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DE RUEHKB #0152/01 0331329
ZNY CCCCC ZZH (CCY BY STATEMENT ADDED - MSI4910 - AD8A3C08 - 555)
R 021329Z FEB 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 9502
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1444
RUEHIT/AMCONSUL ISTANBUL 0394
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEAIIA/CIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L BAKU 000152 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/CACEN 
 
//C O R R E C T E D  C O P Y -- CLASIFICTION BY LINE ADDED// 
 
E.O. 12958: DECL: 03/01/2016 
TAGS: ECON EPET PREL PGOV AJ
SUBJECT: AZERBAIJAN ENERGY: BP BRIEFS AMBASSADOR ON BTC, 
SHAH DENIZ, IRAN AND CHANGES AT SOCAR 
 
 
Classified by Amb Reno L. Harnish III, Reasons 1.4(b) and (d). 
 
¶1. (C) SUMMARY: Ambassador Harnish met with AIOC President 
David Woodward (Strictly Protect) January 31 to review AIOC, 
BP and Azerbaijan energy activities.  Woodward updated 
Ambassador Harnish on progress of the BTC pipeline, now 
scheduled for completion in May.  Woodward explained that due 
to the pipeline's slow construction and limited oil export 
routes, BP has been forced to stop production when local 
storage areas become full.  Regarding the gas pipeline Shah 
Deniz, Woodward reported good progress on pipeline 
construction and indicated that by the third quarter of 2006 
gas should be flowing to Turkey.  Woodward told the 
Ambassador that BP has decided against participating in any 
oil swaps with Iran as a way to manage excess oil production. 
 In addition, he noted that SOCAR has told BP that no Iranian 
gas is flowing to Georgia through Azerbaijan.  END SUMMARY. 
 
¶2. (U) On January 31, Azerbaijan International Operating 
Company (AIOC) President David Woodward briefed Ambassador 
Harnish and the UK Ambassador at their regular monthly 
meeting regarding AIOC's oil and gas operations, pipeline 
construction progress and issues at the State Oil Company of 
Azerbaijan (SOCAR). 
 
¶3. (SBU) Baku-Tbilisi-Ceyhan Progress:  BTC pipeline 
construction in Turkey has recently accelerated and BP hopes 
that the pipeline will be completed by the end of May 
followed by a June celebration. Oil in the pipeline is being 
stocked at a pump station in Turkey and is being allowed to 
flow into new pipeline sections as they are completed. 
Additional AIOC oil is being exported through the western and 
northern routes as well as by railroad.  Despite these 
exports, Woodward indicated more oil is being pumped than 
current local storage can handle which is causing production 
shutdowns.  BP has explored the expansion of the Batumi 
railroad but has discarded this idea since it appears to be 
at full capacity. 
 
¶4. (C) BP-Iran Oil Swaps: Woodward indicated that based upon 
discussions with the USG, BP has decided not to do any oil 
swaps with Iran.  (BP had been considering the swaps with 
Iran as a way to manage excess production prior to completion 
of BTC.) 
 
¶5. (SBU) Shah Deniz:  Woodward reported good progress on the 
Shah Deniz gas pipeline.  In March or April (depending upon 
weather conditions), BP hopes to float and install the 
primary gas platform in the Caspian Sea.  By third quarter 
2006 the platform should begin pumping gas and the first 
delivery could arrive by the end of September or early 
October in Turkey.  Whether Turkey is able to take the gas is 
another issue.  Excess gas could be shipped to a third party, 
such as Georgia, although the issue of pricing could kill any 
deals.  Responding to demands by GOAJ for more gas, BP would 
like to negotiate a deal with SOCAR on the terms for taking 
ACG gas although it would prefer to reinject its gas into the 
field. The discussions with SOCAR, however, have been 
difficult and no decision has been reached. 
 
¶6. (C) Shah Deniz Gas to Europe: Ambassador Harnish and 
Woodward discussed efforts to have Azerbaijani gas reach 
Europe.  Based on recent conversations with EUR DAS Bryza, 
Woodward indicated that BP is exploring the idea and is 
attempting to identify areas where BP could assist.  Woodward 
added that BP is looking to "steer" USG involvement on this 
issue in order to ensure the USG "hits the best areas." 
Ambassador Harnish and Woodward noted that European energy 
regulations prohibit consortiums (including AIOC) from 
jointly marketing oil and gas in Europe. 
 
¶7. (SBU) Regional Energy Security: BP will prepare a detailed 
briefing on regional energy security issues for Ambassador 
Harnish, REO and the U.K. Ambassador. 
 
¶8. (SBU) Iranian Gas to Georgia: Woodward said that SOCAR has 
told BP that no/no Iranian gas is flowing through Azerbaijan 
to Georgia.  Presented with additional queries regarding the 
Iranian gas issue, Woodward indicated he would find out the 
latest details and provide more information at the regional 
energy security briefing. 
 
¶9. (C) SOCAR Paralysis: Woodward complained that SOCAR's 
 
 
management and decisionmaking processes have become paralyzed 
with the new leadership.  Getting items approved has proven 
to be extremely difficult.  Woodward blamed part of SOCAR's 
problems on the new management.  In some instances, Woodward 
noted that BP is having to "educate" the SOCAR management 
team on a variety of technical energy issues. Woodward also 
indicated that it appeared SOCAR was uninterested in 
discussing any additional oil or gas exploitation projects. 
He mentioned that some in SOCAR appear to believe that with 
BTC and Shah Deniz projects approaching completion, no future 
exploitation plans were necessary.  Woodward indicated that 
SOCAR may lack the capacity to look forward and appeared to 
want to wait until a future date to begin discussions on 
future plans. 
 
¶10. (C) New Minister of Industry and Energy: Regarding the 
new Minister of Industry and Energy Natik Aliyev, Woodward 
opined that Aliyev was more focused on the development of 
Azerbaijani industry rather than on its energy policy.  Most 
observers had expected that Aliyev, former President of 
SOCAR, would take control of all of Azerbaijan's energy 
resources (including SOCAR's) and organize GOAJ energy 
policy.  Woodward observed that Aliyev may have been named 
minister in order to "fix" Azerbaijan's industry development. 
 
¶11. (SBU) Avian Influenza: Woodward indicated that BP was 
interested in coordinating AI information with U.S. and U.K. 
embassies and that BP was reviewing global corporate 
contingency planning in the event of an AI outbreak in order 
to maintain "business continuity." 
HARNISH