VZCZCXRO9716
PP RUEHAG RUEHDBU
DE RUEHKB #0659/01 1211224
ZNY CCCCC ZZH
P 011224Z MAY 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0258
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000659 
 
SIPDIS 
 
SIPDIS 
 
USDOE FOR FE - SWIFT AND OS - WILLIAMSON 
 
E.O. 12958: DECL: 05/01/2016 
TAGS: EPET ENRG PREL AJ TX KZ
SUBJECT: STATOIL EXECUTIVES ON SCP COMPLETION AND FURTHER 
SHAH DENIZ EXPLOITATION 
 
 
Classified By: acting DCM Joan A. Polaschik, reasons 1.4 (b), (d) and ( 
e). 
 
¶1. (C) SUMMARY.  Statoil executives in Baku cautioned about 
on-time completion of the South Caspian Pipeline (SCP) and 
expressed concern about conditions in both Azerbaijan and 
Turkey that could be obstacles to further large-scale energy 
projects.  SOCAR has requested that its share of Shah Deniz 
gas be removed from the export stream before the point of 
sale, complicating the sales picture.  Long term, the Statoil 
executives believe Azerbaijan should open Shah Deniz to 
full-field development and, after then adding gas from 
Kazakhstan and/or Turkmenistan, will be able to export 
significant quantities to Europe.  New infrastructure beyond 
the current SCP line will be required to make this happen. 
END SUMMARY. 
 
------------------------------------- 
DIFFICULTIES IN TURKEY AND AZERBAIJAN 
------------------------------------- 
 
¶2. (C) Senior Baku Statoil executives Georg Gundersen, Jan 
Heiberg and Sverre Olden Mala invited EUR Ambassador Steven 
Mann to lunch April 20 and used the opportunity to update 
emboff on SCP developments.  The executives were cautious as 
to whether SCP could be completed on time.  They pointed out 
the long delays plaguing BTC and noted that BOTAS, the 
Turkish state pipeline company, had gotten a late start with 
SCP as well.  However, Gundersen argued that the situation is 
different for BOTAS in the case of SCP.  "With BTC, they are 
building a pipeline for someone else," he said.  But Turkey 
will actually own the Turkish segment of SCP and will 
actually obtain gas for domestic use from it.  This gives 
BOTAS an incentive to work quickly, an incentive that does 
not exist with BTC.  BOTAS is late on both pipeline and 
compressor station construction but SCP can supply initial 
volumes even without a Turkey-based compressor station as 
long as the line is successfully completed. 
 
¶3. (C) Gundersen expressed concern over what he characterized 
as a new Turkish ban on BOTAS signing new gas contracts with 
existing suppliers.  This would prevent Turkey from 
participating in exploitation of Shah Deniz beyond Phase I. 
In addition to getting around this obstacle, Turkey will need 
to sign an "extended" Inter-Governmental Agreement if it 
wants to participate in further gas export projects from 
Azerbaijan.  The current IGA only covers Phase I.  Gundersen 
feels that any attempt to get over these hurdles will be met 
with pressure from Russia.  He also feels that further 
exploitation of Shah Deniz presents a great opportunity for 
Turkey of which the Turks should take advantage. 
 
¶4. (C) Turkey is not the only area where Statoil sees 
difficulty.  The Statoil executives echoed many in the 
international energy community here when they bemoaned what 
they see as a "leadership vacuum" on energy issues in 
Azerbaijan.  While some in SOCAR and the GOAJ appear 
interested in new projects, they argued, others seem content 
to rest on their laurels.  The President should instruct 
SOCAR to identify new personnel and devote sufficient 
personnel resources to next phase gas development. 
 
----------------------------- 
FURTHER EXPLOITING SHAH DENIZ 
----------------------------- 
 
¶5. (C) The Statoil executives noted one recent disturbing 
development.  SOCAR, the state oil company of Azerbaijan, has 
requested that Azerbaijan's share of Shah Deniz gas be 
removed from the gas flow before the gas leaves Azerbaijan. 
While understanding that Azerbaijan needs gas for domestic 
use, the Statoil executives pointed out that removing the gas 
before the point of sale will made the amount of gas 
available for sale less predictable and less certain.  This 
issue is still unresolved. 
 
¶6. (C) As far as getting more Caspian gas into Europe, the 
Statoil executives argued that the best way to begin would be 
with full-field development of the Shah Deniz field, in other 
words, beyond Phase II.  Once this process begins, they feel, 
it will be easier to bring in participation by Turkmenistan 
and/or Kazakhstan.  In any event, new infrastructure will be 
needed.  The existing SCP line, according to the Statoil 
 
BAKU 00000659  002 OF 002 
 
 
executives, will be able to transport at most 20 bcma.  This 
will not be enough both to meet projected future domestic 
needs in Azerbaijan and Georgia and to transport significant 
volumes to Europe.  Therefore, a new gas line will be 
necessary if cross-Caspian volumes becomea reality.  The 
executives did not believe, howeer, that a second pipeline 
would be infeasible. 
HYLAND