AZERBAIJAN FOREIGN MINISTER PROMOTES TURKMEN GAS

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000915

SIPDIS

E.O. 12958: DECL: 08/25/2018
TAGS: PGOV PREL AJ TX ENRG
SUBJECT: AZERBAIJAN FOREIGN MINISTER PROMOTES TURKMEN GAS
DEAL, EXPLAINS INCIDENT WITH TURKMEN VESSEL

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


1. (C) SUMMARY: In a September 12 meeting with Special Envoy
for Eurasian Energy Diplomacy C. Boyden Gray, GOAJ FM
Mammadyarov said that the GOAJ was encouraging Turkey to
purchase gas from Turkmenistan at the Turkmen border. He
explained that the April Caspian incident in which GOAJ
vessels confronted Turkmen ships was due to the Turkmen
vessels' misunderstanding as to where they actually were.
Commercial development of the disputed Serdar-Kyapaz offshore
field remains distant, as does a bilateral agreement on
Caspian Sea delimitation. END SUMMARY.


2. (U) On September 12 Special Envoy for Eurasian Energy
Diplomacy C. Boyden Gray, Assistant Secretary of Energy
Katharine Fredriksen, Eurasian Energy Coordinator Ambassador
Steve Mann, and Ambassador Derse met with GOAJ FM Elmar
Mammadyarov, with EnergyOff as notetaker.

GOTX-GOT GAS DEAL
--------------


3. (C) Mammadyarov said that when President Aliyev met
recently with Turkish PM Erdogan, Aliyev had suggested that
Turkey seek to buy Turkmen gas at the border, either via the
existing 1998 bilateral contract, or via a new Sales and
Purchase Agreement. Mammadyarov heard that later Erdogan
instructed Energy Minister Guler to pursue this idea.
Mammadyarov discounted the possibility that GOTX gas for
Turkey might come from the Sardar-Kyapaz (S-K) offshore field
(located in disputed waters),saying that Western energy
companies would find it "too risky" to develop this field
until the related bilateral delimitation and ownership issues
were settled. Even (Malaysia's) Petronas, whose Block One
(aka "Livanov") field is close to S-K and hence could develop
it relatively easily, "knows enough to stay away from S-K."
However, the GOTX wishes to "push Petronas towards S-K" even
though the geology of the two fields is different and
separate.

APRIL OFFSHORE INCIDENT
--------------


4. (C) Mammadyarov said the GOAJ had "gotten an earful" from
the GOTX about the April offshore incident where the GOTX
claimed that Azerbaijani vessels threatened GOTX vessels in
GOTX waters. Mammadyarov claimed that what actually happened
was that Petronas was moving its rig at the same time that
the Buried Hill energy company was shooting seismic (shallow
water gas exploration) with a leased Russian vessel.
Azerbaijan received information that there were GOTX vessels
in disputed waters, and Mammadyarov got in touch with his
GOTX counterpart, FM Rashid Meredov. Meredov faxed
Mammadyarov the coordinates of the GOTX vessels' location,
who forwarded them to both SOCAR and to the GOAJ Border
Guard.


5. (C) The GOAJ Boarder Guard then informed Mammadyarov that
the GOTX vessels were not in fact at the reported
coordinates, which were coordinates for the Livanov (Block
One) field. Mammadyarov responded to GOTX FM Meredov that
were the GOTX vessels in fact at the location designated by
the coordinates there would be no problem, since those
coordinates were in undisputed GOTX waters. However, the
vessels were in fact west of these coordinates, in disputed
waters. After Mammadyarov told this to the GOTX FM, the
vessels moved eastwards into undisputed GOTX waters. While
all this was happening, the GOAJ dispatched its own vessels
to the disputed area, informing the GOTX vessels via direct
communication that they were in disputed waters. In
retrospect, Mammadyarov thought it likely that the faxed
coordinates were provided to Muradov by Petronas, with
Muradov not independently verifying that the vessels were in
fact at these coordinates.

COMMERCIAL S-K DEVELOPMENT
--------------


6. (C) Speaking more generally, Mammadyarov said that
Berdimuhamedov should realize that joint commercial
development of the S-K field is the "only way" this field
will be developed. The GOTX proposal that it renounce its
ACG claims in exchange for the GOAJ renouncing any S-K claims
wasn't "realistic," especially given the presence of IOCs
already developing the field. Regardless of the demarcation
criteria being used, the GOAJ had a percentage of S-K. The

BAKU 00000915 002 OF 002


current GOAJ proposal for solving S-K was "a face-saving,
commercial approach," and the GOTX should not seek to
"politicize the issue." The two countries should develop S-K
jointly and conclude overall bilateral delimitation later.
Azerbaijan position is based on the same principles Russia
and Kazakhstan used to delimit, i.e. an opposing points
median line. In this regard, Mammadyarov said he recently
told FM Meredov that the GOTX should "be reasonable," that
delimitation was becoming "political" with "too many eyes and
ears" involved, and that the two countries should focus on
joint commercial development. Meredov said he would "think
about it." Mammadyarov said that Meredov should forward the
proposal to Berdimuhamedov, with Meredov responding that if
he did so, "Berdimuhamedov won't accept it."


7. (C) Mammadyarov said that getting GOTX to sell gas
westwards will take time, although he thought that
Berdimuhamedov would soon recognize the advantages to
diversifying exports westwards. Although Livanov has gas,
Petronas needs to start drilling, and then the decision needs
to be made where to send the approximately seven to eight
bcm/a the field is expected to produce. Berdimuhamedov is
focused on S-K because he wants this gas "on hand" before he
decides where to sell/send Block One gas. There is also the
question of "how much gas Berdimuhamedov wants to leave in
the ground," for future exploitation.

AZERI PERCEPTIONS OF THE TURKMEN
--------------


8. (C) Mammadyarov agreed that despite an often contentious
bilateral relationship, Berdimuhamedov has sincere esteem for
President Aliyev, and is aware of how well Azerbaijan has
handled its energy development. When Berdimuhamedov visited
Baku, he finished a State dinner at the Muqam Restaurant at
three A.M., he then walked the streets of Baku "taking notes
on how to change Ashgabat."


9. (C) Mammadyarov agreed that there was serious Russian
pressure on Turkmenistan, but added that unlike Kazakhstan,
it did not share a common border with Russia, which mediated
the amount of pressure. If Berdimuhamedov diversifies his
energy exports, it will be both to his commercial and
political interest. And diversifying westwards is the most
preferable direction, for both political and commercial
reasons. Mammadyarov repeated that it was very important to
invite Berdimuhamedov to as many European conferences and
meetings as possible, so that he realizes that Turkmenistan
cannot develop its hydrocarbon sector alone.


10. (C) On his recent trip to Moscow to meet FM Lavrov,
Mammadyarov said that it was "interesting with respect to
Georgia," in that Russia has realized that it cannot keep its
troops in their present positions. Mammadyarov was unclear
as to what the EU monitoring mandate would be, and whether it
would be allowed to deploy its troops in Abkhazia and South
Ossetia, or just in the buffer zones.


11. (C) COMMENT: FM Mammadyarov's explanation of the April
offshore incident, which he has offered sevral times before
and which has reportedly so exorcised the GOTX, seems
plausible. Whatever the facts of the matter, it was a bump
in the relationship, and there is no doubt that, despite up
and downs, the bilateral relationship has improved since the
Heydar Aliyev-Niyazov days. However, additional work needs
to be done to improve trust and goodwill, particularly in
terms of pressing forward with a bilateral delimitation
agreement and a resolution to Serdar-Kyapaz.


12. (U) SE Gray did not clear on this cable.
DERSE