07MOSCOW2226, RUSSIAN ENERGY: CPC EXPANSION IN THE WORKS

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Reference ID Created Released Classification Origin
07MOSCOW2226 2007-05-14 13:59 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO4366
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2226 1341359
ZNY CCCCC ZZH
O 141359Z MAY 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0195
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 002226 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA 
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK 
DOE FOR HARBERT/EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR MCKIBBON AND KLECHEVSKI 
 
E.O. 12958: DECL: 05/14/2017 
TAGS: ECON ENRG EPET PREL RS
SUBJECT: RUSSIAN ENERGY: CPC EXPANSION IN THE WORKS 
 
 
Classified By: Econ M/C Pamela Quanrud. Reasons 1.4 (b/d). 
 
1. (C) Summary.  In a May 10 press conference in Astana, 
President Putin told the press that he considered the 
expansion of the Caspian Pipeline Consortium (CPC) 
"possible," while President Nazarbayev said that additional 
oil shipments through CPC (the capacity of which would rise 
by 17 million tons annually) could be delivered through the 
proposed Burgas-Alexandropolous (B-A) by-pass. Ian MacDonald, 
head of Chevron's operations in Russia, told us May 14 that 
Chevron welcomed the presidents' remarks, even though the 17 
million ton added capacity is only half the long planned 35 
million ton expansion.  While not yet a done deal, this 
signal from the presidents on partial CPC expansion is 
welcome news.  End summary. 
. 
2. (SBU) President Putin met with his Kazakh counterpart 
Nazarbayev in Astana May 10 and discussed CPC expansion as 
part of a wider dialogue on Russia-Kazakhstan economic 
cooperation.  Their comments during the joint press 
conference could represent a major breakthrough in stalled 
CPC expansion plans. 
 
3. (SBU) Chevron's MacDonald tells us the proposed 17 million 
ton ramp-up is generally consistent with the early phase of 
its long-planned expansion, and can be added by building more 
tank storage and adding a few pump stations.  Chevron 
believes, and statements by Putin and Nazarbayev reflect, 
that the GOR has inextricably tied CPC expansion to the 
construction of the B-A by-pass.  Chevron admits that partial 
expansion is not yet a done deal, however, as it still needs 
to negotiate terms with Transneft (which takes control of the 
GOR's 24 percent equity in CPC in June and is also 
coordinating the B-A pipeline), and some western CPC 
shareholders may want to discuss further the proposed size of 
expansion. 
. 
4. (C) Transneft and Rosneft contacts told us May 14 that no 
official decision on CPC expansion has been made and it is 
still too early to talk about concrete decisions.  Chevron 
believes that Transneft's response may be a negotiating ploy 
or a means to buy time while it secures the GOR stake in CPC 
and maneuvers its own people into CPC leadership positions. 
. 
5. (C) Comment:  Partial expansion, though not a done deal, 
would clearly be good news.  Coming on the heels of a happy 
outcome of CPC's tax case (the higher court recently 
overturned two lower courts' rulings in favor of tax 
prosecutors), expansion would go some ways towards making CPC 
profitable, moving more Kazakhstani oil to global markets, 
and making the B-A bypass viable. 
 
6. (C) Comment continued: But why 17 million tons?  Chevron 
suspects that this volume was chosen because it is equivalent 
to about half the capacity slated for B-A and equivalent to 
the non-Russian volume foreseen for B-A.  That Russia 
probably intends to use some Kazakhstani oil to fill the 
early stages of its East Siberia-Pacific Ocean (ESPO) 
pipeline may also stand behind Russian reticence to commit to 
the total CPC expansion package.  Next steps are likely to be 
negotiations about expansion with Transneft, internal CPC 
negotiations among shareholders, and Chevron's talks with 
Bulgaria, Greece, and Russia about committing to B-A. 
BURNS

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