Identifier
Created
Classification
Origin
07BAKU784
2007-06-25 06:43:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AZERBAIJAN PRESIDENT TELLS DAS BRYZA ALL SHAH DENIZ PHASE TWO GAS TO BE EXPORTED

Tags:  AJ ENRG ETRN PGOV PREL TX 
pdf how-to read a cable
VZCZCXRO4527
PP RUEHAG RUEHDBU RUEHROV
DE RUEHKB #0784/01 1760643
ZNY CCCCC ZZH
P 250643Z JUN 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 3315
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000784 

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/13/2017
TAGS:
SUBJECT: AZERBAIJAN PRESIDENT TELLS DAS BRYZA ALL SHAH
DENIZ PHASE TWO GAS TO BE EXPORTED


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

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000784

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/13/2017
TAGS:
SUBJECT: AZERBAIJAN PRESIDENT TELLS DAS BRYZA ALL SHAH
DENIZ PHASE TWO GAS TO BE EXPORTED


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


1. (C) SUMMARY. In a June 5 meeting with EUR DAS Bryza and
Ambassador Derse, President Aliyev said that he planned to
meet domestic gas needs with SOCAR domestic gas production,
freeing up all Shah Deniz Phase Two gas for export through
Turkey to Europe. DAS Bryza told Aliyev of his efforts to
convince Hungarian Prime Minister Gyurcsany to "wait three
years" until 2015 for Azerbaijani gas for Nabucco, which will
put Hungary in a stronger bargaining position with Gazprom.
Responding to Aliyev's contention that European potential gas
customers were "playing a double game," Bryza said that they
were frightened of committing to Azerbaijani gas over Russian
gas, only to find that Azerbaijani gas was unreliable.
President Aliyev said the overland oil transportation
problems stemming from Middle East Petroleum's control of the
corridor would go away as he has given the Transportation
Ministry an increased role to play in this sector. END
SUMMARY.


2. (C) In a June 5 meeting, President Aliyev discussed
energy, Nagorno-Karabakh and press freedom issues with EUR
DAS Bryza and Ambassador Derse (the latter two covered
septel).

NABUCCO: WAIT 3 YEARS
--------------


3. (C). Referring to the March 12 IHT article ("Hungary
chooses Gazprom over EU"),DAS Bryza told the President that
he recently had a good three hour, one-on-one discussion on
energy with Hungarian PM Gyurcsany. Gyurcsany had told Bryza
that he believed there would not be enough Azerbaijani gas to
start Nabucco by 2012. Bryza told Aliyev that he had told
the Hungarian PM to "wait three years;" - starting around
2015 or 2016, Azerbaijan,s production would/could be edging
up toward 0 billion cubic meters (bcm) annually, provided
investors synchronized their upstream and midstream efforts
and optimistic production estimates panned out. In this
scenario, Azerbaijan would have 20 to 30 bcm of gas available
annually for export past Turkey. Bryza stressed to Gyurcsany
that the U.S. was not pressing Hungary to choose
Azerbaijan/U.S./EU and Nabucco over Russia, but rather was
helping Hungary maneuver itself into a position in which the
diversified option of Azeri gas would help Hungary negotiate
more mutually beneficial contractual terms with Gazprom.
Bryza told Aliyev that the Hungarian PM had said, "let,s

make it happen."


4. (C) Showing the President a slide from an OME study ("Cost
of New Gas Delivery to EU15 Countries by
2020"),Bryza showed Aliyev how Caspian gas made the most
economic sense for supplying Nabucco. Bryza said he had met
the previous day in Vienna with Nabucco Managing Director
Reinhard Mitschek, who told Bryza that "we need a sign" from
Azerbaijan, and who also expressed interesting exploring the
possible export of Turkmen gas from Block 1 to Europe via
Azerbaijan and Nabucco. President Aliyev said
when the Nabucco project was originally conceived it was
intended for Turkmen and Iranian gas; now, Azerbaijan will
participate in Nabucco. He pointed out that when Azerbaijan
originally began to develop its gas resources in the late
1990s, "we were only prepared for the Turkish market." Now,
"Azerbaijan is ready" to export to Europe. SOCAR will produce
8 bcm in the coming year, maybe up to 10 bcm afterwards.
However, BP has "let us down," producing no more than 2.8 bcm
from Shah Deniz this year. Aliyev said he would try to
maneuver SOCAR into a more operational role at Shah Deniz to
avoid future disappointments with BP.

EUROPE: TWO-FACED OR SCARED?
--------------


5. (C) President Aliyev said the USG and GOAJ seemed most
interested in the project of gas diversification to Europe,
more so than the Europeans themselves. Europe was playing a
"double game," and European gas consumers were "not eager" to
pursue Azerbaijani gas. He cited as examples the
Hungarian Foreign Minister, who was worried about Gazprom and
the threat of gas cut-off, and the Greek
President, who said on June 1 that Russia, Greece and
Bulgaria would build the Burgas-Alexandroupolis pipeline.
Still, Aliyev said the Hungarian FM,s visit to discuss Azeri
gas for Nabucco was constructive.


6. (C) DAS Bryza said the "Europeans were frightened." As

BAKU 00000784 002 OF 002


the Hungarian PM said to him, "I don,t want to ave to choose
between Russian and Azeri gas," since if he opted for Azeri
gas and Azerbaijan couldn't deliver, "my people will freeze."
Bryza said Greek officials have relayed similar sentiments to
him. Gazprom has used threats not to renew gas supply
contracts and false claims that Azerbaijan has no gas
available for TGI or Nabucco to wean potential European
customers from the prospect of Azerbaijani gas. Aliyev said
that the EU should understand that "Gazprom is not reliable."
By 2011 the Russian domestic price of gas will be the market
price, and Gazprom will not be able to supply enough gas to
meet its commitments.


7. (C) DAS Bryza said that the GOAJ had many "great
negotiators" who sought to avoid looking overly eager in the
fear of bidding down the price of Azerbaijan,s gas. But,
Europe was misinterpreting
Azerbaijan,s reticent approach as indifference. Aliyev
said the main reason for Azerbaijan's plight was Shah Deniz's
underperformance to the tune of 2.8 bcm this year instead of
6.5 bcm. "We relied too much on BP, which is why we have
increased our domestic production." Aliyev said the goal was
to meet domestic gas demand (by 2010 approximately 11-12 bcm)
with domestic production, freeing up all Shah Deniz gas for
export, which was why the GOAJ was insisting on being the
marketer of Shah Deniz Phase II gas. He said he saw
Azerbaijan exporting approximately six bcm/a of Shah Deniz
gas to Turkey, no more than 2 bcm/a to Georgia, with the rest
exported "past Turkey."


8. (C) President Aliyev said that delivery of Azerbaijani
gas to Greece this year will be a significant step,
demonstrating "Azerbaijani gas in Europe." Bryza said that
SOCAR's expanded gas production would be a "strong signal" to
European markets. Concerning gas to Greece, Bryza said
that the Greek government had been upset with MED Babayev's
last-minute cancellation of his Athens trip, in order to
accompany President Aliyev to Tajikistan. Aliyev said that
had he known that Babayev had this commitment in Greece, he
would have sent Babayev to Greece.


9. (C) Aliyev said the recent Russian-Kazakhstan-Turkmenistan
energy agreements, announced when he was in Krakow, were a
"bad signal to Europe." Putin timed this announcement
deliberately, Aliyev said, to undercut Poland,s energy
summit in Krakow, (which was attended by Aliyev, Yushchenko
of Ukraine, Saakashvili of Georgia, Adamkus of Lithuania, and
Kaczynski of Poland). President Aliyev noted that he had
spoken with Turkmen President Berdimuhammedov by phone
recently and would be meeting him in St. Petersburg at the
upcoming June 10 CIS summit. He had not discussed the issue
of Turkmen gas being shipped to Europe via Azerbaijan on the
phone, thinking it "premature," but would do so when they
met.

MIDDLE EAST PETROLEUM
--------------


10. (C) DAS Bryza referred to problems of access and
transparency in oil shipments through Azerbaijan to Batumi
since Middle East Petroleum had increased its role. Bryza
said these problems have resulted in decreased volumes moving
through Azerbaijan and a loss of Azerbaijan,s market share
to Neka in Iran. President Aliyev said it had been thought
that a private carrier (i.e. Cross-Caspian, controlled by
Middle East Petroleum) would be more efficient, but that it
hadn't worked out that way. Now, "the matter had been
resolved, and things were like before." Aliyev said Chevron
was in favor of the Azerbaijani position, but had been forced
by Kazakhstan to use Batumi. Aliyev said that both Georgian
terminals (Batumi and Kulavi) must be used, and that
Azerbaijan has agreed with Kazakhstan to
divide the trans-shipped oil between these two terminals.
Responsibility for the corridor would move to the
Transportation Ministry.


11. (C) Ambassador Derse asked about the status of gas
transit talks with Turkey, and who would take the lead for
the GOAJ in these talks. President Aliyev said that either
SOCAR's Abdullayev or Energy Minister Aliyev, would have the
lead.


12. (U) DAS Bryza has cleared on this cable.
LU