Identifier
Created
Classification
Origin
08ASTANA2475
2008-12-18 16:52:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Astana
Cable title:  

KAZAKHSTAN: SOCAR DISCUSSES TRANS-CASPIAN OIL

Tags:  PGOV EPET EINV AJ KZ 
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UNCLAS SECTION 01 OF 02 ASTANA 002475 

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC, EUR/CARC
STATE PLEASE PASS TO USTDA FOR DAN STEIN

E.O. 12958: N/A
TAGS: PGOV EPET EINV AJ KZ
SUBJECT: KAZAKHSTAN: SOCAR DISCUSSES TRANS-CASPIAN OIL
TRANSPORTATION SYSTEM

REF: (A) ASTANA 2266 (B) ASTANA 2317

ASTANA 00002475 001.2 OF 002


UNCLAS SECTION 01 OF 02 ASTANA 002475

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC, EUR/CARC
STATE PLEASE PASS TO USTDA FOR DAN STEIN

E.O. 12958: N/A
TAGS: PGOV EPET EINV AJ KZ
SUBJECT: KAZAKHSTAN: SOCAR DISCUSSES TRANS-CASPIAN OIL
TRANSPORTATION SYSTEM

REF: (A) ASTANA 2266 (B) ASTANA 2317

ASTANA 00002475 001.2 OF 002



1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: On December 12, Energy Officer met with Vurgun
Jafarov, State Oil Company of the Azerbaijan Republic (SOCAR)
Country Director for Kazakhstan, and Fuad Khodjayev, SOCAR Country
Manager, to discuss the November 14 agreement between SOCAR and
KazMunaiGas (KMG) to develop a trans-Caspian oil transportation
system. The proposed system would ship crude from Eskene (near
Atyrau on Kazakhstan's northwestern Caspian coast) to Baku via
pipeline and tanker. Jafarov said SOCAR and KMG will establish a
50-50 joint venture and are capable of carrying out the project
independently, although he acknowledged that certain details -- such
as who will build and upgrade port infrastructure in Kazakhstan, who
will build and own the tankers, and what transit tariffs the joint
venture will charge -- have yet to be negotiated. Also on December
12, SOCAR and KMG officials delivered a presentation in Baku to the
regional vice presidents of international oil companies with major
upstream assets in Kazakhstan and stressed to them that the project
will need guaranteed delivery of oil from Tengiz, Karachaganak, and
Kashagan in order to move forward. END SUMMARY.


3. (SBU) Aspects of the November 14 agreement have been reported
previously (reftel A),but this was the first opportunity to discuss
specifics with SOCAR representatives in Kazakhstan, who arrived in
September and are still renovating their new office. The proposed
trans-Caspian oil transportation system would ship Kazakhstani crude
westward via pipeline from Eskene to Kuryk, then via tanker from
Kuryk to Baku, and from there to global markets via the
Baku-Tbilisi-Ceyhan (BTC) pipeline, Baku-Supsa pipeline, or
trans-Caucasus railway to Batumi or Kulevi on Georgia's Black Sea
coast.

SOCAR DOES NOT NEED INTERNATIONAL PARTNERS


4. (SBU) Jafarov confidently claimed that SOCAR and KMG could
complete this three-year, $3.5 billion project without outside
assistance. Specifically, he asserted that KazTransOil, a
wholly-owned subsidiary of KMG, has the expertise and capital

required to build the 840-kilometer Eskene-Kuryk pipeline without an
international partner and that KazMorTransFlot can independently
handle the necessary upgrades to port infrastructure and facilities
at Kuryk. The 50-50 joint venture between SOCAR and KMG "does not
need other partners," he said and added jokingly, "we will divide
the Sea between us." (NOTE: Arman Darbayev, Executive Director for
Oil Transportation at KMG, told Energy Officer that KMG would prefer
to invite international companies to take an equity stake in the
project, but SOCAR has resisted this and KMG is reluctant to reduce
its share below that of SOCAR. Furthermore, KazMorTransFlot
officials told Embassy Political Officer on November 6 (reftel B)
that they have had difficulty recruiting qualified personnel and
acquiring tankers of sufficient size to meet demand. END NOTE).

CRUDE SHIPMENT COMMITMENTS KEY TO PROJECT SUCCESS


5. (SBU) Jafarov confirmed media reports that SOCAR and KMG plan to
launch the project in 2009 and complete activities by 2012. He did
not say whether or not feasibilities studies -- for example, to
deepen the port at Kuryk or construct single-point mooring buoys --
had been commissioned or conducted. Although he claims SOCAR and
KMG can manage the infrastructure investments independently, Jafarov
emphasized that international companies with major upstream assets
in Kazakhstan must commit to shipping their crude through the system
if the project is to move forward. Consequently, on December 12 in
Baku, senior officials from SOCAR and KMG presented their business
case to regional vice presidents from companies invested in Tengiz,
Kashagan, and Karachaganak.

TANKER FLEET QUESTIONS REMAIN


6. (SBU) Jafarov insisted that "there are no outstanding issues
that could delay the start of the project," but he acknowledged that

ASTANA 00002475 002.2 OF 002


agreement has not been reached on the size, location, or ownership
of the proposed trans-Caspian tanker fleet. For logistical reasons,
according to Jafarov, the tankers would have to be built in the
Caspian Sea, most likely the Russian port of Astrakhan. The
preference would be to build 60,000 deadweight-ton (dwt) double-hull
tankers, but if there are delays or disputes that prevent
construction of these vessels, Jafarov said the project could still
work, using existing Azeri and Kazakhstani tankers already in the
Caspian. He noted, for example, that Azerbaijan and Kazakhstan each
own five 13,000 dwt tankers and several smaller vessels that already
transport oil from Aktau to Baku, including shipments of up to
100,000 barrels per day from Tengizchevroil. In a sense, he
asserted, the trans-Caspian oil transportation project is already up
and running.

BAKU-SUPSA PIPELINE A CONVENIENT BACK-UP


7. (SBU) When asked whether the Baku-Supsa pipeline would be
available to Kazakhstani exporters, Jafarov said the pipeline is
operated by the Azerbaijan International Operating Company (AIOC)
and access rights would have to be negotiated with AIOC, not SOCAR
or the Government of Azerbaijan. He called Baku-Supsa a "convenient
little pipeline" that was recently modernized and said it has been a
useful backup to the much larger BTC transport route. Jafarov also
expressed some concern that large volumes of Tengiz crude, which is
high in sulfur, would adversely affect the quality of Azeri crude in
either the Baku-Supsa or BTC pipelines. (NOTE: The capacity of the
pipeline is 145,000 bpd. After an explosion and fire closed BTC on
August 6, the Baku-Supsa pipeline was used to re-route Azeri oil
deliveries. END NOTE).


8. (SBU) COMMENT: Although the November 14 agreement between KMG
and SOCAR represents real progress toward the development of a
trans-Caspian oil transportation system, it is still unclear who
will do what, and when, to make that system a reality. For example,
both Chevron and ExxonMobil have said they will take the lead on
building the pipeline from Eskene to Kuryk, which is the first
component of the proposed system, but no final decision has been
made and a new consortium will likely be established to conduct a
feasibility study and build this segment. In addition, reftel B
raises questions about KazMorTransFlot's expertise and capacity to
upgrade the port and terminal facilities on its own, while
international oil companies remain very concerned about unresolved
maritime safety and tanker transportation issues. Clearly, KMG
would prefer to invite external partners to contribute their
financial and technical assistance, while SOCAR insists the two
national oil companies do not need outside help. These questions
are complicated and serious and suggest that the negotiations
between KMG and SOCAR are just beginning. END COMMENT.

HOAGLAND