AZERBAIJAN: ACG CONSORTIUM GAS FOR GEORGIA IF

C O N F I D E N T I A L BAKU 001339 SIPDIS SIPDIS DEPARTMENT OF ENERGY PASS TO A/S KAREN HARBERT, DAS ALAN HEGBURG, OFFICE OF RUSSIA/EURASIAN AFFAIRS DIRECTOR LANA EKIMOFF E.O. 12958: DECL: 11/02/2017 TAGS: PGOV PREL ENRG AJ GA SUBJECT: AZERBAIJAN: ACG CONSORTIUM GAS FOR GEORGIA IF "HUMANITARIAN CRISIS" REF: BAKU 1238 Classified By: Ambassador Anne E. Derse, Reasons 1.4 (b,d) ¶1. (C) SUMMARY: BP Azerbaijan President Bill Schrader told EUR DAS Bryza and the Ambassador that the ACG Consortium was not going to increase the amount of extra associated gas it was providing to Azerbaijan in response to Georgian winter gas needs unless the GOAJ asked it to do so in response to a "humanitarian crisis" in Georgia. END SUMMARY. ¶2. (C) BACKGROUND: Georgia's contract to buy gas from Azerbaijan expired on October 12. According to Azerbaijani press, Azerigas has said that "future supply will depend on the decision that will be made an at inter-governmental level." Matters were complicated in mid-September when the ACG Consortium (the consortium responsible for developing Azerbaijan's major oil field, the ACG field)decreased the amount of associated gas it was giving the State Oil Company of Azerbaijan (SOCAR) from approximately 8.5 million cubic meters per day(mcm/d) to approximately four mcm/d, due to a commercial dispute with SOCAR and the need to reinject this gas into the ACG field (reftel). In a subsequent conversation with the Ambassador, SOCAR President Abdullayev said that if BP had continued to give this gas, Azerbaijan would have been able to meet "all of Georgia's gas needs." However, with this diminished amount being received from the Consortium, Azerbaijan would not be able to do so. However, Baku-based gas marketing experts who have spoken to the Embassy have said that regardless of how much gas Azerbaijan sells Georgia, technical limitations on the pipeline to Georgia limit the amount that Azerbaijan can send to Georgia to at most three mcm/d, less than half of the estimated seven to eight mcm/d that Georgia will need this winter (NOTE: The Georgian Ambassador to Azerbaijan has told the Ambassador that the pipeline capacity from Azerbaijan to Georgia will be five mcm/d, due to improvements being made). END BACKGROUND. ¶3. (C) In an October 26 meeting with DAS Bryza and the Ambassador, BP Azerbaijan President Bill Schrader said that whatever state-to-state promises the Government of Azerbaijan has made to the Government of Georgia concerning provision of gas for the winter is "not the business" of the ACG Consortium, who decreased the amount of associated ACG gas it was giving tiin mid-September. Schrader said that in addition to Azerbaijan, the Georgian government should be talking with Turkey to see if Turkey would be willing to re-direct any of the gas it is receiving from the Shah Deniz field, to help Georgia with its gas needs for the coming winter. Additionally, it should be keeping its lines open to Russia, since regardless of how much gas Azerbaijan sells them, Georgia will need Russian gas this winter. Indeed,according to BP calculations, Schrader said Georgia would need to buy gas from Russia until at least 2015. DAS Bryza told Schrader that the good news was that in a recent Foreign Minister's conference in Istanbul, a Russian Deputy Foreign Minister had told him that Russia would be seeking to "de-escalate" its problems in Georgia. Schrader said that part of the reason was no doubt the large Russian investment in Georgia, which would suffer in any business downturn. ¶4. (C) Schrader said that "if SOCAR pays us for the gas" it would be willing to sell additional amounts of ACG associated gas to Azerbaijan, which it in turn could sell to Georgia. DAS Bryza said that Russia was going to be short on gas this winter, which might negatively impact its ability t sell gas to Georgia. In response to Bryza's coments that a Georgian winter gas shortage could lad to serious political instability, Schrader sad that "if there were a humanitarian crisis in Gorgia" and if the GOAJ asked the Consortium for elp, it would do so. However, the ACG Consortium partners were not going to get "suckered" into providing free gas to Azerbaijan just so Azerbaijan could sell it to Georgia to make a profit. 5.(U) This cable has been cleared by DAS Bryza. DERSE