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RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000620 
 
SIPDIS 
 
E.O. 12958: DECL: 06/25/2018 
TAGS: PGOV PREL AJ TK ENRG
SUBJECT: AZERBAIJAN'S SOCAR UPBEAT ON TURKMENISTAN; WORRIED 
ABOUT TURKEY 
 
Classified By: Ambassador Anne E. Derse, reasons 1.4 (b,d) 
 
¶1. (C) SUMMARY: In a June 24 meeting, SOCAR President Rovnaq 
Abdullayev told the Ambassador that during a recent meeting 
in Ashgabat he had outlined to Turkmenistan President 
Berdimuhamedov a vision of bilateral energy cooperation 
between the two countries.  Berdimuhamedov struck him as a 
reasonable man who understood the advantages to Turkmenistan 
of diversifying its gas exports.  As in previous meetings, 
Abdullayev cited continued Turkish unwillingness to provide 
fair and transparent transit of Azerbaijani gas to Europe as 
the major barrier to the Southern Corridor project. 
Azerbaijan has done a strong job of presenting a viable model 
of energy sector cooperation to Turkmenistan, and is now 
waiting for feedback from Ashgabat.  On Turkey, as Abdullayev 
urged, the USG needs to continue to encourage the GOT to 
allow fair and transparent transit of SD2 gas.  At the same 
time we should encourage Azerbaijan and Turkey to pursue a 
separate sales and purchase agreement for sales of SD2 gas to 
Turkey, leaving enough to sanction at least one pipeline. 
END SUMMARY. 
 
¶2. (U) On June 24 the Ambassador met with SOCAR President 
Rovnaq Abdullayev.  Also present were SOCAR Foreign 
Investment Department head Vagif Aliyev and EnergyOff 
(notetaker). 
 
TURKMENISTAN 
------------ 
 
¶3. (C) Abdullayev had "good meetings" during his June 19 
Ashgabat visit.  His one-on-one meeting with President 
Berdimuhamedov (the first time they'd met) was ninety 
minutes.  Their meeting dwelt on only general topics of 
energy sector cooperation, to include those he previously 
broached with Head of State Agency for Hydrocarbon Resources 
Baimurat Muradov (ref A). 
 
¶4. (C) Berdimuhamedov seemed a "reasonable" man who 
understood the importance of gas export diversity and 
alternative options.  Berdimuhamedov told Abdullayev that 
Turkmenistan already has export diversity (Russia, Iran, 
China).  Abdullayev told him that exporting gas westwards 
would increase Turkmenistan,s diversity and that if 
Azerbaijan and Turkmenistan join forces, together they could 
be an important source of gas for Europe and increase their 
geopolitical importance.  He outlined to Berdimuhamedov the 
advantage of using Azerbaijan's offshore infrastructure to 
move GOTX gas west.  Abdullayev believes the GOTX is 
interested in the concept of exporting some gas west, 
although GOTX interest could be primarily a ploy to extract 
higher gas prices from Russia.  In this regard Abdullayev 
said that Berdimuhamedov had bragged to him about how 
starting from 2009 the GOTX would be receiving market prices 
for gas sold to Gazprom. 
 
¶5. (C) Abdullayev also explained to Berdimuhamedov that GOTX 
was losing potential profit by selling its gas FOB, and 
outlined various gas export options that could increase GOTX 
profit.  Azerbaijan was willing to put all its infrastructure 
at the GOTX disposal, to include even allowing the GOTX to 
buy a part of such SOCAR holdings as the Kulavi terminal in 
Georgia, Turkey's Petrochemical Holding Company (Petkim  - 
where SOCAR is part of the owner consortium), or a refinery 
in Ceyhan.  Berdimuhamedov's initial response was repetition 
of the Turkmen mantra that it sells its gas at the border. 
Abdullayev said he didn't offer to buy GOTX gas at the border 
since he felt that the GOTX would "misunderstand" such an 
offer (COMMENT: the GOAJ has shown this concern before, i.e. 
that in offering to buy GOTX gas it might present itself as 
Gazprom-like in seeking to buy gas only to resell it at a 
higher price. END COMMENT). 
 
¶6. (C) Abdullayev said another mark of progress was that the 
GOTX had agreed to expand the September 9-10 joint conference 
in Baku into a joint exhibition and conference, with the 
exhibition to showcase Turkmen products. Abdullayev said that 
currently there were no plans for Berdimuhamedov to attend 
the fall joint exhibition-conference, with the GOTX Deputy 
Prime Minister probably leading the delegation. 
 
¶7. (C) Abdullayev said that he touched only slightly on 
Serdar-Kyapaz in his talk with Berdimuhamedov, who said that 
he had told President Aliyev during his HOS visit to Baku 
 
BAKU 00000620  002 OF 003 
 
 
that S-K had to be solved as quickly as possible. 
Berdimuhamedov told Abdullayev that he had "love and respect" 
for "his brother" President Aliyev. 
 
¶8. (C) Abdullayev said an offended Berdimuhamedov complained 
to him about the Azerbaijani press writing that Turkmenistan 
"has no options" except exporting gas through Azerbaijan, 
adding that "if they said that in my country I would crush 
them."  Abdullayev said that he should pay no attention to 
the Azerbaijani press.  There are 560 papers in Azerbaijan, 
each of which "can write whatever it wants - we can't control 
them,"  with press targets including himself and President 
Aliyev.  Additionally, "some countries" (i.e. Russia) were 
using Azerbaijan's free press to "sabotage" friendly 
GOTX-GOAJ relations. 
 
¶9. (C) Summing up, Abdullayev told the Ambassador he felt 
that he had made his pitch to Berdimuhamedov, successfully 
presenting a vision for bilateral energy cooperation, and the 
next step was up to Turkmenistan.  Azerbaijan has presented 
its own energy sector as a model for GOTX to follow, and has 
put its own energy infrastructure, built over a decade with 
billions of dollars of capital, at Turkmenistan's disposal. 
 
TURKEY 
------ 
 
¶10. (C) Concerning the June 4 Nakhchivan meeting between 
President Aliyev and Turkish Prime Minister Erdogan, 
Abdullayev said the two sides reached agreement to build a 
gas main from Erzurum to supply Nakhchivan.  Turkey will 
build it to the exclave's border, with the GOAJ completing it 
within Nakhchivan. Once this connection is complete 
Nakhchivan will no longer be dependent on Iranian gas. 
 
¶11. (C) Abdullayev said that the two principals had no 
specific talks on gas transit issues or on gas sales to 
Turkey, other than a general GOAJ commitment to sell gas to 
the GOT.  Although he didn't participate in the 
Aliyev-Erdogan meeting, he was told afterwards that the PM 
expressed support for Nabucco during the meeting. 
 
¶12. (C) Abdullayev said he discussed gas issues in more 
detail with GOT Energy Minister Guler during the Nakhchivan 
summit.  Guler repeated the GOT request to purchase a minimum 
of eight bcm/a of Shah Deniz Phase Two (SD2) gas, after which 
it would discuss transit of the remaining volumes to Europe. 
 Abdullayev countered that first Botas should agree with the 
Shah Deniz (SD) Consortium over the new price of Shah Deniz 
Phase One (SD1) to Turkey, so that the Consortium knows that 
Botas is willing to pay market prices for SD gas.  Guler's 
response was that SD1 price negotiations would take a long 
time, and it was better for both countries to settle the 
issue of SD2 sales to Turkey first. (COMMENT:  As of April 
15, 2008, Botas and the SD Consortium's Azerbaijan Gas Supply 
Company - responsible for marketing SD1 gas - began 
negotiations over the price of the SD1 gas currently being 
sold to Turkey at USD 120 per thousand cubic meters (mcm) . 
By comparison the current market price for gas in Turkey is 
between USD 400-450 dollars per mcm.  According to Azerbaijan 
and SD Consortium contacts these negotiations have been slow 
due to Botas unwillingness to engage - upcoming septel). 
Abdullayev pointed out to Guler that inability to fix gas 
transit through Turkey would increase the possibility that 
the SD Consortium would sell SD2 gas to Russia. 
 
¶13. (C) In terms of a USG message for the GOT, Abdullayev 
said that the USG should both encourage the GOT to "be 
rational and objective," and accept a normal (i.e. market) 
price for SD1 gas.  If Turkey is able to present itself as a 
"normal and fixed" market and transit country, it is far more 
likely that the approximately USD 12 billion investment in 
SD2 will go forward in an optimal manner.  Conversely, 
Abdullayev said that the GOT should be made to understand 
that "Azerbaijan and the SD Consortium have alternatives" 
(Russia and Iran) if Turkey remains truculent.  The problem 
was, Abdullayev concluded, "we can't find anyone with 
authority in Turkey" with whom to discuss these issues. 
SOCAR Foreign Investment head Aliyev added that "from a 
purely commercial viewpoint, Russia and Iran are the best 
customers for SD2 gas," as the necessary pipelines were 
already in place.  Abdullayev also said that the USG should 
encourage Turkey to realize that the GOAJ's selling it 8 
bcm/a from SD2 would fatally cripple the Southern Corridor 
 
BAKU 00000620  003 OF 003 
 
 
project. 
 
NABUCCO 
------- 
 
¶14. (C) Answering the Ambassador's question, Abdullayev said 
that he did in fact have concerns about volumes and timing in 
relation to the Nabucco project.  Given that OMV was the 
project operator, he was meeting it in Vienna on June 27, at 
which time he hoped to get a better idea of Nabucco's 
"strategy."  He repeated his surprise upon hearing from RWE 
Midstream that the Nabucco project was seeking 15.5 bcm/a 
from SD2, when a year previously OMV had mentioned an amount 
of 5 bcm/a.  He was also concerned about the estimated price 
of the project rising from USD 4.5 billion to 7.9 billion. 
 
 
SD2 - THE NUMBERS 
----------------- 
 
¶15. (C) Abdullayev said SOCAR still hoped to sanction two 
pipeline projects with SD2 gas.  Expected production from the 
Umid field would be used to meet increases in domestic 
demand, so that all SD2 gas could be exported.  If SOCAR 
assumes SD2 production of 16 bcm/a, then it would seek to 
provide 3 bcm/a to Turkey, leaving 12 bcm/a to sanction two 
pipeline projects with 6 bcm/a each.  (COMMENT: Other Embassy 
sources, to include SOCAR's own Vice-President assume SD2 
production at 13 bcm/a.  SOCAR VP Nassirov has previously 
told Embassy that he assumes that after sales to Turkey there 
will only be enough SD2 gas left to sanction one of the three 
competing pipelines.  END COMMENT). 
 
EU 
--- 
 
¶16. (C) When asked what steps the USG could take to get the 
EU more active in working constructively with Azerbaijan, 
Abdullayev repeated that the main problem was transit through 
Turkey.  He said that neither SOCAR nor the rest of the SD 
Consortium is content with "verbal exemptions" from the EU 
that would allow the SD Consortium to sell jointly into 
Europe: they need written, official permission. 
 
COMMENT 
------- 
 
¶17. (C) Azerbaijan believes it has done a strong job of 
presenting a viable model of energy sector cooperation to 
Turkmenistan, and is now waiting for feedback from Ashgabat. 
On gas transit, the USG needs to continue to encourage the 
GOT to allow fair and transparent transit of SD2 gas, while 
at the same time encouraging Azerbaijan and Turkey to pursue 
a separate sales and purchase agreement for sales of SD2 gas 
to Turkey, leaving enough to sanction at least one pipeline. 
END COMMENT. 
DERSE