08ASTANA729, WITH IGA ON TRANS-CASPIAN OIL TRANSPORT RATIFIED,

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Reference ID Created Released Classification Origin
08ASTANA729 2008-04-15 08:31 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXRO7681
RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHTA #0729/01 1060831
ZNY CCCCC ZZH
R 150831Z APR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 2215
INFO RUCNCIS/CIS COLLECTIVE 0473
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2157
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000729 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN 
DOE FOR EKIMOFF 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 04/15/2018 
TAGS: PGOV PREL EPET KZ
SUBJECT: WITH IGA ON TRANS-CASPIAN OIL TRANSPORT RATIFIED, 
KAZAKHSTAN IMPATIENT WITH AZERBAIJAN, ALOOF OF IOCS 
 
REF: A. ASTANA 480 B. ASTANA 354 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4 (B) AND (D) 
 
1. (C) Summary: On March 26, Kazakhstan's Parliament ratified 
an intergovernmental agreement with Azerbaijan on 
trans-Caspian oil transportation.  According to the 
Kazakhstanis, Azerbaijan appears "not in a hurry" in 
trans-Caspian talks and, sensing Kazakhstan's 
vulnerabilities, is driving a hard bargain.  Kazakhstan may 
try to strengthen its position by shipping some oil from the 
Kazakhstan Caspian Transportation System (KCTS) to Russia and 
Iran, although shipments to Iran would be small. The 
Kazakhstanis continue to insist that they will build and 
finance the Eskene - Kurik pipeline on their own, to the 
concern of their international partners.  End Summary 
 
2. (C) On March 26, Kazakhstan's Parliament ratified an 
intergovernmental agreement (IGA) with Azerbaijan on 
trans-Caspian oil transportation.  Arman Darbayev, 
KazMunayGas Executive Director for Oil Transportation and 
Service Projects, told Poloff on March 27 that when he 
notified his Azeri counterparts of ratification, they seemed 
"disinterested."  Their reaction is not a surprise, said 
Darbayev, because the Azeris appear "not in a hurry" to 
develop trans-Caspian options.  "We are doing all the 
pushing."  Darbayev noted that Kazakhstan cannot even get the 
Azeris to travel to Astana; the last three meetings on 
transportation have all been held in Baku. 
 
3. (C) The Azeris are also taking a tough negotiating stance, 
according to Darbayev.  They are well-aware that Kazakhstan's 
need for additional export routes provides them a strong 
bargaining position.  Darbayev identified two immediate 
problems for the trans-Caspian project.  First, Kazakhstan 
and Azerbaijan are in a dispute over sole risk expansion. 
Kazakhstan wishes to establish provisions for sole risk 
expansion, but the Azerbaijanis will do so only with strict 
conditions.  The Azeris have also said that only project 
financing is acceptable, which the Kazakhstanis believe could 
cause delays of two to four years. 
 
4. (C) Darbayev confirmed that Kazakhstan will build the 
KCTS' Eskene - Kurik pipeline by itself.  He described the 
project as technically simple and relatively inexpensive 
($1.2 - 1.3 billion) (Note: The Kazakhstanis have indicated 
that they may dip into their oil fund to pay for the project. 
Minister of Energy Sauat Mynbayev told the Ambassador in 
February that the Kazakhstanis realize that they will need to 
offer stable tariffs and other guarantees with the pipeline. 
Reftel A). Darbayev also noted that KMG will soon register a 
new daughter company focused solely on assessing and 
developing trans-Caspian transportation options.  The outfit 
will have ten employees.  Kazakhstan had initially considered 
creating a joint venture with Azerbaijan, but has abandoned 
the idea because of concerns that Azerbaijan would not 
provide sufficient manpower. 
 
5. (C) Poloff asked Darbayev about his previous statement 
that the Eskene - Kurik pipeline might be a means to ship oil 
to points other than Azerbaijan.  Darbayev responded that 
Kazakhstan needs to show the Azerbaijanis that it has other 
options and will consider additional shipments to Iran and 
Russia.  He noted, however, that shipments to Iran would be 
small and that Kazakhstan has no interest in pipeline 
projects in Iran. 
 
6. (C) Darbayev also briefly discussed Kazakhstan's plans 
beyond Baku. The extent to which BTC's capacity will be 
expanded is uncertain, said Darbayev.  As a result, more 
shippers (Darbayev specifically identified Shell, Exxon, and 
Chevron) are clamoring for another route to Georgia, a "Baku 
- Supsa II."  While Darbayev believes that this plan has 
advantages, it also could create more conflict between 
Azerbaijan and Kazakhstan because of their competing 
terminals in Georgia (Kazakhstan's at Batumi, Azerbaijan's at 
Kulevi). Referring to President Yushchenko's recent trip to 
Kazakhstan, Darbayev said that Kazakhstan considers the 
Odessa - Brody pipeline unprofitable and is waiting to be 
shown a feasibility study proving otherwise. Many of 
Kazakhstan's problems could be solved, he admitted, with a 
trans-Caspian pipeline.  Political issues still exist, but 
"as soon as we have a chance we will build it," said 
Darbayev. 
 
ASTANA 00000729  002 OF 002 
 
 
 
7. (C) KMG Vice President for Oil and Gas Transportation 
Kabildin reaffirmed that Azerbaijan is "not rushing" on KCTS 
in a conversation with the Ambassador on April 3. Kabildin 
added that it is unfortunate that Baku-Supsa has been idle 
for a year and he hopes that it will be revived to accomodate 
Kazakhstani volumes in excess of BTC capacity. Kabildin also 
discussed a number of other transportation issues with
 the 
Ambassador. Kabildin expressed some optimism on CPC 
expansion, claiming that the Russians have moved beyond any 
political considerations and are prepared to look at 
expansion in commercial terms.  He noted that Transneft will 
have substantial excess capacity in the westward direction 
because of falling Russian oil production and the expansion 
of pipelines.  This, he believes, will strengthen the 
position of Kazakhstani shippers and could even support the 
reversal of Odessa-Brody.  Kabildin does not think Russia has 
the oil for Bourgas - Alexandropoulos and doubts the pipeline 
will be built.  He stated that Atyrau - Samara could be 
expanded in one year, and would be once Transneft needs 
Kazakhstani oil. 
 
8. (C) After the ratification, Poloff discussed the status of 
KCTS with several representatives from western oil companies 
.  Patty Graham, ExxonMobil's Kazakhstan Government and 
Public Affairs Representative, said that ExxonMobil has of 
late been consistently told that Kazakhstan will build and 
finance the Eskene - Kurik pipeline, and that "the door is 
totally shut" on negotiations. The decision on financing is 
particularly crucial, she said, because it eliminates 
possible leverage for the IOCs.  "All we can do", she said, 
"is engage on tariff and capacity agreements."  Pete Clark, 
Manager of Chevron's Strategic Planning Eurasia Business 
Unit, told Poloff that Azerbaijan is "playing hard to get" on 
KCTS.  Chevron, he said, would still like to participate as 
an equity partner in Eskene - Kurik. If the Kazakhstanis came 
looking for a loan from TenghizChevroil for the pipeline, "it 
would be hard to turn down." The real tricky part for Chevron 
will come when Kazakhstan asks it to commit volumes for KCTS. 
 Chevron then might have to make a choice at the expense of 
the CPC, said Clark. 
 
9. (C) Comment: Kazakhstani criticism of Azerbaijan's inertia 
is a bit rich, given that it took more than one year for 
Kazakhstan to ratify the IGA.  Nevertheless, the Kazakhstanis 
are now acting with an increased sense of urgency as they try 
to diversify their oil export options to meet increased 
production.  With CPC expansion still uncertain and other 
options less appealing, they are ready to show some 
flexibility in the face of tough demands from Azerbaijan. 
Given their apparent unshakable determination to build and 
finance the Eskene - Kurik pipeline by themselves, the 
Kazakhstanis also must reassure their Kashagan and Tenghiz 
partners that they will establish fair access conditions. End 
Comment 
ORDWAY

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