US embassy cable - 04YEREVAN457

UNCLAS YEREVAN 000457 
 
SIPDIS 
 
DEPT FOR EUR/CACEN, INR 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, ENRG, EPET, AM 
SUBJECT: PIPE DREAMS: IRAN-ARMENIA GAS PIPELINE DOESN'T 
PENCIL OUT 
 
 
1. (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. 
PLEASE PROTECT ACCORDINGLY. 
 
------- 
SUMMARY 
------- 
 
2. (SBU) Armenian officials have again proposed a gas 
pipeline from Iran to Armenia as a way to alleviate 
Armenia's concerns about the future diversity of energy 
sources.  According to the Armenian Minister of Energy, 
speaking at a February 10th meeting, Armenia may at 
some point sign an agreement with the Iranian Oil and 
Gas Minister to purchase one billion cubic meters of 
gas two years from now.  Other key factors, however, 
including the price of gas and the size of the 
pipeline, do not figure into the proposed deal, 
indicating that there is significantly less to the 
agreement than it appears and that the pipeline is 
still more a farfetched desire of the government than a 
realizable goal.  End Summary. 
 
--------------------------------------------- ---- 
HOPE DIES LAST:  A PIPELINE IS STILL BAD BUSINESS 
--------------------------------------------- ---- 
 
3. (SBU) Armenia has long seen a potential gas pipeline 
from Iran as way to guarantee their energy supply after 
the inevitable nuclear power plant (ANPP).   (Note:  A 
gas pipeline through Georgia currently provides fuel to 
all of Armenia's thermal power plants, generating 45 
percent of Armenia's electricity, 85 percent of all non- 
nuclear energy.  End Note.)  But after ten years of 
discussions the pipeline project is going nowhere: 
Armenia's demand for gas from Iran is not, in itself, 
strong enough to justify the expense of building a 
pipeline.  A pipeline only makes sense if the donor 
community would pay for it (perhaps in exchange for 
closing ANPP), or if the price of gas from Russia were 
to rise to such levels that a pipeline would become 
competitive for private investment. 
 
---------------------------------------- 
UNCERTAINTIES CAST DOUBT ON A QUICK DEAL 
---------------------------------------- 
 
4. (SBU) Although the Iranian Oil and Gas Minister is 
planning to visit Armenia to consider an agreement on 
the purchase of gas in the future, the uncertainty of 
terms suggests that the Armenians do not have a 
workable plan.  Most importantly, the price of the gas 
remains unspecified.  Besides casting a shadow on the 
validity of the deal, it casts too much doubt on the 
financial feasibility to justify the large capital 
outlay (USD 120 million) to build the pipeline.  When 
discussing the pipeline at the recent EU-Armenia 
Metzamor Working Group (septel), the Minister of Energy 
expounded on two other possibilities for the pipeline: 
a larger-diameter 550 km-long pipe up to Georgian 
border with a yearly capacity of 4.5 billion cubic 
meters, or another pipeline from Yerevan to Eastern 
Turkey.  Because each these plans would require very 
different pipelines, in terms of diameter and through- 
put, and the financial terms would vary widely in each 
scenario, it is clear that those who are proposing the 
pipeline are still very much in the ideas stage and are 
not yet ready to commit resources to the project.  When 
we spoke February 23 with Deputy Minister of Energy 
Areg Galstyan, in charge of development of the Armenian 
Energy Sector, he commented that he was not familiar 
with the details about the proposed pipeline project. 
 
---------------------------- 
Comments:  Exploring Options 
---------------------------- 
 
5. (SBU) Anticipating the inevitable closure of ANPP, 
Armenia expects to pursue some strategy that reduces 
its reliance on the gas pipeline through Georgia. 
While an Iran-Armenia pipeline would be more expensive 
than buying Russian gas, it may well be the cheapest 
among Armenia's other options.  But as long as the GOAM 
is unwilling to pass the extra costs of diverse 
sourcing on to consumers, and no international donors 
are forthcoming, there is little or no possibility of 
an Armenian-Iranian gas pipeline project getting off 
the ground. 
ORDWAY