with Socar President Abdullayev,
Ruttenstorfer did not recount Socar's desire, relayed to us
by Abdullayev on January 25 (septel),to explore the
possibility of becoming a partner in Nabucco in exchange for
provision of Azerbaijani gas. END COMMENT.
DERSE