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P 221210Z OCT 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0228
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUEAIIA/CIA WASHINGTON DC
RHMFISS/CDR USEUCOM VAIHINGEN GE
RHEBAAA/DEPT OF ENERGY WASHDC
RUEKDIA/DIA WASHDC
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C O N F I D E N T I A L SECTION 01 OF 03 BAKU 001012 
 
SIPDIS 
 
E.O. 12958: DECL: 10/21/2018 
TAGS: PGOV PREL AZ ENRG GA
SUBJECT: SOCAR WILLING TO PROVIDE GAS TO GEORGIA BUT 
DOESN,T WANT TO BE PLAYED 
 
Classified By: Ambassador Anne E. Derse, Reasons 1.4 (b,d) 
 
¶1. (C) SUMMARY.  According to Azerbaijan's State Oil Company, 
Azerbaijan is prepared to provide necessary volumes of gas to 
Georgia during the winter months, but prefers to do so on 
more commercial vice concessionary terms.  According to SOCAR 
and BP Azerbaijan sources, Georgian winter gas needs are 
approximately seven million cubic meters per day (mcm/d). 
Georgia currently has estimated winter gas supplies of at 
least 3.7 mcm/d from Azerbaijan and as 'transit gas' from 
Gazprom.  While Azerbaijan is ready to provide greater 
amounts to forestall a humanitarian crisis, SOCAR is 
reluctant to incur substantial financial losses by providing 
additional gas to Georgia at sub-market prices, particularly 
if Georgia can buy supplementary gas volumes (albeit more 
expensively) from Gazprom.  SOCAR believes that by claiming 
that Azerbaijan is 'unwilling' to sell it winter gas, Georgia 
is seeking USG political intervention on its behalf in an 
attempt to politicize what are essentially commercial 
negotiations between it and Georgia.  Georgian Embassy DCM 
Nikoloz Gugitidze separately told Embassy that Georgia was 
having no difficulties securing gas supplies from Azerbaijan 
for the winter.  END SUMMARY. 
 
¶2. (U) On October 21, EnergyOff discussed Georgia's winter 
gas needs with BP Azerbaijan's Gas Marketing Manager Richard 
Ruddiman, and (separately) with SOCAR Marketing 
Vice-President Elshad Nassirov, SOCAR Presidential Advisor 
Murat Heydarov and SOCAR Head of Gas Operations Kamal 
Abbasov.  Additionally, on October 21 Poloff discussed energy 
issues with Georgian Embassy DCM Nikoloz Gugitidze. 
 
 
SOCAR - THE NUMBERS 
 
 
¶3. (C) Speaking about GOAJ gas supplies to Georgia, SOCAR 
Head of Gas Operations Abbasov pointed out that the two 
sources of Azerbaijan gas for Georgia are 1) the Shah Deniz 
Consortium; 2) SOCAR (i.e. non-Shah Deniz) gas. 
Additionally, Georgia receives gas from Russia/Gazprom as in 
kind payment for transit services.  Using a million cubic 
meters per day (mcm/d) as a unit of measurement, he said that: 
 
 
GEORGIAN WINTER GAS DEMAND: 7 MCM/D 
 
 
7 mcm/d = Georgian winter gas demand 
 
 
GEORGIAN WINTER GAS CURRENT SUPPLY: 3.7 MCM/D 
 
 
1.2 mcm/d =  Shah Deniz (SD) gas to be provided to Georgia in 
the winter months, up from the current level of 0.6 mcm/d 
 
2.5 mcm/d = SOCAR (non-SD) gas SOCAR intends to sell to 
Georgia during the winter months, up from the current amount 
of  1.4 mcm/d 
 
1 mcm/d = "transit gas" Gazprom will give to Georgia for 
transiting gas to Armenia 
 
3.7 mcm/d = total Azerbaijan gas to Georgia currently 
expected for the winter, plus 'transit gas' 
 
Abbasov said that Georgia was seeking 4 mcm/d of Azerbaijan 
(non-SD) gas for October, 6 mcm/d for November, and 6.7 mcm/d 
for December. 
 
 
'THEY CAN BUY FROM RUSSIA' 
 
 
¶4. (C) SOCAR Marketing VP Nassirov agreed that given the 
above numbers, the total amount of Azerbaijan gas (both SD 
and non-SD) currently scheduled to be provided to Georgia for 
the winter months is 3.7 mcm/d, leaving a supply gap of 
approximately 2.3 mcm/a (after transit gas is added to the 
Georgian supply). 
 
 
BAKU 00001012  002 OF 003 
 
 
¶5. (C) To fill this gap, Nassirov said "Georgia can buy it 
from Russia."  Clarifying, he said that if necessary to 
prevent a humanitarian crisis, the GOAJ would provide Georgia 
as much gas as technically possible, an amount equal to 
approximately seven mcm/d of non-SD gas.  However, there was 
little doubt that Gazprom would sell gas to Georgia, 
providing Georgia were willing to pay the customary Gazprom 
price to Georgia of approximately USD 275 per thousand cubic 
meters (tcm).   Nassirov said that Georgian comments that 
Azerbaijan was "unwilling to provide it gas" were its attempt 
to politicize commercial gas negotiations between it and 
SOCAR, to negotiate a better price.  In this way, it could, 
as in previous winters, buy more relatively inexpensive 
Azerbaijani gas, given the Azerbaijan price of USD 250/tcm 
for Georgian commercial customers and USD 200/tcm for 
non-commercial customers. 
 
¶6. (C) EnergyOff pointed out that previously SOCAR President 
Abdullayev had said that Azerbaijan would meet all of 
Georgia's winter gas needs.  After reaffirming that the GOAJ 
would do so this winter if necessary, Nassirov added that 
"much had changed" since these statements was made, to 
include the fact that Azerbaijan has substantially less crude 
oil than expected due to ACG field's substantial production 
problems (NOTE:  current ACG oil production is now around 
540,000 bpd, down from a pre-incident peak of 900,000 bpd, 
and will not exceed 640,000 until and unless problems at the 
Central Azeri platform are solved).   Lower oil production 
means less Azerbaijani fuel oil (mazut), which it burns in 
its power plants in increased volumes when forced to provide 
Georgia with additional winter gas volumes.  Plummeting oil 
prices have similarly affected Azerbaijan's willingness to 
incur the substantial financial losses it does whenever it 
has to sell additional winter gas volumes to Georgia and 
burn, and not export for profit, increased amounts of its 
fuel oil.  While underscoring that Azerbaijan would always be 
the supplier of last resort for marginal winter gas amounts 
to Georgia, Nassirov strongly denied that there was any 
impending crisis - Georgia was simply trying to save money. 
 
¶7. (C) In an October 21 conversation, BP Azerbaijan Gas 
Marketing Manager Richard Ruddiman confirmed the above 
SOCAR-provided numbers, adding that: 
 
- Under the contract currently in force, from the Shah Deniz 
Consortium Georgia is entitled to an annual volume cap of 
approximately 0.4 bcm/a  and a daily maximum amount of 1.2 
million cubic meters per day (mcm/d). 
 
- Currently Georgia is asking for and receiving 0.65 mcm/d 
from the SD Consortium, less than the full daily maximum of 
1.2 mcm/d, as Georgia normally only asks for this full amount 
of 1.2 mcm/d for the winter months. 
 
¶8. (C) As for total Azerbaijan gas supplies, Ruddiman said 
that total Azerbaijani gas production is approximately 34 
mcm/d: 
 
8 mcm/d =  Shah Deniz Consortium gas provided to Azerbaijan 
 
8 mcm/d = ACG associated gas provided to Azerbaijan 
 
18 mcm/d =  SOCAR production 
 
¶9. (C) In an October 21 conversation with Poloff, Georgian 
Embassy DCM Nikoloz Gugitidze said Georgia was having no 
difficulties securing gas supplies from Azerbaijan for the 
winter. 
 
¶10. (C) COMMENT:  The differing accounts we hear in Baku and 
Tbilisi about the status of gas supplies from Azerbaijan to 
Georgia appear to be heavily influenced by commercial 
concerns on both sides.  Commercial negotiations between 
SOCAR and Georgia on winter gas amounts and prices is 
ongoing.  President Aliyev has repeatedly stated that he is 
fully aware of Georgia's strategic importance for Azerbaijan 
and that he is willing to do what is necessary to ensure that 
Georgia has sufficient winter gas.  Azerbaijan has proved as 
much by its actions in recent years, providing gas at very 
favorable prices to Georgia while absorbing substantial 
losses by burning mazut from oil Azerbaijan would have 
otherwise sold at high global prices.   However, Azerbaijan 
 
BAKU 00001012  003 OF 003 
 
 
is unwilling to take a major financial hit on Georgia's 
behalf unless absolutely necessary.   SOCAR, at least, feels 
that that point has not yet arrived.  The Russians will 
continue to pressure Azerbaijan, as they have in the past, 
about gas sales to Georgia.  For Azerbaijan to cede to such 
pressure would be a major shift in policy, and not one we 
anticipate based on all indications to date.  END COMMENT. 
DERSE