AZERBAIJAN: SE GRAY'S MEETINGS WITH FOREIGN

C O N F I D E N T I A L SECTION 01 OF 04 BAKU 000552

SIPDIS

DEPT FOR EUR DAS BRYZA, EEB STEVEN MANN,
EUR/ERA FOR EMCCONAHA
EUR/UMB, EEB/EEC/IEC - LWRIGHT
USEU FOR SPECIAL ENVOY GRAY
DOE FOR LEKIMOFF, CCALIENDO

E.O. 12958: DECL: 06/17/2018
TAGS: EPET EINV ENRG PINR PGOV PREL AJ TX
SUBJECT: AZERBAIJAN: SE GRAY'S MEETINGS WITH FOREIGN
MINISTER AND ENERGY MINISTER

Classified By: AMBASSADOR ANNE DERSE PER REASONS 1.4 (B, D).


1. (C) SUMMARY. Special Envoy for Eurasian Energy C. Boyden
Gray, accompanied by EUR DAS Matthew Bryza, Eurasian Energy
Coordinator Ambassador Steven Mann, Ambassador Richard
Hoagland, and Ambassador Anne Derse, met separately with
Azerbaijani Foreign Minister Elmar Mammadyarov and Energy
Minister Natiq Aliyev to discuss Azerbaijan's energy and
bilateral relations with Turkmenistan, Turkey and the
European Union. Both Mammadyarov and Aliyev said Turkmen
President Berdimuhamedov's visit had achieved positive
results, including plans for a bilateral energy conference in
Baku in September. Gray and Mammadyarov discussed organizing
an energy summit in Brussels with energy companies and
exporting countries to discuss diversification of Europe's
energy needs and strategize on getting Caspian gas to
European markets. Azerbaijan plans to continue talking to
Turkey about gas transit. Bryza cautioned Mammadyarov that
OMV's declared "open season" for the Nabucco gas pipeline
project could leave Azerbaijan behind and lead the Nabucco
partners to choose Russian or Iranian gas for the pipeline
project. END SUMMARY


2. (C) Special Envoy for Eurasian Energy C Boyden Gray,
accompanied by EUR DAS Matthew Brya, Ambassador Steven Mann,
Ambassador Richard Hoagland, and Ambassador Anne Derse, met
separately on June 2 with Azerbaijani Foreign Minister Elmar
Mammadyarov and Energy Minister Natiq Aliyev to discuss
Azerbaijan's energy and bilateral relations with
Turkmenistan, Turkey and the European Union. Both ministers
expressed optimism about Azerbaijan's warming relations with
Turkmenistan, while cautioning that the overall relationship
was still in its early stages and the Turkmen should not be
pressed too hard. They emphasized that Azerbaijan views gas
exports to Europe and providing transit for central Asian gas
as key strategic goals. Energy Minister Aliyev told the
group that Azerbaijan needed to accelerate Shah Deniz Stage 2
(SD2) development, obtain a transit agreement with Turkey,
and develop good bilateral relations with Turkmenistan and
Kazakhstan. COMMENT: Most important in these meetings was
the GOAJ desire, mirroring President Aliyev's previously
expressed request, for more active U.S. leadership and a
"roadmap" from the US Government indicating the actions that
need to be taken in order to resolve the Turkish gas transit
issue, improve energy cooperation with Turkmenistan, and
encourage the EU to play a more active, and unified, role in
reaching out to the Caspian. END COMMENT.

TURKMENISTAN
--------------


3. (C) Foreign Minister Mammadyarov told SE Gray and the
delegation that the recent visit to Baku by Turkmen President
Berdimuhamedov was a "good open discussion" and had resulted
in positive momentum in the overall bilateral relationship,
including discussions on Caspian Sea delimitation and gas
exploration. Mammadyarov said that President Aliyev had
instructed Energy Minister Aliyev (no relation to the
President) to travel to Ashgabat June 6 to begin discussions
with the GOTX regarding a September Azerbaijan-Turkmenistan
oil and gas conference to be held in Baku. Aliyev separately
confirmed that he planned to travel Ashgabat to begin
negotiations on the conference.


4. (C) Mammadyarov said that Berdimuhamedov wanted to keep
the conference only between Azerbaijan and Turkmenistan and
dismissed Azerbaijan's idea of including Turkey. Mammadyarov
said that many of the details for the conference still needed
to be worked out, including the possible participation of
international energy companies. Mammadyarov acknowledged
that Azerbaijan did not know how far President Berdimuhamedov
was willing to go, and whether he actually sought to export
some Turkmen gas to Europe via Azerbaijan or was merely
threatening to do so only to increase the price of gas to
Russia. He also said President Aliyev did not have any plans
to visit Turkmenistan prior to Azerbaijan's October 15
presidential election, adding that the president was planning
to campaign throughout the country over the coming months.


5. (C) Mammadyarov outlined Azerbaijan's strategy to engage

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Turkmenistan and Berdimuhamedov to strengthen the overall
bilateral relationship. Ambassador Mann told Mammadyarov
that there are two primary areas of action with Turkmenistan.
In the long-term, it was critical to get serious energy
companies to Turkmenistan, adding that Chevron and BP had
opened an offices in Ashgabat and ExxonMobil was
contemplating an office. Mammadyarov said that European
companies, such as OMV, should also be included in any gas
development plans. In the immediate-term, Ambassador Mann
said that associated gas in Turkmenistan needed to be
developed and exported westward to Azerbaijan, then onward to
Europe.


6. (C) Energy Minister Aliyev told SE Gray that Azerbaijan
needed to increase its efforts to work with Turkmenistan and
Kazakhstan, despite the various obstacles that existed.
Aliyev noted that the Azerbaijan-Turkmenistan relationship
was warmer than before and that both countries have a common
goal to connect their offshore fields. He said that
President Aliyev will take a careful approach with
Turkmenistan in order to gain Turkmenistan's trust and not
push issues on the Turkmen president. FM Mammadyarov also
reiterated that Azerbaijan needed to proceed slowly with
Turkmenistan in order to build the relationship. Mammadyarov
noted that despite the progress with Turkmenistan, the GOTX
was not ready to discuss joint field development or the
disputed Serdar/Kyapaz field. Azerbaijan had decided to put
aside these contentious issues for the moment and focus on
other points of common interest.


7. (C) In addition to building good relations with
Turkmenistan, Aliyev said that Azerbaijan is ready to assist
Turkmenistan logistically. Separately, FM Mammadyarov
reiterated that Turkmenistan lacked capacity to develop its
oil and gas fields, adding that it did not have a national
oil company such as SOCAR. Aliyev said that he hoped an
eventual agreement between Azerbaijan and Turkmenistan would
encourage private energy companies to participate and
eventually lead to increasing gas volumes transiting
Azerbaijan. Aliyev said that Azerbaijan did not understand
or know Turkmenistan's relationship with Russia, which may
include bilateral agreements and obligations.


8. (C) Asked about his personal impressions of President
Berdimuhamedov, Mammadyarov said that he believed there would
be statues all over Turkmenistan in one year, obliquely
referring to former Turkmen President Turkmanbashi's
personality cult. He said that Berdimuhamedov wanted to be a
"star" and that he would not do anything except to ensure his
own security. Mammadyarov said that Berdimuhamedov
negotiated in an "oriental style," always wanting more.

TURKEY
--------------


9. (C) Both Foreign Minister Mammadyarov and Energy Minister
Aliyev told SE Gray that Azerbaijan has no problems with
Turkey. Mammadyarov said that he did not understand why
Turkmenistan did not want to include it in the proposed oil
and gas conference in Baku in September. DAS Bryza told
Mammadyarov that the U.S. was interested in organizing a
trilateral meeting with Azerbaijan and Turkey to discuss
strategies to get Azerbaijani gas to European markets,
acknowledging that it appeared that Turkey wanted to buy all
Azerbaijani SD2 gas. Mammadyarov said that Azerbaijan "was
waiting" for Turkey and that gas transit would be discussed
during a meeting between President Aliyev and Turkish Prime
Minister Tayyip Erdogan in Nahkchivan on June 3.


10. (C) Energy Minister Aliyev confirmed that President
Aliyev would discuss gas transit with the Turkish PM. Aliyev
briefed the group on Azerbaijan's gas potential and said that
he had good discussions with Turkey's Energy Minister despite
the occasional misunderstanding. Aliyev emphasized that
Azerbaijan will not agree to sell its gas at the
Georgia-Turkey border and that Azerbaijan wanted clear
transit conditions and tariffs from Turkey. In the end,
Aliyev stated that he believed Azerbaijan and Turkey would
get an agreement on gas transit. On the margins of his
meeting June 6 in St. Petersburg with Armenian President

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Sargsyan, Aliyev told Bryza he (Aliyev) and Turkish PM
Erdogan made significant progress toward resolving the gas
transit dispute during their June 5 meeting in Nalchchivan.)


11. (C) Calling the Turks "stubborn," Mammadyarov said that
Azerbaijan would continue to talk with the Turks, emphasizing
that being a transit country for Caspian gas would elevate
Turkey's profile in the EU and bolster Turkey's relations
with the EU. He noted that Turkey's increasingly views the
transit issue as leverage in its accession discussions with
the EU. Mammadyarov said that it was positive that the
Turkish Ministry of Foreign Affairs had taken a leadership
role in the transit negotiations, noting that the Turkish
Energy Ministry viewed the issue from a profit standpoint and
not from a political standpoint. Mammadyarov reiterated that
Turkey can gain more from the transit agreement with
Azerbaijan without the net-back clause.


12. (C) Mammadyarov said that President Aliyev instructed him
to develop with the USG a roadmap on energy issues.
Mammadyarov requested assistance from SE Gray and DAS Bryza
in developing and drafting this roadmap for Azerbaijan's
efforts to transit Turkmen and Kazakh gas, negotiate a
transit agreement with Turkey and build more support for
Caspian energy with the EU. Ambassador Mann and DAS Bryza
said that they would help develop the action plan. SE Gray
cautioned that the U.S. did not want to get ahead of the EU
and the action plan may not be as detailed as President
Aliyev wanted.

EUROPEAN UNION
--------------


13. (C) Turning to the European Union, Foreign Minister
Mammadyarov raised the idea of a summit in Brussels to bring
together all the energy suppliers and consumers to discuss
long-term energy strategies and diversification of European
gas supplies. The purpose would be to produce a political
declaration strongly endorsing diversification of supply.
Mammadyarov noted that he had raised this idea more than a
year earlier with President Aliyev, who agreed to the
concept. The EU, according to Mammadyarov, was not actively
pushing for the meeting and SE Gray acknowledged that there
was some resistance in the EU to the idea.


14. (C) SE Gray and DAS Bryza both dismissed Mammadyarov's
idea to include Iran in the energy summit. Mammadyarov
agreed and indicated that the summit would focus on Europe,
including Russia, and Caspian and central Asian countries.
Mammadyarov said he would talk with President Aliyev
regarding the timing of the summit in Brussels, noting that
September or October could be difficult with the upcoming
Azerbaijani president election. Mammadyarov requested SE
Gray to test the Brussels summit idea with the EU.


15. (C) DAS Bryza told Foreign Minister Mammadyarov that the
Nabucco pipeline partners, including OMV, planned to meet in
The Hague at the end of June to discuss a possible
inter-government agreement that would resolve the Turkish
transit issue by allowing Turkey to take gas volumes from the
Nabucco pipeline in the case of an "energy supply" emergency.
Bryza noted that Azerbaijan could participate as an observer
but that Energy Minister Aliyev had reportedly declined.
Mammadyarov said he was unaware of the meeting and believed
that SOCAR, if invited to be an observer, should participate.
He said he would raise the meeting with SOCAR. Energy
Minister Aliyev separately said that Azerbaijan should be
invited to the Hague meeting.


16. (C) DAS Bryza stated that he worried that OMV's declared
"open season" for Nabucco gas pipeline could leave Azerbaijan
behind and lead the Nabucco partners to choose Russian or
Iranian gas for the pipeline project. Bryza emphasized that
Azerbaijan needed to sit down with the companies to discuss
strategy and stay out in front of this issue. Mammadyarov
agreed, adding that maybe on the sideline of the Hague
meeting Azerbaijan could talk with OMV.


17. (C) Recalling the success of the Baku-Tbilisi-Ceyhan
declarations in the late 1990s, Energy Minister Aliyev said

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that in order to advance Azerbaijan's gas export ambitions it
would be useful to organize a political declaration on gas.
Aliyev said that Azerbaijan does not need to initiate the
declaration and others, such as the EU, could create the
correct environment. Aliyev said that there could be a
pre-meeting with government officials and energy companies to
discuss details and potential problems. Aliyev said that
since there were no serious documents signed by companies or
countries on the Nabucco project, there were no obligations
to implement the project. Aliyev added that there needed to
be good political will for Nabucco then all the parties would
support it.


18. (C) COMMENT: President Aliyev for many months has urged
that the USG and Azerbaijan renew the close coordination and
leadership that produced the "Contract of the Century" and
the BTC pipeline to advance the southern gas corridor. The
GOAJ is very pleased with the appointment of SE Gray and
eager for USG leadership and cooperation in addressing the
obstacles to moving this project forward. Azerbaijan is
increasingly sensitive to Russian reaction to its efforts on
gas. Gazprom chief Alexei Miller had visited Azerbaijan the
day before this meeting and offered to buy all Azerbaijani
gas in an effort to undercut Nabucco. We need to follow-up
on President Aliyev's request for a "roadmap" indicating the
actions that need to be taken in order to address the Turkish
gas transit, improve energy cooperation with Turkmenistan,
and encourage the EU to play a more active, and unified, role
in reaching out to the Caspian. End Comment.


19. (U) SE Gray, Ambassador Mann and DAS Bryza cleared this
cable.
DERSE