AZERBAIJAN: AMBASSADOR MANN TALKS ENERGY WITH FM

C O N F I D E N T I A L BAKU 000224 SIPDIS SIPDIS E.O. 12958: DECL: 03/02/2018 TAGS: PGOV PREL AJ TX ENRG SUBJECT: AZERBAIJAN: AMBASSADOR MANN TALKS ENERGY WITH FM MAMMADYAROV Classified By: Ambassador Anne E. Derse, reasons 1.4 (b,d) ¶1. (C) SUMMARY: Eurasian Energy Coordinator Ambassador Mann told Foreign Minister Mammadyarov that BTC expansion was "imperative." On Turkmenistan, Mann said President Aliyev and Azerbaijan could provide a good example to Berdimuhamedov of how to invite foreign energy companies into a productive partnership, and how to conduct balanced relations with Russia. Mammadyarov said that first, one has to be sure that the Turkmen were "on board," and not using the prospect of GOTX-GOAJ enhanced cooperation merely to derive greater value from Russia and Iran. Mammadyarov also questioned whether Europe was ready to move forward to implement a coherent energy security policy. Mammadyarov, like President Aliyev, reflects the prevalent GOAJ viewpoint that now it is time for Ashgabat to commit to practical steps towards enhanced bilateral cooperation. END SUMMARY. ¶2. (C) On February 25, Ambassador for Eurasian Energy Diplomacy Steve Mann and Ambassador Derse met with Foreign Minister Mammadyarov to discuss energy issues. Also present were USTDA Regional Director Dan Stein, USTDA Azerbaijan Desk Officer Jamie Merriman, and Embassy Energy Officer (notetaker). ¶3. (C) Ambassador Mann said the USG deemed BTC expansion imperative, that he had heard a good clarification from the President and SOCAR on the reasons for GOAJ reluctance for approving this expansion, and he hoped that all concerned could move forward. CPC expansion was in trouble, and as such new Kazakh oil volumes needed to come west through Azerbaijan. The TGI, TAP and Nabucco pipelines were seeking Shah Deniz Phase Two (SD2) volumes, and the USG hoped Azerbaijan would move ahead to assure the progress necessary to further explore these projects. The Nabucco project seemed the closest to actualization, and he hoped Azerbaijan would work with Turkey to solve transit issues. The window was open in which SD2 and ACG Deep Gas could supply Nabucco, and given the uncertain future Mann said experience has taught him that "if it is possible to create a new channel to Europe, do it." The USG and GOTX also have to work on getting "early gas" from Turkmenistan. TURKMENISTAN -------------- ¶4. (C) Regarding the GOTX, FM Mammadyarov said that firQ, one has to be sure that the Turkmen were "on board," and not using the prospect of GOTX-GOAJ enhanced cooperation merely to derive greater value from Russia and Iran. Mann agreed, saying he had cautioned Berdimuhamedov that although he can sign contracts with Russia, if Russia changes the terms, the GOTX will have "no options." Mann said he thought that currently the GOTX had no fixed positions, but was largely "dining on the leftovers of the Niyazov era." Berdimuhamedov was continuing the policies of his predecessor until he was prepared to change them, hence comments such as "we will sell our gas at our border." As for delimitation, Berdimuhamedov was understandably loath to unilaterally renounce GOTX ACG claimsQnd the associated billions of dollars of lost revenue. However, Mann said he had told both the GOTX President and Foreign Minister in August 2006 that "no one else on the planet uses the GOTX method of delimitation." ¶5. (C) Ambassador Mann said President Aliyev and Azerbaijan could provide a good example to Berdimuhamedov of both how to invite foreign energy companies into a productive partnership, and how to conduct balanced relations with Russia. He thought Berdimuhamedov was isolated, so that a strong relationship with Aliyev would be"disproportionately powerful" in providing Berdimuhamedov an example to emulate. The only way genuine cross-Caspian transit of GOTX energy would occur would be from this strong personal relationship between Presidents Aliyev and Berdimuhamedov. Mammadyarov said that the GOTX needed to be more decisive, pointing out that still there was no GOTX Ambassador in Baku. ¶6. (C) Mammadyarov said the decision for enhanced GOAJ-GOTX bilateral cooperation to include energy cooperation was in Berdimuhamedov's hands. The GOAJ and USG needed to do more to educate and orient Berdimuhamedov geopolitically, as Berdimuhamedov was focusing on the short-term, noting, "We need to re-orient him towards the long term. As Churchill said, 'Politicians think about the next election, statesmen (think about) the next generation.'" Berdimuhamedov has historical ambitions and we are ready to help him, but "we will not be used by Turkmenistan." As such, Turkmenistan should not portray itself as being dragged along in the relationship - "if they want to join us, do it." He said that GOTX FM Meredov told him last month that delimitation was going to take a long time, and in the interim they should jointly pursue commercial development, to which Mammadyarov responded that since neither side could independently develop Serdar-Kapaz (S-K),they should do it together. Meredov was a "good man, but scared of his past." Mammadyarov said he still regularly received official letters from the GOTX relating to its ACG claims, although he no longer responds to these notes. GOTX ACG claims were not acceptable - "that train has left the station" - and the GOTX needs to look ahead strategically. Mann said that the two should "agree to disagree" on ACG, and work together on other issues. KAZAKHSTAN -------------- ¶7. (C) Mammadyarov asked Mann about the possibility of Kazakh gas coming west. Mann said there were not a lot of available volumes, since the Kazakhs would be using a lot of gas for re-injection in both Kashagan and Tengiz. All told, there was the possibility of only about 4 billion cubic meters annually (bcm/a) export for several years, although the issue deserved to be revisited in two years or so. On a January visit to Astana, Kazakh officials told Mann they preferred gas re-injection since there was no export route for their gas and they didn't want to pioneer it. However, Mann said if there was a cross-Caspian export potential from Turkmenistan, this would "change the equation." Mammadyarov agreed that South Caucasus Pipeline(SCP) is the model, and that the Kazakhs could use the SCP for their gas export. (Comment: SCP has no spare gas capacity once 2013 SD2 volumes are factored in). ¶8. (C) On Kazakh oil coming west, Mann said Azerbaijan and Kazakhstan needed to work together on tanker transit capacity across the Caspian, and that the USG was strongly encouraging both sides to avoid monopolist tendencies. He was encouraged hearing from SOCAR President Abdullayev that progress was being made on BTC expansion. Azerbaijan shouldn't insist on filling the Northern (Baku Novorossiysk) and Western (Baku-Supsa) oil pipelines before BTC. Mammadyarov countered that commercial considerations should dictate these oil export options, with Mann replaying that political and strategic considerations are also important. ¶9. (C) Mann said that the Kazakh government handled its Kashagan negotiations very well, negotiating "hard and smart." They threatened with the Subsurface Resource Law once, then knew enough to back off this threat. They also knew that the decision could only be made by the IOCs at the CEO level, so insisted they be brought into the negotiations. EUROPE -------------- ¶10. (C) Mammadyarov said that even if Turkmenistan and Kazakhstan were eager to ship products to Europe, he had "no feeling that Europe was ready" to actively work in the region to promote its energy security. Any summit at the ministerial level or lower would be pointless, since neither the Kazakh nor Turkmen Energy Ministers are empowered to make any decisions. Mann and Mammadyarov agreed that unless there was careful and extensive preparation beforehand, "summits were just photo ops." Mammadyarov added that the idea of a summit should be "in the air" so that companies seeking Caspian energy are buoyed. Ambassador Derse recalled Mammadyarov's comments that that any joint statement coming from such a summit supporting general principles such as energy diversity could help give welcome political cover to Turkmenistan in seeking to move some of its hydrocarbons west. Referring to a possible Heads of State summit, Mann said that Berdimuhamedov didn't have a positive experience in his previous visit to Brussels, when he was introduced at one point as the President of Tajikistan. ¶11. (C) COMMENT: Mammadyarov, like President Aliyev, reflects the prevalent GOAJ viewpoint that now it is time for Ashgabat to begin to move beyond its rhetoric and commit to practical steps towards enhanced bilateral cooperation. (Septel reports on Ambassador Mann's meetings with President Aliyev and Socar President Abdullayev). END COMMENT. ¶12. (U) Ambassador Mann has cleared on this cable DERSE