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FM AMEMBASSY BAKU
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INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RHMFISS/CDR USCENTCOM MACDILL AFB FL PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 001011 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/CARC AND EB/ESC 
USDOE FOR FE - SWIFT AND OS - WILLIAMSON 
 
E.O. 12958: DECL: 06/12/2016 
TAGS: ENRG ECON EPET PREL AJ KZ RU TR
SUBJECT: A NEW ENERGY AGENDA: EUR DAS MATT BRYZA AND 
TURKISH ENERGY ENVOY BALKAN MEET AZERBAIJAN FOREIGN 
MINISTER MAMMADYAROV 
 
Classified By: Charge d'Affaires Jason P. Hyland, reasons 1.4 (b,d,e). 
 
¶1. (C) SUMMARY.  On June 6, EUR DAS Matthew Bryza and Turkish 
Energy Envoy Ambassador Mithat Balkan met with Azerbaijani 
Foreign Minister Elmar Mammadyarov to discuss a new 
partnership on energy issues, particularly on bringing 
Azerbaijani gas to Europe.  Foreign Minister Mammadyarov said 
that Azerbaijan is willing to go ahead with such a project, 
even beginning with largely symbolic deliveries of small 
quantities of gas to Greece, but that Azerbaijan needs the 
political support of the United States.  DAS Bryza identified 
four distinct tasks associated with the project -- 
negotiating a gas delivery deal among Azerbaijan, Greece and 
Italy; negotiating an agreement for Azerbaijani gas to 
transit Turkey; satisfying Azerbaijan's and Georgia's 
short-term domestic gas demand; and finding a way forward on 
the long-term goal of trans-Caspian gas.  Mammadyarov agreed 
with this formulation and said that Azerbaijan agreed to send 
delegations to Athens and Rome to discuss gas sales. 
Ambassador Balkan advocated a high- 
level joint statement on gas at the Ceyhan BTC ceremonies 
later this summer.  On trans-Caspian oil transport, Bryza and 
Balkan advocated a swift conclusion to the IGA negotiations. 
DAS Bryza stressed that investor concerns had to be taken 
into account; Mammadyarov seemed to resist.  END SUMMARY. 
 
¶2. (U) The following were present at EUR DAS Matt Bryza's 
June 6 meeting with Azerbaijan Foreign Minister Elmar 
Mammadyarov: 
 
UNITED STATES: 
 
EUR DAS Matthew Bryza 
S/P Steven Hellman 
Charge Jason Hyland 
Energy Officer Kerem Bilge (notetaker) 
 
TURKEY: 
 
Special Energy Envoy Ambassador Mithat Balkan 
Energy Officer Zeynep Savas (notetaker) 
 
AZERBAIJAN: 
 
Foreign Minister Elmar Mammadyarov 
Deputy Foreign Minister Khalaf Khalafov 
Israfil Akhmedov, MFA 
MFA notetaker 
 
------------------------------- 
A NEW PARTNERSHIP IN GAS EXPORT 
------------------------------- 
 
¶3. (C) DAS Bryza began the meeting with a discussion of the 
renewed strategic partnership between the United States and 
Turkey, including energy issues, and symbolized by the joint 
presence of DAS Bryza and Ambassador Balkan.  DAS Bryza 
described the vision of a new "southern corridor" to bring 
Caspian gas resources to Europe, specifically bringing 
Azerbaijani gas to Greece, and introduced S/P consultant 
Steve Hellman as someone with extensive commercial experience 
who would provide subject-matter expertise. 
 
¶4. (C) DAS Bryza noted that in the past, President Aliyev was 
"on the fence" about Azerbaijan as a gas exporter, acutely 
conscious of Azerbaijan's domestic needs.  But following his 
visit to Washington, DAS Bryza continued, Aliyev expressed 
his realization that Azerbaijan is not in an either/or 
situation between meeting domestic needs and export, and is 
now expressing great interest in the idea of gas export to 
Greece to prevent Gazprom from seizing markets in Southern 
Europe and shutting in Azerbaijan's gas for years.  DAS Bryza 
pointed out that Edison Italia is interested in Azerbaijani 
gas and that BP expressed confidence that it can accelerate 
production in the Caspian to the point of producing 20 bcm by 
¶2012.  If Azerbaijan goes ahead with exploitation of "deep 
gas" at the ACG field and full-field development of the Shah 
Deniz field, Bryza continued, Azerbaijan could produce 50 
bcma by 2015.  This will provide Europe with a serious 
alternative to Gazprom, and allow an escape from the current 
monopsony setup, where Gazprom buys gas for USD 65 per 
 
BAKU 00001011  002 OF 003 
 
 
thousand cubic meters in Central Asia and then resells it for 
USD 265 in Europe.  Bryza said that a multi-step process is 
needed, starting with getting Azerbaijani gas into the 
Turkey-Greece-Italy pipeline.  DAS Bryza said that during his 
meeting with President Aliyev earlier in the day, the 
Azerbaijani leader accepted Bryza's suggestion to send 
delegations to Greece, Italy and Turkey to discuss gas 
exports, an idea the United States welcomes. 
 
¶5. (C) Ambassador Balkan followed, noting that there is 
complete agreement in Turkey with President Aliyev's stated 
energy export goals.  There is a "communality of vision" 
between Turkey, Azerbaijan and the United States, he said. 
The BTC and SCP pipelines will be the "backbone" for future 
projects, he added, and these energy projects are a way for 
Turkey and Azerbaijan to achieve further integration with 
Europe.  One such project would be the Nabucco pipeline to 
Austria, another is the Turkey-Greece-Italy interconnector 
(TGI).  It is important, he added, to move beyond the shared 
vision to practical matters -- these projects require urgency 
because of other gas producers in Europe who want to "block 
the artery" by getting their gas in place first.  In response 
to a question from the Foreign Minister, Balkan agreed that 
TGI is the project requiring the most urgency, with 
trans-Caspian gas from Central Asia a close second." 
 
---------------------------------- 
A NEED FOR ACTIVE AMERICAN SUPPORT 
---------------------------------- 
 
¶6. (C) In response, Mammadyarov recalled a 2004 meeting in 
Brussels when EU countries had shown "zero interest" in 
Azerbaijani gas.  Now the situation is different, he said, as 
energy security has become not just a regional issue but a 
global one.  American support is key - "without the full 
support of the United States, we can't move forward," he 
said.  The technology exists to get more gas out of Shah 
Deniz, but this will take time.  However, he added, from a 
political perspective, Azerbaijan is ready to move ahead, 
even if the most immediate result would be to provide only a 
small symbolic volume of gas to Greece.  Ultimately, 
Kazakhstan needs to be brought into this process to get the 
volumes where they should be, said Mammadyarov.  Georgia will 
want more gas for its needs, said the Foreign Minister, and 
though "I am not Nostradamus," it is likely the Russians will 
increase their prices this winter. 
 
¶7. (C) DAS Bryza said that Azerbaijan would have the 
political support of the United States in this venture, and 
added that per President Aliyev's request the United States 
would not engage in anti-Gazprom rhetoric.  The focus needs 
to be on putting together a deal that is commercially viable, 
said Bryza.  Ambassador Balkan added that Turkey is not 
"merely" a transit country in this deal but also wants to be 
actively involved. 
 
 
----------------------------------------- 
A MONOPOLIST SEEKS TO PRESERVE A MONOPOLY 
----------------------------------------- 
 
¶8. (C) Foreign Minister Mammadyarov asked if Gazprom was 
trying to expand Blue Stream to block these projects. 
Ambassador Balkan answered that Gazprom wants to build a 
second Blue Stream, block other routes and thus monopolize 
gas sales to Turkey and Greece.  DAS Bryza added that General 
Director Papageorgiu of DEPA, the Greek state gas company, is 
under tremendous pressure to sign contracts with Gazprom that 
would lock out Azerbaijani or any other gas providers. 
Papageorgiu has told Bryza that Gazprom has threatened to 
refuse to renew its gas supply contract with  Greece off if 
DEPA did not agree to exclusive purchases of Russian rather 
than Azerbaijani gas via the Turkey-Greece Interconnector. 
Azerbaijan has to engage with Greece to reach a gas 
sales/purchase agreement, said Bryza, but "we will all stand 
together."  Mammadyarov replied that Azerbaijan is ready and 
interested to act. 
 
------------------------------------------- 
AZERBAIJAN-KAZAKHSTAN FOR TRANS-CASPIAN OIL 
------------------------------------------- 
 
BAKU 00001011  003 OF 003 
 
 
 
¶8. (C) Ambassador Balkan noted that besides gas projects, it 
is also important that Azerbaijan and Kazakhstan conclude an 
Inter-Governmental Agreement (IGA) soon to bring Kazakhstan's 
oil into the BTC pipeline.  In response, the Foreign Minister 
said that the Azerbaijan-Kazakhstan IGA is close to signature 
and should be signed by mid-June in Almaty.  DAS Bryza said 
that it is important that the IGA address specific commercial 
concerns and issues.  Mammadyarov replied that state 
interests also have to be addressed and that investors "can't 
have an open field for themselves" and that this to an extent 
is a political issue (COMMENT: Mammadyarov's remark is 
worrisome but within the context of Azerbaijan and 
Kazakhstan's less-than-friendly approach to investor concerns 
during the IGA negotiations.  END COMMENT). 
 
----------------- 
TRANS-CASPIAN GAS 
----------------- 
 
¶9. (C) DAS Bryza agreed that securing trans-Caspian gas is 
crucial to repairing Europe's gas market by mitigating the 
price disparity between gas bought in Central Asia and sold 
in Europe.  Bryza opined that working out a trans-Caspian 
link would take some time; meanwhile, it was imperative to 
expand gas production in Azerbaijan and deliver it to Europe 
via the Turkey-Greece-Italy and (prospective) Nabucco 
pipelines, as these projects were much further along. 
Ambassador Balkan agreed - trans-Caspian gas would be helpful 
but would be a long-term project.  Other resources are 
present now.  The future might also include options with 
Iran, Iraq or Egypt.  Turkish consumption is increasing, said 
Balkan, which is why Gazprom sees an opening to further 
consolidate its monopoly - such as by expanding Blue Stream 
and pressures the Turkish Government accordingly. 
 
¶10. (C) Foreign Minister Mammadyarov did not dispute the 
above, but said that it would be important for experts to 
examine the issue and determine what the situation really is 
in terms of volumes and demand, including Georgian demand. 
Citing Gazprom's history of sudden and arbitrary increases in 
prices, Mammadyarov said "we need to protect ourselves." 
Ambassador Balkan said he understood Azerbaijan has limited 
room for maneuvering. 
 
--------------- 
THE WAY FORWARD 
--------------- 
 
¶11. (C) DAS Bryza identified four tasks associated with this 
initiative: 
 
--negotiating a deal between Azerbaijan, Greece and Italy for 
gas deliveries 
--negotiating a specific agreement for the transit of 
Azerbaijani gas through Turkey 
--satisfying Azerbaijan's and Georgia's short-term domestic 
needs (i.e., before Shah Deniz Phase II), and 
--finding a way forward on the long-term goal of 
trans-Caspian gas from Central Asia. 
 
¶12. (C) Foreign Minister Mammadyarov agreed with this model, 
but again for the record emphasized the importance of having 
the strong support of the United States, especially for the 
trans-Caspian venture.  Ambassador Balkan recalled the 
history of the BTC and said that a strong joint statement 
explicitly outlining the gas initiative (including the 
trans-Caspian option) could be made - perhaps at the upcoming 
Ceyhan BTC ceremonies, if attendees were high-level enough. 
 
¶13. (C) Foreign Minister Mammadyarov said that he would 
encourage Azerbaijan's state oil company SOCAR, and allied 
electricity and gas companies AzerEnergy and AzeriGaz to put 
together a trip to Athens and Rome as soon as possible.  DAS 
Bryza welcomed this and said that Edison Italia and DEPA 
would undoubtedly welcome it as well. 
 
¶14. (U) EUR DAS Matt Bryza has cleared this cable. 
HYLAND