PM NOGHAIDELI TALKS TOUGH ABOUT BP AND AZERI GAS

C O N F I D E N T I A L TBILISI 002498

SIPDIS

SIPDIS

STATE FOR EUR/CARC AND EEB/ESC/IEC

E.O. 12958: DECL: 10/04/2017
TAGS: ENRG EPET GG AJ RU AR
SUBJECT: PM NOGHAIDELI TALKS TOUGH ABOUT BP AND AZERI GAS


Classified By: Ambassador John F. Tefft, reason 1.4(b) and (d).


1. (C) On October 4, the Ambassador met with Georgian Prime
Minister Noghaideli. Noghaideli told the Ambassador that
shortly before he went to Baku on September 27-28 for a
meeting of the Georgian-Azerbaijani Economic Commission, he
received word from the Azerbaijanis that there would be no
chance of finalizing an agreement for supply of Azeri natural
gas to Georgia over the winter. The reason, Noghaideli said,
was BP's decision to reduce gas supplied to Azerbaijan from
the ACG field, leaving less gas available for Azeri and
Georgian use. Noghaideli said that BP's chairman is coming
to Baku on October 19 to meet with the Azeri leadership on
future development of oil and gas reserves in Azerbaijan. He
expects the negotiations to be difficult. In fact, he
believes that BP is "blackmailing" the Azeris by reducing ACG
gas output, in order to gain an advantage in discussions of
new PSA's for future oil and gas output. Noghaideli said
bluntly that if BP fails to negotiate in good faith with
Azerbaijan and its behavior interferes with Georgia's ability
to receive Azeri gas, Georgia will "create problems" for BP
and its consortium in their use of the SCP and BTC pipelines
and the rail route to Supsa. (Comment: Noghaideli knows that
Azerbaijan is committed to helping it through the coming
winter to the extent it can. His threat to make trouble for
BP is clearly intended to bolster the negotiating position of
his friends in Baku against BP. The outcome of the October
19 talks between BP and the Azeris will clarify whether any
action by the USG is warranted.)


2. (C) Noghaideli said that Georgia has received no Azeri
gas other than its allotment for transit through the SCP
pipeline since September 1. It is once again dependent on
Russian gas to fill its needs completely. He fears that
Russia will use the situation to pressure Azerbaijan and
Georgia for its own ends. Depending on the weather and
demand in Georgia, Noghaideli said that he expects Georgia to
soon be able to obtain from 70 to 100 percent of its winter
gas needs from Azerbaijan. Realistically, he thinks
Azerbaijan won't be able to deliver 100 percent this coming
winter. However, a new contract was signed with Russia in
July, which will provide 200 million cubic meters from July
2007 to August 2008 in return for transit of gas to Armenia
from Russia. He thinks Georgia can fill its eight million
cm/day winter gas demand with five million cm from Azerbaijan
and three million from Russia. Noghaideli refused to
disclose how much he expects Georgia to have to pay
Azerbaijan for gas. Unofficial estimates range from USD 140
to USD 170. Noghaideli said that the Azeris have spent USD
15 million to increase the capacity of an existing pipeline
(other than SCP) into Georgia.


3. (C) Noghaideli discussed Armenia's dealings with Iran on
natural gas in response to a question by the Ambassador. He
said that the Armenia-Iran deal is structured as a swap of
gas for electricity, that supplies one-third of Armenia's
winter gas needs. However, the exchange does not work well
because Iran needs electricity in the summer rather than
winter. Armenia's remaining gas supply comes from Russia,
and Noghaideli said that Armenia pays only USD 64 in cash per
thousand cubic meters, with the rest of the USD 110 price
coming in barter and other complicated exchanges. In any
event, he said, there is no way Iran can undercut Russia's
price, in some respects because its deal with Turkey commits
it to offer no lower price for gas to Armenia than it offers
to Turkey. In the end, he said, the Iran-Armenia pipeline is
intended to insure against a cutoff of gas to Georgia by
Russia that would stop the flow of Russian gas to Armenia.




TEFFT