TURKMENISTAN/INTERNATIONAL ENERGY AGENCY:

UNCLAS SECTION 01 OF 03 ASHGABAT 001316

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN AND EEB; PLEASE PASS TO USTDA DAN SULLIVAN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: N/A
TAGS: PREL EPET PGOV TX IEA
SUBJECT: TURKMENISTAN/INTERNATIONAL ENERGY AGENCY:
RENEWING A LONG-DORMANT RELATIONSHIP



1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: During a November 28-30 visit to
Turkmenistan, the Deputy Executive Director of the
International Energy Agency (IEA) Ambassador William Ramsay,
found a country in the process of transition. Although there
were signs that leaders are becoming more accessible,
old-thinking -- including in the oil and gas sector -- and a
lack of confidence in dealing with large hydrocarbons
companies continue to constrain Turkmenistan's ability to
realize its potential. Ramsay said he raised a number of
tough issues, including both lack of statistical transparency
about existing reserves and the problems with finding
alternative gas export routes, during his meetings with
President Berdimuhamedov and the Executive Director of
Turkmenistan's State Agency for Hydrocarbon Resources, but
there is no indication as yet that those messages hit home.
END SUMMARY.


3. (U) The International Energy Agency (IEA) Deputy
Executive Director, Ambassador William Ramsay, and Adviser on
Caspian Affairs, Christof van Agt, told the Charge November
30 that their November 28-30 visit -- the first by an IEA
team since before former President Niyazov's death in
December 2006 -- was presenting "interesting contrasts" with
their previous visit. Now, Turkmenistan's officials are
talking more and seem more open and accessible, but there
remains a nostalgia for the old ways among Turkmenistan's
bureaucracy. IEA had come to Turkmenistan to see how the
hydrocarbon situation is evolving in the Caspian,
particularly with regard to development of more diversified
sources of gas, constraints on exports to (and through)
Russia and Iran, and whether diversification can offer more
competitive prices.

TURKMENISTAN'S OLD HABITS BAD FOR BUSINESS


3. (SBU) Noting that it is a good thing that U.S. and
European officials are more interested in Turkmenistan,
Ramsay said that, even as he finds much that is new in
Turkmenistan, rigidities still remain. Turkmenistan has done
some interesting studies that show some promising formations.
At the same time, the government remains unwilling to show
what is under the tent. If the country genuinely wants to
promote investment by foreign hydrocarbon companies, as its
president says publicly, it needs to show the statistics.
And, while hydrocarbon officials seemed locked into current
contract arrangements (production sharing agreements with
foreign companies, and not allowing foreign company
involvement in onshore drilling, with the exception of the
Burren Energy and China National Petroleum Company (CNPC)
PSAs),they clearly do not understand the full implications
of those arrangements. Although Burren is "okay," Ramsay
continued, Turkmenistan is likely to be hurt in its
arrangements with CNPC, because China does not play by the
rules. The only reason to go forward with Turkmenistan's
deal with China (for a pipeline, scheduled to open in 2009,
and a PSA region located on the right bank of the Amu Darya
river) is to make the point to Russia that Turkmenistan has
other options.


4. (SBU) Ramsay also commented that Turkmenistan's cash flow
situation also seems to have changed substantially from five
years ago. Five years ago, Turkmenistan was getting "beads
and wampum" for its gas, while it is now looking forward to
getting $150 per thousand cubic meters (tcm) of gas from
Gazprom by the second half of 2008. However, Ramsay added,
it is not clear that Turkmenistan is using that cash much
better than before. Later, Ramsay expressed concern that the
Central Asia-Center (CAC) pipeline, Turkmenistan's main gas
export route to Russia, has not been well maintained for a

ASHGABAT 00001316 002 OF 003


long time. Russia has no fallback if the CAC supply were cut
off because of a major rupture, and such an event would also
affect Russia's supply of gas to Europe.

TURKMEN OFFICIALS LACK CONFIDENCE IN DEALING WITH THE "BIG
GUYS"


5. (SBU) Ramsay noted that a number of large international
oil companies had expressed interest in doing business in
Turkmenistan. While the Government of Turkmenistan had
welcomed these companies' interest, however, Ramsay had the
sense that government officials felt intimidated by these
companies -- they would prefer to work with smaller firms,
such as Parker Drilling -- and would likely take their time
in making any decisions related to contracts with these
larger firms. In the meantime, he predicted, Turkmenistan
would look to national companies of countries where it has
some influence, in hopes of not getting in over its head.
And, while the "big guys" want to be onshore, Ramsay said, he
has the sense that they will be waiting for a while for the
government's agreement -- unless they can come up with a very
new way to structure their agreements, as the French company
Total had done elsewhere. That said, Turkmenistan has very
difficult-to-access deposits onshore that Turkmengas does not
have the technology to work. This means that the government
eventually will have to call on others to help it.

RAMSAY RAISES IRAN AND RUSSIA WITH PRESIDENT...


6. (SBU) IEA's meeting with President Berdimuhamedov was 50
minutes and "very cordial," according to Ramsay. The
president talked about the hydrocarbons markets in China and
Europe, and strategies -- such as a Trans-Caspian pipeline
(TCP) and Chinese pipeline -- for getting Turkmenistan's gas
to those markets. IEA also raised Iran's limited ability to
import much gas on anything other than a seasonal basis, and
Russia's stranglehold on Turkmenistan's gas. Ramsay said
that he described the Chinese pipeline as a "Declaration of
Independence" from Russia. Berdimuhamedov invited Ramsay to
return to Turkmenistan.

AND TRANSPARENCY WITH MURADOV


7. (SBU) By contrast, Ramsay found the Executive Director of
the State Agency for Management and Use of Hydrocarbon
Resources, Bayrammyrat Muradov, "crusty" and "Soviet in
style." According to Ramsay, Muradov asked why he should be
talking to the IEA if the organization had nothing concrete
to offer. Muradov's manner lightened up substantially after
Ramsay dropped a huge stack of IEA-generated information and
statistics on the table for Muradov to use after the group's
departure. With Muradov, Ramsay made the point that, if
Turkmenistan continues to sell its gas at the border, the
government needs to be more transparent about its reserves if
it really wants the outside world to invest in new pipelines,
such as a TCP. No company will want to commit the necessary
financial resources for a new pipeline unless it can be
certain that there are enough reserves to keep the pipeline
operating.

PIEBALGS A "STRAIGHT SHOOTER"


8. (SBU) Noting EU Commissioner for Energy Andris Piebalgs'
visit to Turkmenistan during the November 13-15 Turkmenistan
International Oil and Gas Exhibition (TIOGE),Ramsay said
that Europe has awakened to the need for an energy policy.
Inside the EU, however, there is no unity or harmony on this
issue. Ramsay also added that Piebalgs' visit was a good
sign because he is perhaps the most lucid of the EU energy
community. Although he shoots straight, he is not a
hardliner, possibly because of his Latvian background.

ASHGABAT 00001316 003 OF 003



INVESTMENT CLIMATE NEEDS IMPROVING


9. (SBU) Ramsay said he also made the point to both
Berdimuhamedov and Muradov that Turkmenistan needs to change
the investment climate for oil and gas companies to want to
come to Turkmenistan, but it also needs to change the climate
for investment in its electricity production. Many companies
want to work in the electricity production sector, but
Turkmenistan needs to produce a guaranteeable electricity
rate base for companies to be willing to make the investment.


10. (SBU) COMMENT: The president clearly was prepared to
listen to Ramsay, a representative of an international
organization that is viewed as an expert but impartial -- or,
at least, less partisan -- observer of international
hydrocarbon developments. While not all Ramsay's carefully
thought-out messages may have struck pay dirt this time
around, post sees merit in such visits, since they allow
others to reinforce messages that the United States itself
has been seeking to send, while gradually allowing
Turkmenistan to find a new role in the international
community.
CURRAN