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Cablegate: Azerbaijan Scales Back Production, Looks For

VZCZCXYZ0000
PP RUEHWEB

DE RUEHKB #0761/01 2250443
ZNY CCCCC ZZH
P 120443Z AUG 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 5817
INFO RUCNCIS/CIS COLLECTIVE
RUEKDIA/DIA WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAIIA/CIA WASHINGTON DC

C O N F I D E N T I A L BAKU 000761

SIPDIS

DOE FOR INTERNATIONAL/LANA EKIMOFF

E.O. 12958: DECL: 08/10/2018
TAGS: PREL PGOV ENRG AJ GG TU
SUBJECT: AZERBAIJAN SCALES BACK PRODUCTION, LOOKS FOR
ALTERNATE OIL EXPORT ROUTES

Classified...

C O N F I D E N T I A L BAKU 000761 SIPDIS DOE FOR INTERNATIONAL/LANA EKIMOFF E.O. 12958: DECL: 08/10/2018 TAGS: PREL PGOV ENRG AJ GG TU

SUBJECT: AZERBAIJAN SCALES BACK PRODUCTION, LOOKS FOR ALTERNATE OIL EXPORT ROUTES

Classified By: Acting DCM Rob Garverick, Reasons 1.4 (b) (d) 1. (C) Summary: BP and SOCAR acknowledged sharp declines in offshore oil and gas production at the ACG and Shah Deniz fields. BP Azerbaijan expects BTC repair work in Turkey to begin as soon as tomorrow, but cannot yet estimate how long repairs might take. AIOC consortium is weighing options for alternative export routes, but Russia-Georgia conflict is making matters difficult. Baku-Supsa is operating at reduced capacity; some AIOC oil has been rerouted to Novorossiysk. Exports via Iran (swaps) are unlikely. Shah Deniz natural gas is currently unavailable for Georgia; SOCAR may supply Georgia with other gas, depending on storage needs and demand. End Summary BP Unsure of Extent of Damage to BTC ------------------------------------ 2. (SBU) In a conversation on August 11, British Petroleum's Security Manager for Azerbaijan Eldar Nurizade told the Embassy that the fire caused by the explosion last week on the Baku-Tbilisi-Ceyhan pipeline in a remote area of Turkey is still not fully extinguished, although the fire is greatly diminished. Nurizade expressed his confidence that the fire would die out in the next 24 hours. (Note: Press as of August 11 18:00 Baku time is reporting that the fire is completely out). He reported that once the fire is extinguished and the area has time to cool, teams of experts, led by Turkey's Botas, could begin examining the damaged area to determine the cause of the fire and the timeframe for repairing the pipeline. Nurizade told the Embassy that until the initial assessments from the experts come in, he is unable to provide any information on how long it will take to have the BTC pipeline fully functional. Conflict in Georgia Complicates Things -------------------------------------- 3. (SBU) Switching his attention to the conflict in Georgia, Nurizade told the Embassy that approximately 45,000 barrels per day (bpd) are now moving through the recently refurbished Baku-Supsa pipeline, carrying AIOC (consortium) oil from Azerbaijan's ACG field to the Georgian Black Sea Coast. BP, which acts as the operator for this pipeline, has moved into its highest level of alert in Georgia, but it has not evacuated its employees there. Nurizade confirmed that tankers are remaining in "neutral waters" near the port of Supsa. Referring to reports of a Russian naval blockade of Georgia, he said that there are enough tankers near the port to hold up to eight days of pipeline throughput and expressed confidence that within that period ankers would be free cross the Black Sea. SOCAR Less Optimistic --------------------- 4. (C) Murat Heydarov, who serves as Advisor to the President at the State Oil Company of Azerbaijan (SOCAR), sounded more somber in his separate assessment of the situation. Heydarov said that ACG production fell today to 125,000 barrels per day; production had peaked before the BTC fire and Russia-Georgia conflict at nearly 900,000 barrels per day. Embassy received reports last week that production, because of export constraints, had been rolled back to 300,000 b/d and then 200,000 b/d. Heydarov confirmed that Baku-Supsa is taking 45,000 b/d and noted that some AIOC oil (up to 80,000 b/d) had been rerouted to Novorossiysk. That option, however, is limited, Heydarov explained, because SOCAR is also using that route for non-consortium oil exports, and "technical limitations" within Russia put further restraints on additional volumes. Iran Maybe, Probably Not ------------------------ 5. (C) Heydarov said that rail exports via Georgia are limited to ExxonMobil at this point, and that the AIOC consortium did not have plans, perhaps for security reasons, to begin shipments of oil by rail to Batumi. Embassy officer asked if other routes, perhaps to the South, were being considered. Heydarov reluctantly reported that there had been some discussion of a swap deal with Iran, but nothing had been proposed. The arrangement would allow AIOC oil to be sent to the Iranian Caspian port of Niko; in turn, Iran would export oil from its South through the Gulf in Azerbaijan's name. Heydarov doubted that such a swap arrangement would b initiated, as volumes would be severely limited Shah Deniz Production Also Down ------------------------------- 6. (C) Heydarov said that Shah Deniz production had declined from 16-17 million cubic meters per day (mcm/d) to 10 mcm/d. (On an annual basis, these numbers would represent a decline from about 6 bcm to 3.65 bcm.) Shah Deniz gas exports, accordingly, are being shipped to Turkey in accordance with sales contracts. No Shah Deniz gas is currently available for Georgia. SOCAR produces other gas -- aside from Shah Deniz -- which could be sent to Georgia. Heydarov said, however, that Azerbaijan is keen to use that gas to fill storage ahead of winter. Heydarov does not expect a natural gas crisis to emerge near-term in Georgia, as demand is not great in summer and early fall. Comment ------- 7. (C) SOCAR seems to be more concerned about declines in oil and gas production than BP Azerbaijan at this moment. Losses for now appear be economic only, as investors are not reporting damages to the ACG or Shah Deniz fields. Conflicting stories about the cause of the BTC explosion/fire in Turkey and Russian attacks on the BTC pipeline in Georgia are adding to the uncertainty. Embassy understands that as long as BTC pipeline and Russia-Georgia conflict do not disrupt oil shipments over the long term, SOCAR, BP and other AIOC partners are not likely to pursue export contracts or swaps with Iran. LU

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