AZERBAIJAN: PENDING BREAKTHROUGH IN TURKMENISTAN

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000585

SIPDIS

E.O. 12958: DECL: 06/19/2018
TAGS: PGOV PREL ENRG AJ TX TU
SUBJECT: AZERBAIJAN: PENDING BREAKTHROUGH IN TURKMENISTAN
ENERGY COOPERATION?

Classified By: Ambassador Anne E. Derse, reasons 1.4 (b,d)


1. (C) SUMMARY: President Aliyev told the Ambassador on June
20 that the June 19 Ashgabat visit of a delegation headed by
SOCAR President Rovnaq Abdullayev went well, and that
Azerbaijan and Turkmenistan "may have some news on gas soon."
In a separate conversation, SOCAR Marketing Vice-President
Elshad Nasirov was optimistic that the two countries could
reach agreement on joint development of the offshore
Sardar-Kapaz field. On the marketing of Shah Deniz Phase
Two gas, Nassirov said that SOCAR and the Shah Deniz
Consortium are seeking to sell a small enough amount to
Turkey so that there is enough gas left to sanction one of
the three pipelines (Nabucco, TGI, TAP). Azerbaijan
continues its efforts to integrate into regional energy
markets and to expand its role as both producer and transit
country, and we need to continue to recognize and bolster
Aliyev's ongoing commitment and efforts to make the Southern
Corridor a reality. END SUMMARY.


2. (U) On June 20 Ambassador Derse and Educational and
Cultural Affairs Assistant Secretary Goli Ameri met with
President Aliyev, on the margins of which President Aliyev
discussed recent energy developments. In a separate June 20
meeting, EnergyOff met with SOCAR VP for Marketing Elshad
Nassirov.

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


3. (C) In a June 20 discussion with the Ambassador and
visiting ECA A/S Goli Ameri, President Aliyev reported with
great satisfaction that Azerbaijan and Turkmenistan "may have
some news to report soon" on gas. The previous day GOTX
President Berdimuhamedov had received a delegation led by
SOCAR President Rovnaq Abdullayev, discussing energy issues
including an upcoming joint GOAJ-GOTX Energy conference to be
held in Baku in September. Aliyev said that Berdimuhamedov's
reception of SOCAR President Abdullayev was particularly
noteworthy since recently he had refused to meet Gazprom
President Alexei Miller. Aliyev also pointed out that he
himself earlier in the day had met and had good discussions
with the visiting head of the Turkmenistan Parliament.


4. (C) In a separate meeting with EnergyOff, SOCAR Marketing
Vice-President Elshad Nassirov said he had accompanied SOCAR
President Rovnaq Abdullayev for his June 19 Ashgabat trip,
where they met with GOTX President Berdimuhamedov amongst
other GOAJ interlocutors. A joint Turkmenistan-SOCAR Working
Group was formed to prepare for the joint
Azerbaijan-Turkmenistan Oil and Gas Conference to be held in
Baku, September 9-10. On July 8 the Turkmen members of this
working group will come to Baku for further preparations.
The GOAJ side has communicated to the GOTX that were GOTX
President Berdimuhamedov to come to Baku for the conference,
President Aliyev would also participate. Nassirov confirmed
that Executive Director for State Agency for Hydrocarbon
Resources Bayrammurad Muradov seemed to be the GOTX main
working level POC for bilateral energy cooperation.


5. (C) Additionally, Nassirov confirmed that SOCAR and its
GOTX counterparts discussed joint energy sector cooperation.
According to Nassirov, finding a mutually agreeable solution
for development of the Sardar-Kapaz field is a GOTX
precondition for cooperation on other aspects of energy
cooperation, to include developing the Livanov (aka "Block
One") field. A smiling Nassirov said he was "optimistic"
that the two countries would find an agreement on S-K. When
asked what the USG could do to assist, he said there was no
need for the USG to "push" the GOTX, but that it should
continue to point out to the GOTX that gas export westwards
is the best guarantor of market prices for the gas sold to
Russia.

SHAH DENIZ PHASE TWO
--------------


6. (C) Nassirov said that SOCAR and the Shah Deniz (SD)
Consortium agree that selling Turkey eight billion cubic
meters annually of Shah Deniz Phase Two (SD2) gas would
"kill" the Southern Corridor project, as there would not be
enough SD2 gas left to sanction any of the pipeline projects
competing for SD2 gas (TAP, TGI, Nabucco). SOCAR's goal is
to sell no more than 4 bcm/a to Turkey, so that there is 6

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bcm/a left for transit to Europe, "enough for one pipeline."
In response to EnergyOff's question, Nassirov repeated that
SOCAR would seek to sanction one and only one of the three
competing pipelines (TGI, TAP, Nabucco) with SD2 volumes.


7. (C) Nassirov repeated SOCAR's longstanding position that
the SD Consortium could take no substantive steps on
marketing SD2 gas until transit through Turkey was solved.
He was doubtful that there was sufficient political impetus
to do so within Turkey, given PM Erdogan's campaign pledges
of "cheap gas." "The EU needs to push Turkey" to solve
transit, otherwise the Southern Corridor project would be
stillborn. With the recent blandishments by Iran and Russia,
"the SD Consortium now has options," and were Turkey to
remain unwilling to provide transit, Azerbaijan would be
forced, after selling 4-6 bcm/a to Turkey, to contemplate
selling the remainder of SD2 gas to either Russia or Iran.


8. (C) Nassirov denigrated the importance of the various
summit and conference proposals being floated in Washington
and Brussels - none of these would be of any use until
Turkish transit was solved, and none would be needed after it
was solved. Concerning SD2 gas to Israel, Nassirov said
Israel Minister of National Infrastructure Ben-Eliezer had
told him in early June that Israel would use its influence
with the USG to ensure gas transit through Turkey to Israel.
When Nassirov already pointed out that the USG was already
seeking to use its influence to fix gas transit through
Turkey for Europe, Ben-Eliezer replied, "yes, but it is one
thing for the US to work on getting transit for Europe, but
something entirely different for them to seek to get it for
Israel."

SD1
--------------


9. (C) Nassirov said SD Consortium negotiations over the new
price of Shah Deniz Phase One (SD1) gas were "not going
well," as Botas was unwilling to present a new pricing model,
whereas the existing pricing model results in sub-market
prices for SD1 gas, at most USD 240 per thousand cubic meter
(COMMENT: As of April 1, 2008, the SD Consortium and Botas
were to begin negotiations for a new price for the SD1 gas
being sold to Turkey at USD 120 per thousand cubic meters).


10. (C) COMMENT: The GOAJ has taken the lead in cultivating
quiet but increasingly confident bilateral energy sector
cooperation with Turkmenistan, to apparent good effect, with
Aliyev and SOCAR VP Nassirov both buoyed about the latest
engagement with the Turkmen. President Aliyev was also
pleased to hear that we will soon respond to his request for
thoughts on next USG-GOAJ steps to advance the Southern
Corridor, especially with Turkey and Europe. Aliyev was very
pleased to receive President Bush's congratulatory letter for
the 15th Annual Caspian Oil and Gas Exhibition and Conference
(read by SE Gray at the Exhibition's opening): his top energy
aide told the Ambassador on June 19 that the President had
told him that the letter "tells the world" that the United
States and Azerbaijan are partners in projects of strategic
importance. Azerbaijan continues its efforts to integrate
into regional energy markets and to expand its role as both
producer and transit country, and we need to continue to
recognize and bolster Aliyev's ongoing commitment and efforts
to make the Southern Corridor a reality. END COMMENT.
DERSE