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Identifier
Created
Classification
Origin
06ASHGABAT1150
2006-11-07 11:03:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ashgabat
Cable title:  

Turkmenistan's Ambitious 2007-2030 Oil and Gas Development

Tags:   PGOV  PHUM  ECON  PINR  EPET  TX 
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						UNCLAS SECTION 01 OF 03 ASHGABAT 001150 

SIPDIS

STATE FOR SCA/CEN (PERRY)

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV PHUM ECON PINR EPET TX
SUBJECT: Turkmenistan's Ambitious 2007-2030 Oil and Gas Development
Plan

Ref: A) Ashgabat 1142
B) Ashgabat 1106
C) Ashgabat 932

ASHGABAT 00001150 001.2 OF 003


Summary
-------



1. (SBU) For the first time, the Government of Turkmenistan has
approved an independent oil and gas development plan that is not
part of an overall economic development plan. The new plan, which
President Niyazov called for in July after several months of severe
criticism by the West of Turkmenistan's reliability as a gas
supplier, was rolled out during the October 25 session of
Turkmenistan's national Halk Maslahaty (People's Council) meeting
(Ref A). The plan claims huge reserves of hydrocarbons, and uses a
misleading new (and non-standard) measurement that allowed the
government to inflate the magnitude of those reserves, but it fails
to provide the sensible reserve figures and current production
information needed by potential investors and buyers. Clearly
another attempt to convince the public and international petroleum
market players that Turkmenistan has vast petroleum resources and
much future potential, the plan is nonetheless sure to disappoint.
Release of this plan also helps explain the Foreign Minister's
obsessive quest (four meetings with Charge in the last month) to
amend post's Investment Climate Statement on Turkmenistan
retroactively to "erase" the six successive annual mentions of the
Argentine oil giant Bridas' $2 billion law suit against Turkmenistan
(ref B). End Summary.

Two-hour Long Show


--------------------------





2. (SBU) The high point of the otherwise non-remarkable October
session of the Halk Maslahaty was the roll-out of Turkmenistan's new
2007-2030 Oil and Gas Development Plan. This plan, the result of
President Niyazov's July 10 announcement that Turkmenistan needed an
oil and gas development policy in order to "avoid rumors and
misunderstandings," was an effort by the president to drum up
interest among foreign buyers and investors in Turkmenistan's
hydrocarbons. Coming several weeks after failed gas price
negotiations with Russia and Ukraine, Niyazov said the new policy
would provide guidance for international and regional market
relations and intergovernmental affairs. After the September 5
price and supply increase deal with Gazprom (ref C), Turkmenistan
decided a national energy policy was not necessary and the result
was the national plan presented in October: heavy doses of lofty
ideas complemented by very little substantive detail.



3. (SBU) The presentations by Deputy Chairman for Oil and Gas
Gurbanmyrat Atayev and the government's top seven oil and gas
officials lasted for about two hours -- almost half of the entire
live broadcast of the body's "deliberations." (Comment: The Halk
Maslahaty is the highest "rubber stamp" legislative body in
Turkmenistan, and traditionally meets for one day every year. End

Comment.) Atayev's speech was inundated with estimates depicting a
rosy picture for Turkmenistan's energy exporting future: by 2030,
Turkmenistan would produce 250 billion cubic meters (bcm) of natural
gas and 110 million tons of oil per year. However, Atayev failed to
provide sensible reserve figures and the current production
information needed by potential investors and buyers. Subsequent
reports by other oil and gas officials were full of praise and
promises of loyalty to the president.

Reserves - Still a Question Mark


--------------------------





4. (SBU) In the national development plan, Turkmenistan claims it
has 45.4 trillion cubic meters (tcm) of fuel reserves, including
offshore reserves of 18.2 tcm. This marks the first time the
government has used this unorthodox measurement -- cubic meters of
fuel, rather than tons of oil equivalent. In the past, the
government publicly said that Turkmenistan's reserves were 45.4
billion tons of oil equivalent. (Comment: The use of cubic meters
of fuel, rather than tons of oil equivalent is a non-standard
methodology that inflates the magnitude of the final number from
billion to trillion, a possible deliberate effort to mislead or
impress non-experts. End Comment.) According to Atayev, the figure

ASHGABAT 00001150 002.2 OF 003


"takes into account the newest exploration activities, production
data and expert evaluation by foreign independent companies."

Gas Production and Export


--------------------------





5. (U) Turkmenistan's current commitments are 50 bcm a year to
Gazprom (2007-2009), 30 bcm to China (from 2009) and 14 bcm to Iran
(from 2008).



6. (SBU) In 2005, Turkmenistan produced 63 bcm of natural gas, of
which 45 bcm was exported, yet the new plan estimates that
production will increase almost two-fold to 120 bcm (100 bcm for
export) by 2010. In 2020, the production target is 175 bcm (140 bcm
for export) and in 2030, a whopping 250 bcm (200 bcm for export).
Atayev did not elaborate on how Turkmenistan planned to increase its
exports through the existing export pipeline network with a total
approximate capacity of 60 bcm a year. Turkmenistan will, he said,
build a pipeline to the north along the Caspian coastline.
(Comment: Turkmenistan is seeking financing for this new pipeline
from a variety of sources including the Malaysian oil company
Petronas, or either jointly or alternatively with German and Russian
financing. End Comment.) In 2010, the new pipeline's capacity is
expected to be 6 bcm per year, and by 2025, the projected capacity
is 30 bcm per year. Atayev mentioned that Turkmenistan will work on
the Trans-Afghan Pipeline (TAP) project, but he did not offer any
specific information.

Domestic Investment


--------------------------





7. (SBU) Atayev reported that most of the government's investment
will be in the gas sector. From 2009 - 2010, Turkmenistan plans to
invest around $5.5 billion in the Garabil-Gurrukbil group of fields,
adjacent to the Dovletebad field (annual production 4 bcm), South
Yoleten in Mary Welayat (initial investments) and Garajaowlak group
of fields in south central Turkmenistan (3 bcm a year). An
additional $12 billion is earmarked for South Yoleten and
Garajaowlak from 2010 - 2024, bringing the total production of the
two fields to 86.5 bcm a year.

Oil Production and Export


--------------------------





8. (U) Atayev was brief about oil development. In 2010,
Turkmenistan plans to produce 20 million tons (8 million tons for
export), in 2020, 50 million tons (30 million tons for export), in
2025, 80 million tons and in 2030, 110 million tons (80 million tons
for export).

Foreign Direct Investment


--------------------------





9. (U) Atayev stated that, to date, Product Sharing Agreement (PSA)
operators (Petronas, Burren Energy, Maersk/Wintershall Consortium,
Mitro(Panama)/Turkmennebit Consortium) have invested $1.34 million
in their local operations. By 2030, direct investments are
forecasted to increase to an estimated $56.8 million. Turkmenistan
expects that production under PSAs will total 527 million tons of
oil (including gas condensate) and 796 bcm of gas in 2007- 2030.
Turkmenistan's share will be around 60%.

Upstream


--------------------------





10. (SBU) The oil processing target will increase from 12 million
tons in 2010 to 30 million tons in 2030; two-thirds of the
production will be exported overseas. The two existing refineries
currently process about 7 million tons a year. The polypropylene
target is 210,000 tons a year by 2020 and 500,000 tons a year by


2030. Liquefied Natural Gas/Liquefied Petroleum Gas production is
expected to rise to 800,000 tons a year by 2030. By 2030,
Turkmenistan expects to produce around 3 million tons of liquefied
gas. However, Atayev failed to specify how many new facilities will
be built to support the industry and the estimated cost.

And that Annoying Investment Climate Statement...

ASHGABAT 00001150 003.7 OF 003




--------------------------

--



11. (SBU) Not un-coincidentally, leading up to the unveiling of this
plan, Foreign Minister Meredov has been leaning hard on Charge to
remove mention of the Government of Turkmenistan's dispute with the
Argentine oil giant Bridas from embassy's Investment Climate
Statement. Since 2001, the statement has carried mention both of
the court case pending in U.S. courts and allegations that the
government expropriated property from Bridas. This is the first
time the government ever has paid serious attention to any of the
embassy's regular reports including human rights and religious
freedom. (Note: Meredov complained to DCM about the 2004 human
rights report but never followed up on DCM's offer to review the
report and also to consult in general on the human rights report.
End Comment.)



12. (SBU) Embassy requested EB's guidance on retroactively amending
reports and reported to Meredov that there was no such procedure.
Instead, embassy offered to issue the 2007 report before the general
January submission date. Embassy is awaiting EB's guidance on this
possibility. According to information now provided by the Meredov,
in fact earlier reports were in error regarding the expropriation
issue and embassy is prepared to rephrase reference to the pending
court case so as not to prejudice the outcome. The rest of the
report, however, is unrelentingly negative about doing business in
Turkmenistan.

Comment


--------------------------





13. (SBU) Given its lack of new information and reliance of
obfuscating measurement units, this plan is sure to disappoint those
looking for a new reason to invest here. All agree that, in the
long run, Turkmenistan needs to lay out gas trade cooperation
principles and diversify its customer base. Lack of transparency at
any stage of the process will continue to hinder foreign investment,
resulting in continued reliance on one majority trading partner -- a
great risk in any business. Turkmenistan's failure to project the
credible image of a reliable and honest trading partner will
continue to limit its prospects for a broader and more prosperous
future. End Comment.

BRUSH