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