07TBILISI2498, PM NOGHAIDELI TALKS TOUGH ABOUT BP AND AZERI GAS

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Reference ID Created Released Classification Origin
07TBILISI2498 2007-10-05 09:37 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

VZCZCXRO7778
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #2498 2780937
ZNY CCCCC ZZH
R 050937Z OCT 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 7836
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L TBILISI 002498 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/CARC AND EEB/ESC/IEC 
 
E.O. 12958: DECL: 10/04/2017 
TAGS: ENRG EPET GG AJ RU AR
SUBJECT: PM NOGHAIDELI TALKS TOUGH ABOUT BP AND AZERI GAS 
 
 
Classified By: Ambassador John F. Tefft, reason 1.4(b) and (d). 
 
1. (C) On October 4, the Ambassador met with Georgian Prime 
Minister Noghaideli.  Noghaideli told the Ambassador that 
shortly before he went to Baku on September 27-28 for a 
meeting of the Georgian-Azerbaijani Economic Commission, he 
received word from the Azerbaijanis that there would be no 
chance of finalizing an agreement for supply of Azeri natural 
gas to Georgia over the winter.  The reason, Noghaideli said, 
was BP's decision to reduce gas supplied to Azerbaijan from 
the ACG field, leaving less gas available for Azeri and 
Georgian use.  Noghaideli said that BP's chairman is coming 
to Baku on October 19 to meet with the Azeri leadership on 
future development of oil and gas reserves in Azerbaijan.  He 
expects the negotiations to be difficult.  In fact, he 
believes that BP is "blackmailing" the Azeris by reducing ACG 
gas output, in order to gain an advantage in discussions of 
new PSA's for future oil and gas output.  Noghaideli said 
bluntly that if BP fails to negotiate in good faith with 
Azerbaijan and its behavior interferes with Georgia's ability 
to receive Azeri gas, Georgia will "create problems" for BP 
and its consortium in their use of the SCP and BTC pipelines 
and the rail route to Supsa.  (Comment: Noghaideli knows that 
Azerbaijan is committed to helping it through the coming 
winter to the extent it can.  His threat to make trouble for 
BP is clearly intended to bolster the negotiating position of 
his friends in Baku against BP.  The outcome of the October 
19 talks between BP and the Azeris will clarify whether any 
action by the USG is warranted.) 
 
2.  (C) Noghaideli said that Georgia has received no Azeri 
gas other than its allotment for transit through the SCP 
pipeline since September 1.  It is once again dependent on 
Russian gas to fill its needs completely.  He fears that 
Russia will use the situation to pressure Azerbaijan and 
Georgia for its own ends.  Depending on the weather and 
demand in Georgia, Noghaideli said that he expects Georgia to 
soon be able to obtain from 70 to 100 percent of its winter 
gas needs from Azerbaijan.  Realistically, he thinks 
Azerbaijan won't be able to deliver 100 percent this coming 
winter.  However, a new contract was signed with Russia in 
July, which will provide 200 million cubic meters from July 
2007 to August 2008 in return for transit of gas to Armenia 
from Russia.  He thinks Georgia can fill its eight million 
cm/day winter gas demand with five million cm from Azerbaijan 
and three million from Russia.  Noghaideli refused to 
disclose how much he expects Georgia to have to pay 
Azerbaijan for gas.  Unofficial estimates range from USD 140 
to USD 170.  Noghaideli said that the Azeris have spent USD 
15 million to increase the capacity of an existing pipeline 
(other than SCP) into Georgia. 
 
3.  (C) Noghaideli discussed Armenia's dealings with Iran on 
natural gas in response to a question by the Ambassador.  He 
said that the Armenia-Iran deal is structured as a swap of 
gas for electricity, that supplies one-third of Armenia's 
winter gas needs.  However, the exchange does not work well 
because Iran needs electricity in the summer rather than 
winter.  Armenia's remaining gas supply comes from Russia, 
and Noghaideli said that Armenia pays only USD 64 in cash per 
thousand cubic meters, with the rest of the  USD 110 price 
coming in barter and other complicated exchanges.  In any 
event, he said, there is no way Iran can undercut Russia's 
price, in some respects because its deal with Turkey commits 
it to offer no lower price for gas to Armenia than it offers 
to Turkey.  In the end, he said, the Iran-Armenia pipeline is 
intended to insure against a cutoff of gas to Georgia by 
Russia that would stop the flow of Russian gas to Armenia. 
 
 
 
 
TEFFT

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