KAZAKHSTAN: AZERBAIJAN STILL SLOW TO COOPERATE ON

C O N F I D E N T I A L ASTANA 001212 SIPDIS STATE FOR SCA/CEN M. O'MARA E.O. 12958: DECL: 07/01/2018 TAGS: PGOV PREL EPET KZ SUBJECT: KAZAKHSTAN: AZERBAIJAN STILL SLOW TO COOPERATE ON TRANSPORTATION ISSUES Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4 (B) AND (D) ¶1. (C) Summary: Azerbaijan has still not approved a Heads of Agreement on trans-Caspian transportation despite assurances to Kazakhstan that they would approve the agreement by June ¶15. Azerbaijan is also encouraging Kazakhstan to use the Baku - Novorossiysk pipeline and downplaying Baku - Supsa, to the chagrin of the Kazakhstanis. Kazakhstan faces another conundrum on the Eskene - Kurik pipeline, as they juggle commitments to Chevron and the Kashagan consortium. End Summary. Kazakhstan Still Worried By Azerbaijan Inactivity on Trans-Caspian Transportation -------------- -------------- ¶2. (C) Arman Darbayev, KazMunaiGas Executive Director for Oil Transportation and Service Projects, told Poloff on July 1 that Azerbaijan has still not approved a draft Heads of Agreement on Trans-Caspian transportation. According to Darbayev, Kazakhstan presented Azerbaijan the draft in March. In early June, SOCAR President Abdullayev told a Kazakhstani delegation that Azerbaijan would approve the agreement by June 15. Nevertheless, Kazakhstan has received no response from Azerbaijan, said Darbayev. The agreement must be signed by August, or the 2007 Memorandum of Understanding on trans-Caspian transportation expires. Asked the reason for the delay, Darbayev said that he believes the Azerbaijanis are "playing games sometimes" but he offered no further elaboration. ¶3. (C) Darbayev told Poloff that Kazakhstan is "very keen" to use the Baku - Supsa pipeline. Again, however, Darbayev suggested that the Azerbaijanis are creating obstacles. According to Darbayev, Azerbaijan is trying to push control of Baku - Supsa to SOCAR, and said that the Georgians believe that the Azerbaijanis will soon be the operator of the pipeline. Darbayev indicated that Georgia and Kazakhstan are in agreement on Baku - Supsa and will try to work together to push Azerbaijan. ¶4. (C) The Azerbaijanis have suggested that Kazakhstan utilize the Baku - Novorossiysk pipeline. For Kazakhstan, this is a non-starter, said Darbayev. He noted that Kazakhstan can ship oil directly to Makhachkala without going through Azerbaijan. In addition, Kazakhstan could just as easily use the Atyrau - Samara pipeline, but it is looking to reduce volumes transported through Russia. ¶5. (C) In Darbayev's view, Azerbaijan's first priority is BTC expansion, but only to 1.2 million, and not 1.6, bbd. Their second priority is to expand their railway system to accomodate 25 million tons of oil a year and to fill the Kuhlevi terminal. For Kazakhstan, a second BTC is too expensive but a second Baku - Supsa might be an option. But Darbayev identified a number of uncertainties - the real production of Azerbaijan and Kazakhstan, BTC capacity, and what volumes will be shipped to Iran. Caught Between Chevron and the Kashagan Consortium -------------- -------------- ¶6. (C) Despite recent press reports of a Chevron - Kazakhstan partnership to build the Eskene - Kurik pipeline, Darbayev admitted that Kazakhstan's obligations to the Kashagan consortium muddy the waters. "If we go with Chevron," said Darbayev, "we need to have NCO (North Caspian Consortium) on board." At the very least, the consortium will need to be given guaranteed access and stability assurances. ¶7. (C) Comparing Chevron and the Kashagan consortium, Darbayev described the consortium as more flexible, and said that Chevron has taken a "strong, tough position." According to Darbayev, Chevron initially said that they wanted 10% of the pipeline's capacity, but they now seek 15%. They also have proposed establishing conditions for the pipeline now, with the Kashagan partners joining later. Darbayev acknowledged that the Kashagan partners will require guaranteed volumes from the start and will want some input in creating the conditions. ¶8. (C) Comment: With Azerbaijan seemingly inactive and the Eskene - Kurik pipeline the subject of dispute, the Kazakhstanis will need to push hard to maintain trans-Caspian momentum. Nevertheless, the Trans-Caspian route is an inevitability; even if other routes are expanded, including CPC, the capacity will not be sufficient. The difficult question to be solved now is what will happen to Kazakhstan's oil beyond Baku. End Comment. ORDWAY