SOCAR SIGNS MOU TO SELL GAS TO IRAN

C O N F I D E N T I A L BAKU 000985 SIPDIS DEPT EUR/CARC DEPT FOR S/EEE AMB MORNINGSTAR AND DSTEIN DEPT FOR EEB/ESC DAS DOUG HENGEL, AGREENSTEIN DEPT FOR S/CT FOR GROBERTSON, DKURSCH, CLARKS DOE FOR LEKIMOFF, MBURPOE, AND DGOTTFRIED E.O. 12958: DECL: 12/22/2019 TAGS: ENRG EPET ECON PREL IR AJ TU TX SUBJECT: SOCAR SIGNS MOU TO SELL GAS TO IRAN REF: A. BAKU 969 ¶B. BAKU 919 Classified By: Charge d'Affaires Donald Lu, for Reasons 1.4 (B,D, E) ¶1. (C) Following up on a discussion regarding FM Mammadyarov and SOCAR delegation trip to Tehran (reftel), SOCAR Vice President Elshad Nassirov told Energy Off in an 18 December email: "We have signed a memo with Iran on sales of 1 million cubic meters (mcm) (per day) for 100 days. (This is) not a swap. The contract has not been signed yet." (Note: The reference to a "swap" concerns an existing gas supply arrangement under which Azerbaijan ship gas to Northern Iran and in turn the Iranians provide equivalent volumes of gas to the Azerbaijani enclave of Nakhchivan. End note) ¶2. (C) Nassirov thus indicated that the new deal goes beyond the existing gas swap arrangement, which was recently renewed with Iran. Ensuring gas supplies to the geographically isolated Nakhchivan region, which borders Armenia, Iran and Turkey (minimally) nonetheless remain a challenge for the GOAJ. ¶3. (C) In a December 22 meeting at the MFA, Deputy Foreign Minister Khalaf Khalofov also confirmed the contract. He characterized it as "a small contract, one million cubic meters/day, for 100 days. After that," he said, "we would need to conclude a new agreement. We will think about continuing it." He added that, "The Iranians are always interested in buying gas from us. They want up to 2.5 billion cubic meters from us." ¶4. (C) Comment: Per reftel B, Azerbaijan continues efforts to expand its regional options. Such an arrangement may send a timely signal to the Turks, who still have not come to terms with SOCAR and consortium partners on Shah Deniz Phase I pricing and Shah Deniz Phase II sales and transit, but may not be meant to do so. This is a small volume of additional gas (one-tenth of a BCM) for Iran. It will not be sourced from Shah Deniz or marketed by the consortium. Rather, it will be sourced from SOCAR's own production, and likely represents excess gas that is not needed for the Azerbaijani domestic market or for storage. Thus, this gas deal in some aspects resembles SOCAR's recent supply arrangements to Russia's Dagestan, and therefore is not particularly meant and probably will not effectively serve as a signal to the future of Shah Deniz gas. A major Azerbaijan-Iran gas deal remains highly unlikely. End comment. LU