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2005-04-12 11:59:00
US Office Almaty
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						C O N F I D E N T I A L  ALMATY 001434 



E.O. 12958: DECL: 04/06/2010


B. STATE 61018

Classified By: Ambassador John Ordway for reasons 1.4 (b) and (d).

1. (C) Summary: The Director of the Kazakhstani Institute of
Oil and Gas (KIOG), Serik Burkitbayev, reported that China is
demanding an offshore Caspian bloc as quid-pro-quo for
support of a natural gas pipeline to China. That pipeline, to
be built in stages, will initially transport Turkmen and
Uzbek gas, then Western Kazakhstani. KIOG is seeking the
services of a U.S. consulting company to develop the project.
Burkitbayev also voiced growing Kazakhstani displeasure with
China over the Atasu-Alanshankou oil pipeline. End Summary.

2. (C) Serik Burkitbayev, director of the Kazakhstani
Institute of Oil and Gas (KIOG), accompanied former National
Security Adviser Robert McFarlane, chairman of Energy and
Communications Solutions LLC, in an April 5 meeting with
Ambassador Ordway (See Paragraph 9 for Burkitbayev
Backgrounder). KIOG is part of Kazmunaigas (KMG), the
integrated state producer.

3. (C) McFarlane sought the meeting to discuss providing
consulting services to KIOG. He said he had been acquainted
with Burkitbayev for over ten years. McFarlane left the
meeting for Astana to meet with KMG Vice-President and
presidential son-in-law, Timur Kulibayev, among others. He
planned no meetings with officials from the Ministry of
Energy, to which KMG is subordinated. According to
Burkitbayev, "Kulibayev can handle everything."


Quid pro Off-shore Bloc


4. (C) Burkitbayev announced that China is demanding an
offshore Caspian bloc in exchange for supporting a
Kazakhstani proposal to build a natural gas pipeline to
China. He bluntly warned that, "No bloc, no gas pipeline." He
added that both sides want to announce the deal when the
Chinese president visits Astana in July on the occasion of
Nazarbayev's 65th birthday.

5. (C) Burkitbayev sketched out an initial route and a
disputed second stage. Initially, the Kazakhstanis will lay
500 km of pipe to link Almaty with the Chinese border town of
Khorgaz. That connection will provide about 5-7 bcm of Uzbek
and Turkmen gas through an already existing network. A
follow-on stage will bring Western Kazakhstani gas, either
north along side the Atasu-Alashankou oil pipe (Chinese plan)
or south via Shymkent (Kazakhstani preference).He stressed
the need to reduce energy dependence on Uzbekistan and
Turkmenistan by bringing Kazakhstani gas to energy hungry
southern Kazakhstan, where 50% of the population resides.
Pending resolution of political uncertainties in Bishkek,
about 70 km of pipe will be diverted out of Kyrgyzstan.
Ultimate capacity could reach 30 bcm by 2020, with 8-10 bcm

hoped for by 2008. The entire project could cost $3-4bn.

6. (C) Burkitbayev was optimistic, though unclear, where
volumes would be found. He said that that the Uzbeks and the
Turkmen were against supplying gas to China, though some
Lukoil fields in Uzbekistan may contribute. Major Kazakhstani
production has still not come on line; much of that, anyway,
such as Kashagan, will be reinjected. He ventured that many
offshore blocs in the Central Caspian were gas fields and
would serve as a possible source. (Comment: If straight gas,
they will not be developed without a pipeline. End Comment).


Chinese-Kazakhstani Hydrocarbon Friction?


7. (C) Burkitbayev griped that it was "difficult" to work
with the Chinese. Referring to the Atasu-Alashankou oil
pipeline, he added that, "the government is not happy, the
oil companies are not happy." He hinted that the GOK lost a
large degree of control when it agreed to let the Chinese
finance and fill the pipeline. He also said that other export
routes-CPC, BTC, and even the Russian pipeline system--might
have been better options financially: "It (Chinese oil
pipeline) is not a good deal for us."

8. (C) Comment: China has been on a hydrocarbon buying spree
in Kazakhstan. Nevertheless, it has only managed to acquire
small and medium size assets. It desperately wants a big oil
project after being thwarted in a 2003 bid to acquire 16.67%
of the mammoth Kashagan project. After coming up dry on
Kashagan, the Chinese will, most likely, not relent on their
quid-pro-quo demand for an off-shore bloc. Given Kazakhstani
preferences to work big off-shore blocs with a Western major,
that may result in delays for the gas pipeline. End Comment.


Burkitbayev Backgrounder


9. (C) Backgrounder: Burkitbayev is currently embroiled in a
commercial dispute with U.S. firm Byelocorp Scientific Inc.
(BSI) over control of defense conversion success-story
Byelkamit JV, JSC in Almaty (reftels). After agreeing to pay
BSI $5.5 million for their 65.5% stake in Byelkamit, which
was converted from a weapons manufacturer to a supplier of
high-end equipment for the oil and gas industry, the three
firms, acting on Burkitbayev's behalf, managed to gain
control of the shares without paying BSI the agreed price.
The Ambassador took the opportunity after the meeting to
alert McFarlane, in a private pull-aside, to the fact that
his prospective business partner was involved in a matter
that had the potential to become public soon, and negatively
reflect on Burkitbayev and KIOG.