Identifier
Created
Classification
Origin
09BAKU810
2009-10-09 09:08:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AZERBAIJAN: PRESIDENT ALIYEV, DOE DEPSEC PONEMAN

Tags:  ENRG EPET EINT PREL AJ TX TU GG 
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C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000810 

SIPDIS

S/EEE FOR RICHARD MORNINGSTAR; DOE FOR JOHN ELKIND, LANA
EKIMOFF

E.O. 12958: DECL: 10/08/2019
TAGS: ENRG EPET EINT PREL AJ TX TU GG
SUBJECT: AZERBAIJAN: PRESIDENT ALIYEV, DOE DEPSEC PONEMAN
DISCUSS ENERGY

Classified By: Acting Deputy Chief of Mission Robert Garverick,
Reasons 1.4 (b,d)

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000810

SIPDIS

S/EEE FOR RICHARD MORNINGSTAR; DOE FOR JOHN ELKIND, LANA
EKIMOFF

E.O. 12958: DECL: 10/08/2019
TAGS: ENRG EPET EINT PREL AJ TX TU GG
SUBJECT: AZERBAIJAN: PRESIDENT ALIYEV, DOE DEPSEC PONEMAN
DISCUSS ENERGY

Classified By: Acting Deputy Chief of Mission Robert Garverick,
Reasons 1.4 (b,d)


1. (C) Summary: President Aliyev, meeting with Deputy
Secretary of Energy Daniel Poneman on October 5, expressed
support for the Southern Corridor, but blamed Turkey for
delays. Azerbaijan is exploring alternatives, but the
President acknowledged the inadequacies of each. Azerbaijan
has not made a firm decision on Nabucco vs.
Turkey-Greece-Italy; Baku will weigh various offers. Baku
stands ready to transport Kazakhstan,s cross-Caspian oil via
BTC, Baku-Supsa or rail, but does not see a cross-Caspian
transit deal as a priority at this time. A subsea oil
pipeline depends on the "political will of the other side."
Turkmenistan remains difficult, but may "come along" once
Azerbaijan initiates gas exports to European markets. On
Turkey-Armenia rapprochement, Aliyev said that there cannot
be peace and prosperity in the region without progress on
Nagorno-Karabakh, and noted that everything, including
energy, is linked to the larger political process. DepSec
Poneman re-emphasized high-level U.S. interest in resolving
the NK conflict and expressed confidence in the Minsk Group
process. End Summary


2. (C) Deputy Secretary of Energy Daniel Poneman met with
President Aliyev October 5 to discuss regional energy issues
and non-proliferation programs. Poneman opened the meeting
by reaffirming that the United States is deeply committed to
a strategic relationship with Azerbaijan. The Deputy
Secretary thanked President Aliyev for Azerbaijan's
contribution of troops to Iraq and Afghanistan, as well as
other aspects of security cooperation, and praised Baku's
development of the energy sector. President Aliyev, in turn,
added that security cooperation includes collaboration on
counter-terrorism, an area in which the United States and
Azerbaijan have worked jointly.


3. (C) Security issues, the President said, are linked
directly to energy sector development, as investment

decisions cannot be made exclusively on commercial terms.
For this reason, he said, the United States and Azerbaijan
must continue to cooperate in the Caspian/Caucasus region.
The United States, Aliyev stated, is a global power with
significant influence; Azerbaijan, he said, is the
"initiator" of regional energy projects that can only be
carried out in a secure and stable environment. Noting that
he has spoken several times by telephone to Secretary Clinton
in recent months, the President asked the Deputy Secretary to
convey to Washington Azerbaijan's desire for additional
recognition of its contributions to coalition forces and
global energy markets.

President Supports Southern Corridor -- Nabucco or ITGI
-------------- --


4. (C) Azerbaijan supports the Southern Corridor energy
strategy, as evidenced by Baku's signing of the Prague
Declaration in May 2009. (Note: Baku did not sign the
Nabucco IGA this summer in Ankara, as that document was
organized and completed by potential transit countries. End
Comment) Azerbaijan, the President emphasized, has energy
resources, infrastructure and good relations with European
countries. Moreover, Europe has an increasing demand for
natural gas and a desire for diversification of sources of
supply. All of these indicators, the President said, point
to cooperation and success. Turkey, however, has emerged as
a problem. Ankara's lack of cooperation was "unexpected."
For eighteen months, Azerbaijan's SOCAR, on behalf of the
AIOC consortium, and Turkey's BOTAS have been negotiating
pricing, volumes and transit, thus far without results.
"Much time has been wasted," the President lamented. Aliyev
noted that he had raised the issue with Turkish President Gul
at Nakhchivan the previous week.


5. (C) Nonetheless, President Aliyev remains convinced that
Turkey continues to pursue a role as a regional hub for
energy. Azerbaijan and Shah Deniz partners, meanwhile, are
losing money and patience. The Shah Deniz Production Sharing
Agreement (PSA) expires in 2026. While that seems far in the
distance, the long-term nature of natural gas development and
export means that deadlines are approaching. The PSA, as it

BAKU 00000810 002 OF 003


stands now, could lapse before the field is fully developed,
the President warned. As a result, Azerbaijan is exploring
alternatives to Turkey. The President identified
Russia/GazProm, Iran, and liquefied natural exports via
Georgia and the Black Sea as possibilities, while noting that
"none of the alternatives is good." A fourth option, he
said, would be "to do nothing, and leave the gas under the
sea." This, he noted, would be very bad financially for the
consortium.


6. (C) Deputy Secretary Poneman noted the importance of
having alternative routes for Caspian gas to reach market,
but added that it would not be appropriate to route gas
through Iran amid continuing concerns regarding UNSC
sanctions on Tehran's nuclear program and current
negotiations that seek to address it. The nuclear situation
in Iran is grave, he said, and the USG has now entered into
negotiations with the P5 1 to address the situation. The
Deputy Secretary encouraged President Aliyev to continue
talking to the Turks, and noted that Washington, including
Special Envoy Richard Morningstar, will continue to encourage
all parties to negotiate with a view toward reaching closure
as soon as possible.


7. (C) President Aliyev reaffirmed Azerbaijan's support for
the Southern Corridor, but made the point that Baku is
indifferent in terms of routes to market. There is much
discussion of Nabucco. There is also discussion of the
Turkey-Greece-Italy route. "These are both Southern Corridor
to us," the President said. The key for Azerbaijan, he
emphasized, is access to Europe; Azerbaijan would weigh the
offers and see which is more advantageous. SOCAR now is
forecasting excess gas in the near term and re-injecting gas
at oil fields in greater volumes than expected. Next year,
Azerbaijan consequently has proposed sales of 1 billion cubic
meters (bcm) to Greece. Discussions are underway, and could
lead to Azerbaijan's initial entry into European gas markets.
Additional SOCAR gas (non-Shah Deniz) may also be found, and
there is consideration of 2010 exports to Bulgaria. The
problem remains Turkey and transit, he said.

Ready to Transport Oil -- but Not a Priority
--------------


8. (C) Responding to Deputy Secretary Poneman's question
about the Kazakhstan-Azerbaijan Caspian Transportation System
(KCTS),President Aliyev said that Azerbaijan can provide
infrastructure and services to facilitate the transport of
Kazakhstan's North Caspian oil across the Caspian Sea and
westward to global markets. However, "Azerbaijan is not
initiating these projects" and therefore they are "not
absolutely a priority," the President said. "We are waiting
for offers."


9. (C) President Aliyev noted that Kazakhstan President
Nazarbayev had recently visited Baku and expressed interest
in pursuing cross-Caspian oil transport. Azerbaijan's
current fleet and on-shore infrastructure is prepared to
handle "up to 20 million tons" per annum (about 400,000
barrels per day). With improvements, volumes by tanker could
be increased "to 30-40 million tons." From Baku, there is
some capacity within the BTC pipeline; Kazakhstan's oil could
also be transported via Baku-Supsa or by rail to the Georgian
Black Sea coast. The Northern Pipeline, which runs to the
Russian Black Sea coast, is under utilized. During recent
meetings, the President said, he and President Nazarbayev
discussed possibilities of constructing a new pipeline from
Baku to the Black Sea, without specifying details. SOCAR has
since suggested that the pipeline would likely follow the
Baku-Supsa right of way. Deputy Secretary Poneman asked
about the merits of a sub-sea pipeline vs. tankers.
President Aliyev said that Azerbaijan has no objection to a
cross-Caspian oil pipeline, and emphasized that it could be
done without the agreement of all five Caspian littoral
states. "It is a matter of will on the other side," the
President said. President Aliyev added that there is a risk
associated with developing a high-volume KCTS. After
investments were made in new, larger volume oil tankers,
there would be no practical prospect for an eventual
cross-Caspian pipeline, the President said.


BAKU 00000810 003 OF 003


Turkmenistan Difficult
--------------


10. (C) Responding to Deputy Secretary Poneman's questions,
President Aliyev said that Turkmenistan's renewed claim on
the ACG offshore field -- the main oil production fields of
the AIOC consortium -- is "very strange." Azerbaijan's
relations with Turkmenistan have improved in recent years,
but there is still confusion. President Berdymuhamedov,
according to President Aliyev, promises natural gas sales to
Turkey and Europe, but he has no means for delivery. Aliyev
suggested that the Turkmens may be following the "Kazakhstan
model," e.g., by gradually making plans to link into Western
transportation mechanisms as they prove successful. (Note:
Kazakhstan declined initial participation in the BTC oil
pipeline, but has more recently expressed interest in gaining
rights to capacity as a non-equity holder. Turkmenistan has
been reluctant to join Azerbaijan and international oil
companies in a trans-Caspian gas pipeline. End Note) Once
Azerbaijan gets natural gas flowing to Europe, President
Aliyev said, "the Turkmens will come along."

Turkey-Armenia Still the Main Concern
--------------


11. (C) President Aliyev turned the conversation to
Turkey-Armenia rapprochement and the consequences for
Azerbaijan, Nagorno-Karabakh and energy development.
"Everything is linked into the larger political dialogue," he
said. "Nobody in Azerbaijan supports the (rapprochement)
process without progress on Nagorno-Karabakh." He noted that
Azerbaijan had "created tensions" in Turkey in the spring, as
news of rapprochement efforts broke in Azerbaijan and Baku
worried of NK consequences, but emphasized that Baku was now
not interfering in the process. "This is a dialogue between
two sovereign countries," he said. "They can do as they
please." Meanwhile, however, Turkey has promised "no open
borders" without NK progress, according to Aliyev.


12. (C) Deputy Secretary Poneman stated that the United
States Government continues to support the Turkey-Armenia
reconciliation process, and believes that rapprochement could
lead to greater security and cooperation in the region. At
the highest levels, the USG is also committed to resolution
of the Nagorno-Karabakh conflict and supports the Minsk Group
process, noting Ambassador Bradke's presence in Baku that day
to discuss this issue. President Aliyev noted that the
"United States is supporting the process," but emphasized
that "there cannot be peace and stability in the Caucasus
without resolution" of Nagorno-Karabakh. "Armenia will never
give up its genocide claim," he said, noting that now the
"Armenian diaspora is protesting against Sargsyan."
Azerbaijan has made it clear that there will be consequences
for Turkey in the energy sector, should Ankara betray the
interests of Azerbaijan. "Nothing good can come out of
Turkey-Armenia rapprochement without progress on
Nagorno-Karabakh," the President concluded.


13. (SBU) DOE Deputy Secretary Poneman reviewed this text
prior to transmission.
LU