AZERBAIJAN GAS INITIATIVES WAITING ON TURKISH

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000917 SIPDIS SIPDIS E.O. 12958: DECL: 07/17/2017 TAGS: PREL PGOV TU AJ ENRG SUBJECT: AZERBAIJAN GAS INITIATIVES WAITING ON TURKISH ELECTION REF: SECSTATE 98631 Classified By: Ambassador Anne E. Derse, Reasons 1.4. (b,d) ¶1. (C) SUMMARY. In a July 17 conversation primarily focused on Iran (septel),SOCAR President Rovnaq Abdullyav speculated that the recently announced Turkey-Iran Energy MOU, if actualized, would throw into doubt both GOAJ participation in Nabucco and also the viability of a Turkmen-Azerbaijan trans-Caspian pipeline. SOCAR has told Turkish energy company Botas it would be willing to assume Botas's obligation to deliver 0.8 billion cubic meters of gas to Greece. It has also offered a revised 'trigger date' of March 15 2007 for the start of Shah Deniz gas flow to Azerbaijan. However for both of these Azerbaijani initiatives, and for the Azerbaijani invitation to begin bilateral talks on gas transit through Turkey, Abdullayev said that it seems unlikely that Turkey will respond until after their elections. END SUMMARY. ¶2. (C) On July 17 the Ambassador met with SOCAR President Rovnaq Abdullayev. Also present were SOCAR Vice-President Elshad Nassirov and Investment Department head Vaqif Aliyev. TURKEY-IRAN ENERGY MOU -------------- ¶3. (C) Abdullayev said he was "shocked" at the announcement, saying it will affect SOCAR's plans. He asked if there would be a shift in USG policy regarding Nabucco, pointing out that SOCAR had already signed an MOU with Hungarian energy company MOL to facilitate GOAJ Nabucco participation. The Ambassador replied that USG support for Nabucco was predicated on the non-participation of Iran in the project, and that she hoped it would be Azerbaijani gas that started the Nabucco project. Abdullayev said that if Nabucco gets 20 bcm from Iran they would not need Azerbaijani gas. Additionally, this Turkey-Iran deal would give Turkmen gas access to Europe through Iran, thereby greatly lessening the chances for a Trans-Caspian pipeline. In a related vein, it would lessen any impetus for solving Caspian delimitation issues between the GOAJ and GOTX, which in turn would hamper efforts to arrive at any comprehensive agreement among the five littoral states. However, Abdullayev said that one should "put yourself in Turkey's shoes - who would refuse the 'big piece of cake' of 20 bcm?," to which the Ambassador replied that a country acting on principle, much like Azerbaijan when it spurned Russian gas this last winter. Abdullayev repeated his quandary about SOCAR participation in Nabucco given this latest development, to which the Ambassador said that the GOAJ should seek to dissuade Turkey from pursuing this course of action. Abdullayev, saying that "we have no stick" to hold over Turkey's head, said that the USG should also seek to use its influence on Turkey, and asked if the USG would impose sanctions on Turkey should they proceed. The Ambassador said that the USG was studying these latest developments, and would inform the GOAJ as the situation develops. TURKMENISTAN -------------- ¶4. (C) Abdullayev said that SOCAR has had no direct contact with its Turkman counterparts (NOTE: in a July 5 meeting with visting Ambassador Hoagland, SOCAR Presidential advisor Murat Heydarov said that SOCAR knew none of their counterparts in Turkmenistan. SOCAR would be "going slowly" on developing any relationship, with all such activities falling under the auspices of an Energy working group under the joint Azerbaijan-Turkmenistan Inter-Governmental Commission. He also said that the GOAJ was contemplating offering a median line demarcation proposal that would give each country part of the Sardar/Kapaz field, with the condition that both countries develop it jointly). Abdullayev said that although relations seemed to be improving, the GOAJ was still getting letters from the GOTX claiming ownership of portions of the Azeri and Chirag fields. New Turkmen President Berdimuhammedov's intentions are still largely unknown. Although the GOTX has said it will re-open its Embassy in Baku, no concrete steps have yet been taken. (NOTE: Abdullayev was more downbeat than either President Aliyev and FM Mammadyarov have been on Azerbaijan's developing relations with Turkmenistan). GAS TO GREECE BAKU 00000917 002 OF 003 -------------- ¶5. (C) Abdullayev said that he had offered to Turkey to assume its obligation to deliver 0.8 bcm of gas to Greece. As he explained, Turkey selling this gas to Greece at a price far lower than what Turkish consumers were paying for it might be politically undesirable for Turkey. Abdullayev said that GOT was buying this gas from Azerbaijan at USD 120/tcm and selling it to Greece for USD 149/tcm, both prices substantially lower than the price Turkish consumers were paying for domestic gas. Having Azerbaijan sell this gas to Greece instead would provide a face-saving way out for Turkey. For Azerbaijan's side, doing so would allow Azerbaijan to establish a precedent of selling directly to Europe through Turkey. SOCAR does not expect to hear back from Turkey on this proposal (or for that matter on anything else substantive) until after the July 22 Turkish elections. TGI CEREMONY -------------- ¶6. (C) Abdullayev said he thought the TGI ceremony would be between 14-20 August, with the pipeline to Greece itself to be ready in September. The GOAJ would participate in the ceremony. TRANSIT TALKS -------------- ¶7. (C) Abdullayev confirmed that in June the GOAJ Foreign Minister had sent an invitation for the two countries to begin gas transit talks to his GOT counterpart, and that Presidents Aliyev and PM Edrogan had agreed that gas transit talks should be started when they met recently at the June 25 Istanbul BSEC meeting. However, Abdullayev said that his attempts to follow-up with GOT interlocutors had come to naught, as it had been "impossible to find people in Turkey" willing to address the issue - everyone was either focused on the upcoming elections or on vacation. As such, he does not expect any response to GOAJ initiatives from GOT until after the election. He said that SOCAR would be the lead GOAJ agency for gas transit talks. (NOTE: In this regard, Embassy heard rumors from expat energy executives in Baku that Majlis Deputy Speaker Valekh Aleskerov might be summoned by the President to play a larger role in international energy negotiations). PETKIM -------------- ¶7. (C) Commenting on the July 7 Petkim tender, Abdullayev said SOCAR pulled out of the bidding when the price became too high. Winning bidder Transcentral Asia Petrochemical Holding, a Kazakhstan-based consortium, was backed by "Russian banking money," to include Russia Troika Dialog. Abdullayev said Russia Troika Dialog's owner was Armenian, and that this fact will cause problems for Turkey once widely known. TRIGGER DATE -------------- ¶8. (C) Abdullayev said that SOCAR had modified its position, proposing a trigger date of March 15 2007 to AGSC (Azerbaijan Gas Supply Company, responsible for marketing Shah Deniz Phase One gas and headed by Statoil). SOCAR could claim a trigger date of November 15 2006, and had told BOTAS that SOCAR would win any arbitration on this account, so that BOTAS should accept the March 2007 date. Abdullayev said he wished to solve the matter amicably, without arbitration, but it was necessary to "scare them (ie. Botas) first." Here again, he did not expect an answer from Botas until after the elections in Turkey. USTDA FEASIBILITY STUDY -------------- ¶9. (C) The Ambassador briefed Abdullayev on USTDA's proposal to give a grant to Azerbaijan with which it would contract a feasibility study for oil and gas pipelines from Kazakhstan (and possibly a separate grant for Turkmenistan). Abdullayev said SOCAR approved of the idea and would be the lead (and in fact the sole) GOAJ entity involved (note: Embassy subsequently gave a draft of the Grant Proposal for comments to SOCAR Vice-President Elshad Nassirov, in addition to BAKU 00000917 003 OF 003 Foreign Minister Mammadyarov). ¶10. (C) COMMENT: SOCAR head Abdullayev raised legitimate concerns about the adverse implications of any Turkey-Iran gas cooperation on Nabucco, trans-Caspian flow of Turkmen gas through Azerbaijan, and Caspian delimitation talks. SOCAR will be watching events with interest, especially to see if Iranian participation in Nabucco leads to GOAJ abandonment of this project. END COMMENT. DERSE