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Identifier
Created
Classification
Origin
06ASHGABAT357
2006-04-05 13:30:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

NIYAZOV'S TRIP TO CHINA: TURKMENISTAN SIGNS DEAL

Tags:   ENRG  PREL  CH  TX 
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						C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000357 

SIPDIS

SIPDIS

DEPARTMENT FOR SCA (JGASTRICHT) AND EUR (MBRYZA)

E.O. 12958: DECL: 04/05/2016
TAGS: ENRG PREL CH TX
SUBJECT: NIYAZOV'S TRIP TO CHINA: TURKMENISTAN SIGNS DEAL
ON GAS WITH CHINA


Classified By: Amb. Tracy A. Jacobson for reasons 1.4 (b) and (d).

Summary
-------



1. (C) During Niyazov's visit to China, Turkmenistan and
China agreed to build a natural gas pipeline by 2009 between
the two countries, and for Turkmenistan to sell 30 billion
cubic meters of gas to China annually once it is completed.
The agreement includes joint exploration and development of
gas fields on the right bank of the Amu Darya River as part
of the product sharing agreement (PSA), the first time the
GOTX has agreed to a PSA in gas production. China is
responsible for financing the pipeline and negotiating the
pipeline route through neighboring countries; preliminary
discussions with Uzbekistan and Kazakhstan were not
conclusive. Such agreements are not always seen as binding by
the GOTX. The deal contains no solid pricing information;
the Chinese Ambassador told us previously Niyazov's current
high demands ($150/tcm) would preclude pipeline construction.
Given the lack of concrete financial arrangements, we could
expect the GOTX to say at some later date that the agreement
is a non-binding expression of intention, rather than a
commercial contract, should a better offer come along. End
Summary.

Niyazov Goes to China


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





2. (U) As part of an official visit to China, President
Niyazov and Chinese officials signed an agreement on April 3
to build a pipeline transporting Turkmenistani gas to
Western China, according to press reports and poloff's
conversation with Chinese Embassy First Secretary Deng Hao.
The deal also calls for the joint exploration and development
of natural gas fields on the right bank of the Amu Darya
River and for Turkmenistan to sell China 30 billion cubic
meters of gas a year following completion of the pipeline in


2009.



3. (C) Deng told poloff on April 5 that Turkmenistan first
broached the idea of a Turkmenistan-China pipeline several
years ago. However, China was concerned about the quantity
of Turkmenistan's gas reserves and was reluctant to build a
pipeline. Deng said that joint development of Amu Darya gas
fields was the key to overcoming these concerns, and admitted
that China does not know if these fields are sufficient to
supply the yearly 30 billion cubic meters of gas. However,
the GOTX is committed to diverting gas from other fields to
make up any shortfall.

Uzbekistan and Kazakhstan Consulted


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





4. (C) Deng said that while China is optimistic about the
agreement, which he characterized as a "framework agreement,"
the Chinese government understood much work remained both
with the GOTX and countries along the proposed route. In
particular, the pipeline route must still be determined and
agreements worked out with the countries though which it will
run, i.e., Uzbekistan and Kazakhstan. Deng added that the
PRC had conducted preliminary discussions with Uzbekistan and
Kazakhstan. He said that he expected Uzbekistan to be a
particular problem because of its poor relationship with
Turkmenistan, and because of the current "instability" in
Tashkent.

Comment


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





5. (C) A pipeline to China would provide the GOTX with an
alternative to Russia for getting its natural gas to market;
and perhaps an alternative more palatable to Russia than a
Trans-Caspian (TCP) or Tran-Afghan pipeline (TAP). While the
GOTX is hailing the deal, it is noteworthy that the gas
eventually flowing through it may be the GOTX's only
contribution. In addition to being entirely responsible for
construction and financing, the Chinese also will negotiate

ASHGABAT 00000357 002 OF 002


the pipeline route with Turkmenistan's less-than-friendly
neighbors. Because the gas fields under consideration for a
Chinese pipeline are different than those being considered
for the TCP or TAP, a deal with China does not necessarily
close down prospect for either.



6. (C) As we have seen with other such deals (including one
on sales to Iran, approved by the President one month and
unilaterally abrogated the next) the GOTX sees these
agreements as expressions of political intent rather than
commercial contracts. We believe it unlikely that China will
commit serious resources to actual pipeline construction
without a clearer understanding of pricing potential and the
quality and quantity of Amu Darya gas. End Comment.
JACOBSON