VZCZCXRO9289
PP RUEHAG RUEHDBU
DE RUEHKB #0650/01 1210254
ZNY CCCCC ZZH
P 010254Z MAY 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0247
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000650 
 
SIPDIS 
 
SIPDIS 
 
USDOE FOR FE - SWIFT AND OS - WILLIAMSON 
 
E.O. 12958: DECL: 05/01/2016 
TAGS: EPET ENRG PREL AJ TX KZ
SUBJECT: BP UPDATE ON EAST-WEST ENERGY CORRIDOR 
 
 
Classified By: acting DCM Joan A. Polaschik, reasons 1.4 (b), (d) and ( 
e). 
 
¶1. (C) SUMMARY.  During his regular briefing for U.S. and UK 
Embassy officers on April 25, AIOC President David Woodward 
gave a downbeat assessment of talks with BOTAS on BTC 
completion and predicted further delays.  SCP is largely on 
schedule although Woodward continues to argue that it will be 
impossible to supply Shah Deniz gas to Georgia any earlier 
than the start of Phase II in 2010-2011.  While Azerbaijan 
still desires more associated gas from ACG, BP's plan to 
exploit deep gas at that field has been vetoed.  Woodward 
also indicated that the BP-designed macroeconomic modeling 
mechanism for oil revenue management will follow Samir 
Sharifov from the State Oil Fund to the Ministry of Finance. 
END SUMMARY. 
 
----------------------------------- 
DIFFICULTIES CONTINUE WITH BOTAS... 
----------------------------------- 
 
¶2. (C) Woodward gave a gloomy assessment of recent 
discussions with Turkish state pipeline company BOTAS on BTC 
completion.  He said that BP is taking the approach of "how 
do we pay in order to get this project done."  Woodward 
portrayed BOTAS as unresponsive to ideas and simply demanding 
money.  Woodward said he would see the BOTAS board on the 
afternoon of April 26 (we do not know if this meeting 
occurred) and plans to meet with the Turkish Energy Minister 
on May 2.  Woodward feels BOTAS is pushing the issue onto the 
Energy Ministry.  At the moment, says Woodward, oil has 
reached station PT4 in Turkey, meaning that the line is 80% 
full.  The next step is the final push to Ceyhan, and the oil 
must flow from PT4 before mid-May if the first tanker 
carrying ACG oil is to leave Ceyhan by May 27 as planned. 
According to Woodward, BOTAS has threatened to hold the oil 
at PT4 if an agreement is not reached, and has also 
threatened to turn off the oil after the actual first lifting 
as they will still have some minor work to do on other parts 
of the line.  In any event, the current holdup will delay 
completion by at least one week, and Woodward feels it is 
likely first lifting will slip to mid-June. 
 
¶3. (C) Woodward said that BP has little leverage at this 
point but that BP is telling BOTAS and anyone who will listen 
that this experience will "color our thinking on any future 
projects."  BTC commissioning ceremonies are still set 
tentatively for July 13, however while the Turkish MFA seems 
to be working with this date the Turkish Energy Ministry has 
not given BP its formal assent for this date.  President 
Aliyev is likely to raise BTC progress in Washington and 
again in Turkey. 
 
--------------------------------------- 
...BUT PROGRESS CONTINUES ON SHAH DENIZ 
--------------------------------------- 
 
¶4. (C) Woodward said the new Shah Deniz drilling platform is 
in place and the "first flow" of gas into SCP is still on 
schedule for September.  The question was asked if BOTAS, 
which is behind schedule, will complete the SCP connector in 
time.  Woodward believes that SCP is a different situation 
than BTC -- BOTAS is building the SCP connector to its own 
standards and for its own use, as opposed to BTC, which it is 
building under BP rules and for BP's use.  Additionally, the 
Shah Deniz gas will be used in Turkey, Woodward pointed out, 
and since it comes in at half the price of Blue Stream gas, 
the Turks want to get access to it as soon as possible.  Some 
compressor stations on the Turkish side of SCP will not be 
completed by September, says Woodward.  This will result in 
slightly smaller volumes of gas transiting SCP initially, he 
explained, until those stations come on-line. 
 
---------------------------------------- 
EARLY SHAH DENIZ GAS TO GEORGIA UNLIKELY 
---------------------------------------- 
 
¶5. (C) Woodward said there have been no further meetings of 
the Turkey-Georgia-Azerbaijan group to discuss Georgia's 
request for "more gas sooner" from Shah Deniz (in other 
words, before Shah Deniz Phase II begins in 2010-2011).  BP 
 
BAKU 00000650  002 OF 002 
 
 
is involved with this process only to provide technical 
advice.  In Woodward's long-held view, it is physically 
impossible to increase the amount of gas produced by Shah 
Deniz Phase I, so Georgia would have to buy gas already 
obligated to Turkey and/or Azerbaijan.  Given that Shah Deniz 
gas is half the price of Blue Stream gas, Woodward finds it 
unlikely that Turkey would give any up.  As for Azerbaijan, 
Woodward believes while it could theoretically supply some 
more gas to Georgia, even from non-Shah Deniz sources, 
exporting any significant quantities would force Azerbaijan 
to importing more gas from Russia for domestic use.  The 
Russians would probably figure this out, noted Woodward, and 
raise their prices, perhaps to prohibitive levels. 
 
--------------------------------------------- ------ 
PLANS FOR EXPLOITING ACG ASSOCIATED GAS CONTINUE... 
--------------------------------------------- ------ 
 
¶6. (C) A new pipeline has been commissioned from the ACG oil 
field to bring more associated gas to shore per Azerbaijan's 
request.  The associated gas (gas mixed in with the oil) is 
largely reinjected into the field to create pressure and make 
the oil flow easier.  Azerbaijan gets to keep the associated 
gas not used for this purpose -about 1.4 bcma - but wants to 
raise this amount to 3 bcma.  Since this will leave less gas 
for reinjection and thus impact oil production, BP needs 
compensation and discussions are now underway to determine 
how much Azerbaijan will pay for this gas. 
 
--------------------------------------------- ----------- 
...BUT PLANS FOR EXPLOITING DEEP GAS AT ACG ARE SCRUBBED 
--------------------------------------------- ----------- 
 
¶7. (C) BP had originally hoped to swap greater Azerbaijani 
access to ACG associated gas in exchange for the right to 
develop the large gas field at ACG that is not covered by the 
PSA and that lies far below the mixed oil and gas field 
currently being exploited.  The outlines of a deal for BP to 
exploit deep gas at ACG had been agreed upon with both Samir 
Sharifov, then head of SOFAZ, the state oil fund, and Rovnag 
Abdullayev, head of SOCAR, but after Sharifov became Finance 
Minister he disengaged from the issue, leaving behind 
Abdullayev, who vetoed the deal.  There are no further 
discussions taking place on BP access to deep gas at ACG. 
 
-------------------------------------- 
MACROECONOMIC MODEL TO FOLLOW SHARIFOV 
-------------------------------------- 
 
¶8. (C) Speaking of Sharifov, Woodward said that he expected 
the macroeconomic modeling system BP created (to assist the 
GOAJ with oil revenue management) would be housed in the 
Finance Ministry.  Originally it was to be housed in SOFAZ 
but apparently will follow Sharifov to his new job. 
HYLAND