AZERBAIJAN HAS NO PLANS TO CUT 2009 OIL

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000101

SIPDIS

E.O. 12958: DECL: 02/05/2019
TAGS: PGOV PREL AJ ENRG
SUBJECT: AZERBAIJAN HAS NO PLANS TO CUT 2009 OIL
PRODUCTION, DESPITE PRESIDENT'S COMMENTS

REF: BAKU 1195 (2008)

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


1. (C) SUMMARY: Despite public comments by President
Aliyev, the State Oil Company of Azerbaijan (SOCAR) has no
intention to curtail 2009 oil production in an attempt to
stabilize prices, and indeed, all indications are that
Azerbaijan will seek to maximize its oil production in 2009.
According to the GOAJ Foreign Minister, President Aliyev's
comments were meant purely "rhetorically shore up" the price
of oil. Should oil "production cuts" be announced in 2009,
they would largely be a function of lower anticipated
production from the ACG mega oil-field due to ongoing
technical issues with the Central Azeri Platform. Current
ACG production is approximately 750,000 bpd and climbing,
with the goal being to reach 950,000 (again) before the
year's end. END SUMMARY.


2. (C) BACKGROUND: On January 30 President Aliyev told the
press in Switzerland (Davos) that Azerbaijan "would stick to
a pledge to cut oil output by as much as 300,000 barrels per
day (bpd) in an attempt with other oil producers to stabilize
prices . . . we were planning to produce about 55 to 60
million tons (of oil) a year, and now the program is for 50
million tons this year." (NOTE: 50 million tons annually is
approximately 375 million barrels annually, i.e. one million
barrels a day; 60 million tons annually is equal to
approximately 1.2 million barrels annually). President
Aliyev's statement reflected December 18, 2008 OPEC
Conference comments by Energy Minister Natiq Aliyev (reftel
A) that Azerbaijan would cut 2009 production by 300,000 bpd
in 2009 to 540,000 bpd.


3. (C) On February 5 EnergyOff met with a senior SOCAR
executive directly involved with gas and oil marketing
issues, asking him about the President's comments. While
understandably unwilling to directly contradict President
Aliyev's public statements, he said that President Aliyev has
issued no instructions to either SOCAR or to the AIOC
consortium (which operates the ACG offshore oil mega-field,
which produces the vast majority of Azerbaijan's oil) to
reduce production in 2009. In this regard, he also confirmed
comments made previously in response to Energy Minister
Aliyev's December comments, to the effect that for 2009,
SOCAR is planning on:

- ACG oil production at around 750,000 bpd (NOTE: BP says
closer to 700,000 bpd)
- SOCAR oil production at 180,000 bpd (to include joint
ventures),
- Shah Deniz (condensate) production at 50,000 bpd.


4. (C) He added that BP, as the operator for the ACG offshore
oil mega-field (the source of the vast majority of
Azerbaijan's oil production),had been offering an estimate
of 750,000 bpd for 2009 ACG production, this lowered number
due exclusively to technical constraints surrounding the
re-start of the field's Central Azeri Platform. SOCAR,
representing the State, has been pressing the AIOC Consortium
to revise this 2009 production estimate upwards, to 800,000
bpd. Using annual tonnage estimates, he said he expected in
2009 that SOCAR would produce 8.5 million tons (approximately
175,000) and ACG would produce 37 million tons (approximately
760,000 bpd),equaling 45.5 million tons, roughly equal to
the President's pledge of 50 million tons production next
year. Treading carefully, he mused that perhaps President
Aliyev was seeking to make a virtue of necessity, by
depicting Azerbaijan's estimates of decreased oil production
in 2009 as a function of solidarity with other oil producers,
as opposed to a function of technical constraints stemming
from the September 2008 gas leak incident at Central Azeri
platform, which caused, and is continuing to cause,
substantial reductions in production.


5. (C) A senior energy executive from the AIOC Consortium,
talking about President Aliyev's comments, was similarly
dismissive, saying that the only pressure the Consortium was
receiving from the GOAJ was to increase production and
decrease flaring, adding, "I doubt there is an appetite to
hold off anything that can be pumped out." Current ACG
production is approximately 750,000 bpd and climbing, with
the goal being to reach 950,000 (again) before the year's end.

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6. (C) In a February 5 conversation with the Ambassador,
Foreign Minister Mammadyarov said that President Aliyev,
believing the market price for oil "is really between
$80-100," made his comments to help shore up price
rhetorically. Mammadyarov added that a cut of 300,00 by
Azerbaijan, even if it occurred, won't make much difference
in global supply. The GOAJ does not want to join OPEC (nor
the "Gas Opec" which Russia keeps pressing Azerbaijan to
join, but Energy Minister Natiq Aliyev attends OPEC meetings
as an observer.


7. (C) COMMENT: As expected, it seems that any "production
cuts" announced for 2009 would merely be a function of lower
anticipated production from the ACG mega oil-field due to
ongoing technical issues with the Central Azeri Platform.
Otherwise, in spite of President Aliyev's comments, the GOAJ
will seek producing as much oil as it can in 2009. END
COMMENT.
DERSE