Identifier
Created
Classification
Origin
10BAKU77
2010-02-03 14:29:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AZERBAIJAN: MEETING WITH BP PRESIDENT JAVANSHIR

Tags:  ENRG EPET ECON PREL TU IR AJ 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 04 BAKU 000077 

SIPDIS

DEPT FOR EB/ESC, EUR/CARC
DEPT FOR EB/ESC, EUR/CARC
DEPT FOR S/EEE AMB MORNINGSTAR AND DSTEIN
DEPT FOR EB/ESC DAS DOUG HENGEL
DEPT FOR S/CT FOR GROBERTSON, DKURSCH, CLARKS
DOE FOR LEKIMOFF, MBURPOE, AND DGOTTFRIED

E.O. 12958: DECL: 02/02/2020
TAGS: ENRG EPET ECON PREL TU IR AJ
SUBJECT: AZERBAIJAN: MEETING WITH BP PRESIDENT JAVANSHIR

REF: BAKU 32

Classified By: Acting DCM Terry Davidson for
Reasons 1.4 (B,D, E)

Summary
-------

C O N F I D E N T I A L SECTION 01 OF 04 BAKU 000077

SIPDIS

DEPT FOR EB/ESC, EUR/CARC
DEPT FOR EB/ESC, EUR/CARC
DEPT FOR S/EEE AMB MORNINGSTAR AND DSTEIN
DEPT FOR EB/ESC DAS DOUG HENGEL
DEPT FOR S/CT FOR GROBERTSON, DKURSCH, CLARKS
DOE FOR LEKIMOFF, MBURPOE, AND DGOTTFRIED

E.O. 12958: DECL: 02/02/2020
TAGS: ENRG EPET ECON PREL TU IR AJ
SUBJECT: AZERBAIJAN: MEETING WITH BP PRESIDENT JAVANSHIR

REF: BAKU 32

Classified By: Acting DCM Terry Davidson for
Reasons 1.4 (B,D, E)

Summary
--------------


1. (C): Charge Lu and Energy Officer met with BP President
Rashid Javanshir and British Ambassador Dr. Carolyn Browne on
February 1. Javanshir reviewed the January 22 meeting in
Baku between President Aliyev and BP Head of Exploration and
Production (E&P) and Board Member Andy Inglis. Aliyev told
Inglis he distrusts Turkey on the Armenia protocol issue, as
Turkey initiated its discussions without informing
Azerbaijan. Aliyev also stated he was even angrier with the
US than Turkey, casting the US as the instigator of
Turkish-Armenian rapprochement. Aliyev told Inglis that
given his distrust of the Turks, Azerbaijan would not move on
cementing a gas transit agreement until after April 24,
Armenian Remembrance Day. President Aliyev also expressed
displeasure with the fruitless discussions on the Nabucco
pipeline. On a positive note, the ACG consortium is close to
sanctioning the Chirag field in the ACG field development,
although discussions to extend the ACG Production Sharing
Agreement past 2024 appear to be on the back burner.

Gas Discussions on Hold until April 24
--------------


2. (C) In line with comments from other industry observers
recently, BP President Janvanshir told us that President
Aliyev indicated that Turkey-Azerbaijan gas negotiations are
effectively on hold until April 24, Armenian Remembrance Day.
(Note: The Armenian caucus in Congress has threatened to
push forward a genocide resolution in the U.S. Congress on
April 24 if Turkey does not ratify the Turkey-Armenia
normalization protocols.) President Aliyev appears to
believe that stalling the agreement is his last bit of
leverage over Turkey to ensure it does not ratify the peace
protocols. End note.) Javanshir reiterated a point often

heard in Baku these days - the parties are not that far apart
on commercial terms, so the obstacle to concluding the
agreement increasingly appears to be political, not economic.
Javanshir was pleased with the degree of candor the
President Aliyev showed in his discussion with Inglis, saying
"it,s a reflection of our relations." (Note: As BP
Azerbaijan's first Azerbaijani president, Javanshir appears
to have significantly cemented BP's relationship with the
GOAJ. End note.)

Anger at Nabucco Consortium
and EU Continues
--------------


3. (C) President Aliyev continues to be angry at the EU and
Nabucco promoters for the slow pace of their project.
Javanshir told us that he complained, "These are "fruitless
discussions, there is no sponsor, and it's not clear who does
what."

Aliyev Plans to Take Backseat Until April
--------------


4. (C) According to Javanshir, President Aliyev indicated
that he did not plan to take an active role in pushing the
gas negotiations along in the next couple of months, stating
"now others need to be active." Javanshir appears resigned
to accepting the impasse until April, but at times expressed
his frustration, protesting, "how can you maintain the pace
of the (Shah Deniz II) project? At some point, we need a
clear decision."

Reflecting on Fall 2009 Gas Negotiations

BAKU 00000077 002 OF 004


--------------


5. (C) Javanshir explained, in a somewhat philosophical
mode, that "at some point last fall, Azerbaijan lost the
chance to close the deal (with Turkey)." Javanshir assessed
that Turkey had been profoundly disappointed by Azerbaijan's
willingness to use Russia and Iran as leverage in the gas
negotiations and parallel discussion on the Turkey-Armenia
protocols. Javanshir noted that Turkey blamed Iran and
Russia for creating the Nagorno Karabakh quagmire in the
first place, and was therefore very disappointed that Baku
would suggest it would sell gas to them in lieu of Turkey.
Javanshir also noted Ankara's long history of support for
Baku on NK issues reinforced the Turkish sense of injury.

"We are Happy with the Turkey Terms"
--------------


6. (C) Javanshir indicated that the Shah Deniz consortium
had signed off on the current terms offered by Turkey. SOCAR
had already made significant concessions, he noted, but the
consortium was prepared to live with these. Of course,
Javanshir fretted that the consortium is unclear how long the
current terms are on offer, or whether they will remain on
offer after the end of April. He noted that SOCAR President
Rovnag Abdullayev had told him, "I can sign within 5
minutes," presumably once the political jam is broken. The
British delegation noted the need to continue to carry out
planning for April, because if all work ceases until then,
the agreement will be inevitably delayed.

BP Meetings in London
--------------


7. (C) Javanshir reported on upcoming BP meetings in
London. Turkish Energy Minister Yildiz, he stated, would
likely travel to London for meetings with senior BP
executives, (and the UK delegation noted, bilateral meetings
as well) on February 23. Javanshir indicated he would be
present if the meetings move ahead. He views the meetings as
a positive opportunity to continue the discussions, but noted
that Yildiz was characteristically over-optimistic about the
progress on the transit negotiations.

BP: No Credible Alternative to
Turkish Transit
--------------


8. (C) Energy Officer questioned Javanshir about BP's "Plan
B" if Turkish gas transit were not resolved. Javanshir
dismissed any alternatives to Turkish gas transit, stating,
"We don't see a credible second option." (Note: Seemingly
preparing an Azerbaijani "Plan B," SOCAR and GOAJ officials
have been busy in recent months inking small gas deals and
MOUs with a variety of regional actors, including Russia,
Iran, Bulgaria, and conducting discussions with Romania and
Greece. End note.) Javanshir laid out the key factors: Shah
Deniz would bring 16 billion cubic meters (bcm) or more of
natural gas to market, requiring the Turkey-European option
to absorb such large quantities of gas. He noted the current
pipeline to Russia could not handle sufficient volumes to
sell much Shah Deniz gas north. Javanshir also stated that
President Aliyev "won't commit our future to Russia." He
further opined that the Russians likely need new pipeline
systems on the other side of the border to accept large
volumes of gas. Finally, he dismissed Statoil's on-going
feasibility study of a possible compressed natural gas (CNG)
route across the Black Sea. (Note: Statoil is a fellow Shah
Deniz consortium member with BP. End note.) Javanshir
bluntly stated, "Statoil is not being helpful."

BP Confident Turkish
Domestic Gas Demand Will Rebound
--------------

BAKU 00000077 003 OF 004




9. (C) Some analysts have expressed concern that domestic
Turkish gas demand, which plummeted in the wake of the
financial crisis, has imperiled plans to transit Caspian gas
to Europe. Javanshir does not agree. He told us that he
believed the Turkish market would need Shah Deniz phase II
gas by the time it would be on-line. He assessed that by
2016-2017, Turkey's gas demand will have rebounded from the
financial crisis, and they will have a legitimate commercial
need for gas off-take from the Southern Corridor.

Will More LNG in Europe
Imperil Caspian Gas Development?
--------------


10. (C) The growth in shale gas in the U.S., and the
consequent greater availability of LNG (liquefied natural
gas) shipments for the European market, appears to trouble
Javanshir more. He asked, somewhat rhetorically, "will LNG
emerge as a potential competitor to Caspian gas for Europe?"

ACG Oil Field Progress:
Chirag Hopefully Soon to Sanction
--------------


11. (C) On a positive note, the Azerbaijan International Oil
Consortium (AIOC),the energy consortium which developed the
ACG (Azeri Chirag Gunashli) field, is close to sanctioning
development of the Chirag field. Javanshir told us that
SOCAR had approved the work program and budget for the Chirag
field during Inglis' visit, a positive sign that the GOAJ
wants this critical expansion project sanctioned. Javanshir
noted some SOCAR opposition to the project, which he
dismissed as "the old Soviet mentality" still present in some
parts of SOCAR. He explained, "the technical team in SOCAR
is disconnected from economics," adding that they genuinely
do not see obtaining positive economics for an energy project
as "their problem." Javanshir was hopeful that by February,
the AIOC partners will approve the Chirag expansion, followed
by final SOCAR sanctioning.


12. (C) However, Javanshir seconded recent remarks by
Statoil that discussions to extend the ACG Production Sharing
Agreement (PSA) past 2024 appear to be on the GOAJ's back
burner for now. Javanshir noted, "There are other things
that SOCAR wants to accomplish first." He noted the
potential exploitation of non-associated gas (NAG) in the ACG
field was at stake. President Aliyev generally supports the
project he noted, but BP had to make clear that, "if you want
the NAG, you must extend the PSA for the associated oil."
Javanshir expressed confidence that the AIOC consortium would
eventually win this round. However, he noted that early
agreement to the PSA extension (and subsequent exploitation
of the ACG NAG) "would unlock substantially more reserves."

BTC Pipeline
--------------


13. (C) Javanshir also discussed the performance of BIL,
(BOTAS International Limited),the BOTAS subsidiary which
operates the Turkish portion of the BTC pipeline. He
indicated that BIL's poor financial and security performance
continued to be a source of tension within the BTC
consortium. He also highlighted some progress, explaining
that Turkey had deployed "strong security forces" along more
areas of the BTC pipeline, and appointed a new head of the
gendarme last year, "a major breakthrough." Finally, he
noted that BP had constructed a "model," highly fortified
pumping station, which he hoped Turkey would now move to
replicate on additional portions of the pipeline.

Iran and Alov Field
--------------


BAKU 00000077 004 OF 004



14. (C) Javanshir also reflected on the status of the Alov
field, from which Iranian naval vessels threatened and chased
BP geophysical vessels in 2001. He indicated that Azerbaijan
and Iran continued their discussions on the ownership status
of the field, but there was "no dialogue" between BP and the
GOAJ on the Alov field at present. "I'm quite skeptical of a
solution," he added. Javanshir added that as BP was quite
busy otherwise, he wouldn't mind if the status quo continued
for a few more years.

Comment
--------------


15. (C) Industry watchers in Baku note that after the
fall's frenetic gas negotiating sessions (often fruitless,
but at least SOCAR and BOTAS were sitting down at the table),
now gas discussions seem to have come to a true standstill.
Momentum on the gas discussions appears to have moved firmly
out of the commercial arena, and into the political arena.
Meanwhile, a public battle between SOCAR and BOTAS about the
status of the gas discussions appears to have escalated in
the local media during the last few days. Absent a
significant political breakthrough, we wait for April.

LU