AZERBAIJAN OIL & GAS EXPORT WOES: BAKU-SUPSA, SCP

C O N F I D E N T I A L BAKU 000765

SIPDIS

EUR FOR MATT BRYZA; EEB FOR STEVE MANN, DOUG HENGEL; DOE
INTL FOR LANA EKIMOFF

E.O. 12958: DECL: 08/11/2018
TAGS: ENRG EPET EINT PREL AZ TU
SUBJECT: AZERBAIJAN OIL & GAS EXPORT WOES: BAKU-SUPSA, SCP
SHUT DOWN

REF: BAKU 761

Classified By: Acting DCM Robert Garverick, Reason 1.4 (b,d)


1. (C) BP External Affairs and Policy Forum Manager Seymour
Khalilov briefed Embassy officers August 12 on developments
in oil and gas production and transport in light of fire
damage to the BTC pipeline and the Russia-Georgia conflict
over South Ossetia. Khalilov confirmed that the BTC fire was
extinguished, after having burned for nearly five days. BP's
technical team, in coordination with Turkey's BOTAS, now
plans to assess the damage and recommend options for repair.
Khalilov noted that the fire struck value #30 in a remote
area of Turkey; tentative plans include constructing a
"bypass" from valve #29 to value #31 to transport limited
volumes of oil while the trunk line is fixed. Khalilov
estimated that 10-14 days would be needed for the BP/BOTAS
team to assess the situation and initiate repair work.
Separately, Embassy learned from other sources at BP that
initial investigations indicated that the fire was a result
of sabotage, presumably by the PKK. This report has not been
confirmed elsewhere.


2. (C) The AIOC consortium's oil production at the ACG fields
continues at a rather low level for the second day. Khalilov
said today's production was the equivalent of 130,000 barrels
per day, vs. 125,000 b/d yesterday. Alternative export
routes continue to be problematic. The consortium continues
to ship upwards of 100,000 barrels per day through the
Baku-Novorossiysk pipeline. Russia's Transneft, however,
notified SOCAR yesterday to state that technical or
maintenance problems may limit volumes. BP and its partners
have also begun shipping oil by rail to Batumi. Khalilov
noted that, in a curious incident, a Russian naval ship
intercepted an oil tanker near the port of Supsa yesterday,
and the tanker pulled away into the Black Sea. The tanker,
which did not belong to BP or its AIOC partners, apparently
approached the Supsa port with caution, in an attempt to
berth. While lingering off the coast, the Russian naval ship
approached. According to BP, the tanker's captain decided
not to risk confrontation with the Russian Black Sea Fleet
and chose to vacate the location. Learning of this, BP
decided late yesterday to discontinue oil shipments through
the Baku-Supsa pipeline. Previously -- since August 1 --
about 45,000 b/d had moved through the newly refurbished
pipeline.


3. (C) BP's Khalilov also noted that, because of security
concerns in Georgia, the Shah Deniz consortium decided last
night to cease shipments of natural gas through the South
Caucasus Pipeline. Shah Deniz gas, which is to be delivered
to Turkey under contract, is now being delivered in a
scaled-back manner to AzerGas for storage in Azerbaijan;
Turkey and Georgia are not presently receiving volumes of
Shah Deniz gas.


4. (C) Khalilov said that he did not have any concrete
information regarding Russian intentional attempts to target
the BTC or Baku-Supsa pipelines. He noted, however, that the
BTC pipeline's pumping stations -- two of which are in
Georgia -- would be obvious and easy targets for Russian
aircraft. There is no indication, he said, that the Russians
intended to bomb those pumping stations. Indications, he
said, are that Russian bombs struck more closely to the
Baku-Supsa pipeline than to BTC.


5. (SBU) In a back of the envelope calculation, BP
representatives estimated that the Government of Azerbaijan,
at present ACG production levels, is losing approximately $60
million per day because of the closing of the BTC and
constraints on alternative export routes.


6. (U) Embassy notes that this information was gathered
before news broke of Russian President Medvedev's
announcement of an end to military operations in Georgia.
LU