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Viewing cable 06BAKU511, AMBASSADOR AND STATOIL DISCUSS SHAH DENIZ PHASE II

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Reference ID Created Released Classification Origin
06BAKU511 2006-04-04 09:18 2011-08-30 01:44 CONFIDENTIAL Embassy Baku
VZCZCXRO1405
RR RUEHAG RUEHDBU
DE RUEHKB #0511 0940918
ZNY CCCCC ZZH
R 040918Z APR 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 0038
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1572
RUEHTH/AMEMBASSY ATHENS 0207
RUEAIIA/CIA WASHINGTON DC
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 000511 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR DAS BRYZA 
 
E.O. 12958: DECL: 04/04/2016 
TAGS: EPET ECON ENRG PREL PGOV KZ AJ
SUBJECT: AMBASSADOR AND STATOIL DISCUSS SHAH DENIZ PHASE II 
DEVELOPMENTS AND CHALLENGES 
 
Classified By: AMBASSADOR RENO L. HARNISH III PER 1.4 (B,D). 
 
1. (C) SUMMARY:  Statoil executives briefed the Ambassador 
March 29 on the challenges facing the international energy 
companies and the GOAJ as Shah Deniz Phase II (Phase II will 
increase annual gas production by 18-20 bcma) moves forward. 
International companies want to pool their gas with the GOAJ 
gas in order to obtain profitable long-term supply contracts 
in international markets.  The GOAJ, however, may be looking 
to use its share of the gas for domestic consumption.  The 
executives also said EU anti-monopoly rules could threaten 
Shah Deniz sales to Europe.  Statoil's CEO raised this issue 
with EU leader Javier Solana.  Statoil is supportive of a 
trans-Caspian gas pipeline, although the company's primary 
focus is making Shah Deniz Phase II a success.  END SUMMARY. 
 
2. (C) In a meeting on March 29, Statoil Azerbaijan President 
Georg Gundersen and VP for Gas Jan Heiberg told Ambassador 
that Shah Deniz Phase II, scheduled for completion in 2011 or 
2012 (Phase II will increase annual gas production by 18-20 
bcma), still faces several logistical issues that could 
threaten to stall or slow the project.  Statoil executives 
explained that the GOAJ and international companies had to 
reach an agreement, similar to Shah Deniz Phase I, in which 
the companies and the government would combine their 
respective gas reserves in order to obtain profitable 
long-term supply contracts in international markets.  The 
international companies need the GOAJ to commit to combining 
the reserves or risk obtaining a lower price for future gas 
deliveries or not having enough gas to supply contracts.  The 
GOAJ has evidently discussed using its share of the Shah 
Deniz Phase II gas for domestic consumption.  The companies 
feel that the project may not be as commercially successful 
if they are not able to convince the GOAJ to join them. 
 
3. (C) Statoil executive also said that current European 
Union anti-monopoly rules would threaten the proposed sale of 
Shah Deniz gas to Europe.  Statoil's CEO recently raised this 
point with EU representative Javier Solana.  Solana, 
according to Gundersen, was particularly interested in 
discussing diversification of gas supplies.  Despite this 
interest, however, Statoil believes that the EU will move 
slowly to make any exemptions or changes to current 
legislation.  (This is not the first time that an 
international energy company has raised with us the EU's 
anti-monopoly and its effect on joint marketing of gas and 
oil to Europe.) 
 
4. (C) Statoil executives told the Ambassador that they feel 
Azerbaijan fits Norway's gas model in which it gradually 
increases capacity in small increments.  As Norway did during 
the 1980s, Statoil envisions Azerbaijan beginning with small 
gas quantities used for domestic needs (6-8 bcma) and slowly 
adding to this amount an additional 20 bcma that will allow 
it to export gas to Europe. 
 
5. (C) Regarding the idea of building a trans-Caspian 
pipeline to bring gas from Kazakhstan and or Turkmenistan 
through Azerbaijan to Europe, the Statoil executives 
expressed interest in additional details.  The Ambassador 
told them that EUR DAS Matthew Bryza planned to visit Baku 
April 3 and they indicated they would raise it with him and 
discuss the idea further.  Without saying so, it appeared 
that the Statoil executives focus was certainly more on the 
medium-term and getting Shah Deniz Phase II working.  They 
noted that once Azerbaijan begin exports of gas to Europe, 
other countries and energy companies will take notice and 
want to use its gas network, generating greater interest and 
support in a TransCaspian pipeline. 
HARNISH