Identifier
Created
Classification
Origin
08BAKU868
2008-09-12 13:49:00
CONFIDENTIAL
Embassy Baku
Cable title:  

SOCAR STILL SEEKING SOLUTIONS FOR TURKISH TRANSIT

Tags:  PGOV PREL AJ TU TX ENRG 
pdf how-to read a cable
VZCZCXRO1689
OO RUEHAG RUEHROV
DE RUEHKB #0868/01 2561349
ZNY CCCCC ZZH
O 121349Z SEP 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5998
INFO RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RHMFISS/CDR USEUCOM VAIHINGEN GE IMMEDIATE
RHEBAAA/DEPT OF ENERGY WASHDC IMMEDIATE
RUEKDIA/DIA WASHDC IMMEDIATE
RUEKJCS/JOINT STAFF WASHDC IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000868 

SIPDIS

STOCKHOLM FOR SE GRAY, AMB MANN

E.O. 12958: DECL: 09/12/2018
TAGS: PGOV PREL AJ TU TX ENRG
SUBJECT: SOCAR STILL SEEKING SOLUTIONS FOR TURKISH TRANSIT
BARRIER

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

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000868

SIPDIS

STOCKHOLM FOR SE GRAY, AMB MANN

E.O. 12958: DECL: 09/12/2018
TAGS: PGOV PREL AJ TU TX ENRG
SUBJECT: SOCAR STILL SEEKING SOLUTIONS FOR TURKISH TRANSIT
BARRIER

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


1. (C) Summary: SOCAR continues to seek to find a way to
convince Turkey to allow transit to Europe for its Shah Deniz
Phase Two gas. However, according to SOCAR Marketing
Vice-President Elshad Nassirov, Turkey continues to insist as
a prelude to granting transit that Azerbaijan must sell it an
amount of gas that would leave too little left to sanction
either Nabucco or TGI, and hence render the Southern Corridor
project unviable. Nassirov thought the GOT transit stance
was either short-sighted or evidence that Turkey was in some
way colluding with the Russians to prevent the Southern
Corridor from becoming a viable alternative. Nassirov
urgently sought USG and EU help to convince Turkey to provide
fair transit, using the argument that: 1) the more gas that
transits through Turkey, the more gas will be available
potentially for Turkey, since sellers upstream will get
better netbacks by selling to Turkey than by selling to
European consumers downstream of Turkey, and 2) Turkey's
strategic importance to Europe increases the more gas that
transits through it to Europe. End Summary.


2. (C) On September 12 EnergyOff met with SOCAR Marketing
Vice-President Elshad Nassirov, to discuss his impressions
after the September 9-10 Baku Conference on "Oil and Gas
Potential in Azerbaijan and Turkmenistan: Energy, Economy,
Partnership Strategy," and the related visit of Turkish
Energy Minister Guler and other regional energy
representatives.


3. (C) Nassirov said SOCAR had a series of energy-related
meeting during the Conference, to include with interlocutors
from Turkey, Turkmenistan, Ukraine, Gas de France, RWE
Midstream, Bulgargas, Edison and Gazprom.

TURKEY


4. (C) In the meeting with SOCAR President Abdullayev, GOT
Energy Minister Guler, accompanied by Botas Director General
Huseyin Saltuk Duzyol, insisted on purchasing eight bcm/a
from Shah Deniz Phase Two (SD2). Nassirov explained to
EnergyOff that SOCAR wishes to sell no more than four bcm/a
of SD2 from SOCAR, since selling eight to Turkey, with three

for Azerbaijan and Georgia, would leave only two to three
bcm/a (of a total of 13 bcm from Shah Deniz II by 2013) for
sales to Europe, not enough to sanction any pipeline. As
such, with Turkey as its only major SD2 customer, there would
be no price security, as the GOAJ feared Turkey would seek to
"renegotiate" the SD2 purchase price downwards a few years
into the contract. When Nassirov explained to Botas it
sought export diversity for SD2 to enhance price security,
Botas Director-General Duzyol suggested that Azerbaijan was a
"traitor" for seeking to sell gas to Europe over its Turkic
brothers.

SOCAR SWEETNER


5. (C) During the Guler-Abdullayev meeting, SOCAR repeated
its position that of the estimated SD2 13-14 bcm/a, it would
seek to reserve seven bcm/a of SD2 for the "open market" (ie.
to Europe),three for Azerbaijan and Georgia, and four for
Turkey. SOCAR sweetened the offer to Botas during this
meeting, saying that the seven bcm/a would be both its
minimum and maximum sales amount to Europe, i.e. SOCAR would
sell no more than seven bcm/a to Europe. SOCAR told Guler
that Turkey could be the customer for all remaining SD gas,
once seven bcm/a for Europe and three bcm/a for Georgia and
Azerbaijan are subtracted, i.e. Turkey could have all SD
produced gas above 10 bcm/a, regardless of how much it
produces, both in Phase Two and in subsequent phases.
Additionally, SOCAR said Turkey could have the first right to
purchase all gas Azerbaijan develops in any other field, to
include Absheron, Umid-Babek, and Sardar-Kyapaz. After
hearing this offer, Guler repeated that the GOT first must
have eight bcm/a from SD2, after which it can discuss
purchasing gas from other sources.


6. (C) Nassirov told EnergyOff that Turkish gas strategy can
be seen in three phases. In the first, it sought to be a gas
aggregator, buying gas from upstream and selling it at a
profit downstream. When it became clear that this policy
wasn't possible, it sought to offtake fifteen percent of all

BAKU 00000868 002 OF 003


transit gas at a discounted price. Now that this strategy has
proven unworkable, is seeks a volume commitment from
Azerbaijan that it knows will render the Southern Corridor
project untenable. Nassirov said he didn't know if the GOT
was just being short-sighted, or whether it was in some way
colluding with the Russians to prevent the Southern Corridor
from becoming a viable alternative.


7. (C) Nassirov said the USG and EU must convince Turkey
that: 1) its strategic importance to Europe increases the
more gas that transits through it to Europe, 2) the more gas
that transits through Turkey to Europe, the more gas will be
available potentially for Turkey, since sellers upstream will
get better netbacks by selling to Turkey than by selling to
European consumers downstream of Turkey. Turkey's reaction
seems to be however that 'politics be damned, we need eight
bcm/a now,' and Nassirov gave his own personal opinion,
stressing that it was not an official GOAJ or SOCAR position,
that "Turkey will never allow transit."

GOTX GAS


6. (C) Nassirov said that Turkey getting eight bcm/a from the
Caspian region was only possible if some Turkmen gas flowed
east (i.e. 4 bmc/a from Azerbaijan, 4 from Turkmenistan). As
such, Azerbaijan sought to have Turkey conclude a SPA with
Turkmenistan, buying gas at the Turkmen border, possibily
within the 1998 SPA between the two countries. Were such a
deal concluded, Azerbaijan could build the cross-Caspian
(interconnector) pipeline. In this regard, Nassirov said he
had discussed with Nabucco partners OMV and RWE Midstream the
possibility of "starting Nabucco in Baku," incorporating
Turkmen gas delivered Cross-Caspian into a Nabucco pipeline
continuing through Georgia and Turkey.

BLUFFS


7. (C) Nasirov, citing Clausewitz ("in war all tools are
good") said that SOCAR's priorities for SD2 sales were first
Nabucco (if possible),then TGI. However, it was continuing
its efforts to put indirect pressure on Turkey to provide
transit by floating rumors using Gazprom, Gaz de France, and
Ukraine:

GAZPROM: Nassirov said SOCAR sought to convince Russia that
it would sell SD2 gas to Gazprom. It has told Gazprom that
SD Consortium members SOCAR, BP, StatoilHydro and Total have
all agreed to sell all SD2 gas to Russia. Nassirov stressed
to EnergyOff that in truth SOCAR is not willing to sell any
SD2 gas to Russia, but wants this news of SD2 gas sales to
Russia to leak into the press so that Turkey feels more
pressure to take the offered four bcm/a and provide transit
for the rest of SD2. As such, the USG should discount
any/all press stories of GOAJ intentions to sell any SD2 gas
to Gazprom.

UKRAINE: SOCAR is in discussions with Ukraine about a
pipeline across the Black Sea to Crimea onwards to Ukraine
(what Nassirov described as a "modified Whitestream"),
carrying Azerbaijani and Turkmen gas.

GAS DE FRANCE: As previously mentioned to Embassy, SOCAR is
in talks with some Nabucco partners to eject Botas from the
Shah Deniz Consortium and include Gas De France, in order to
build a "Nabucco without Turkey" pipeline, going through
Austria, Hungary, Bulgaria, Black Sea, Georgia, Azerbaijan,
Caspian Sea and Turkmenistan.

Additionally, Nasirov said that another possible rumor was
Azerbaijan constructing a cross-Caspian pipeline to it could
export gas east to China. If this pipeline were ever built,
it could be used to send Turkmen gas west.

NO-WAY IGA


8. (C) Nassirov said that Azerbaijan will "sign no paper,"
whether three-, four-, five-, six- or whatever-way IGA,
pertaining either to TGI, Nabucco or any other pipeline,
unless and until Turkey and Azerbaijan have a signed transit
agreement guaranteeing transit of seven bcm/a of Azerbaijani
gas.


BAKU 00000868 003 OF 003


SARDAR-KYAPAZ


9. (C) Nassirov said that the GOAJ "bottom-line" position on
Sardar-Kyapaz was that it would be willing to accept seven to
eight percent ownership, providing there would be joint
development of the field and the gas would go west. That
could be sold to the GOAJ people as a triumph; anything less
couldn't.


10. (C) COMMENT: Nassirov, the SOCAR executive primarily
responsible for gas sales abroad and one of President
Aliyev's main advisors on gas strategy, continues to seek
any/all means to convince Turkey to provide gas transit in
accordance with existing commercial and legal norms.
Noteworthy is his mentioning Nabucco as a SOCAR priority over
TGI, if sufficient volumes can be found, and his insistence
that SOCAR cannot and will not sell more than four bcm/a to
Turkey, since doing so would cripple the Southern Corridor
project and subject Azerbaijan to the threat of not receiving
market prices for its gas. What is new from this meeting was
SOCAR's willingness to put a cap of seven bcm/a of gas sales
past Turkey, and its collateral willingness to offer to sell
all other GOAJ gas not used domestically to Turkey (which
from a commercial viewpoint makes sense, since Azerbaijan
gets the best netbacks from Turkey). Nassirov's comments
track well with what Embassy hears from other Shah Deniz
Consortium members and potential customers of SD2 gas
concerning Azerbaijan's and Turkey's respective positions.
END COMMENT
DERSE