Identifier
Created
Classification
Origin
07ASHGABAT242
2007-02-28 13:12:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ashgabat
Cable title:  

PDAS MANN SCENESETTER: TURKMENISTAN'S POST-NIYAZOV OIL/GAS

Tags:  PGOV PREL SOCI EAID TX US 
pdf how-to read a cable
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UNCLAS SECTION 01 OF 04 ASHGABAT 000242 

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/CEN (PERRY),SCA/PPD, EUR/ACE

E.O. 12958: N/A
TAGS: PGOV PREL SOCI EAID TX US
SUBJECT: PDAS MANN SCENESETTER: TURKMENISTAN'S POST-NIYAZOV OIL/GAS
LANDSCAPE

REFS:
A) Ashgabat 230, B) Ashgabat 55, C) 06 Ashgabat 1150,
D) 06 Ashgabat 1142, E) 06 Ashgabat 1106,
F) 06 Ashgabat 932


SUMMARY
-------

UNCLAS SECTION 01 OF 04 ASHGABAT 000242

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/CEN (PERRY),SCA/PPD, EUR/ACE

E.O. 12958: N/A
TAGS: PGOV PREL SOCI EAID TX US
SUBJECT: PDAS MANN SCENESETTER: TURKMENISTAN'S POST-NIYAZOV OIL/GAS
LANDSCAPE

REFS:
A) Ashgabat 230, B) Ashgabat 55, C) 06 Ashgabat 1150,
D) 06 Ashgabat 1142, E) 06 Ashgabat 1106,
F) 06 Ashgabat 932


SUMMARY
--------------


1. (SBU) In marked contrast to Niyazov, President Berdimuhammedov
has no past or expertise in the hydrocarbon sector. His and his new
government's first concern has been not to introduce any instability
into the status quo, and they may initially be even more unready to
enact new directions than was Niyazov. That said, Meredov's
explicit encouragement of your visit must betoken the sense in at
least some quarters here that fresh approaches merit a look. Energy
Minister Dawudov and especially Oil/Gas Deputy Chair Tagyev are well
thought-of by foreign professionals, reappointed Oil/Gas Minister
Atayev less so. This cable outlines the parameters and subtopics of
Turkmenistan's gas/oil policy of most general relevance to your
discussions next Monday. Embassy is only now beginning to engage in
the electricity sector; our knowledge developed to date pertinent to
supply for Afghanistan will be sent septel. END SUMMARY.

Where Berdimuhammedov Starts: Niyazov's 2007-30 Plan
-------------- --------------


2. (SBU) Turkmenistan's "Oil and Gas Development Plan for the
Period 2007-2030" was unveiled to the People's Congress last October
by Oil/Gas Minister and then-Deputy PM Atayev. The Plan was
demanded by Niyazov in July 2006 after the failure of gas-sales
negotiations with both Russia and Ukraine, and drawn up before
September's signing of its 2006-2009 sales contract with GazProm.
It evidently aimed to fortify foreign confidence in Turkmenistan's
business-worthiness. Plainly declarative and not thought-through,
its bombastic claims and aims are unbacked by any sensible figures
for reserves, current production, or breakdown by subsector of
needed investment. Nonetheless, the 2007-2030 Plan continues so far
to be the stock policy reference point for the post-Niyazov
government, including in Berdimuhammedov's oil/gas sector
post-inauguration speech in Balkanabat.



3. (SBU) Using a misleading new measurement unit in place of the
standard previous "tons of oil equivalent," the Plan claims
Turkmenistan holds 45.3 trillion cubic meters of fuel reserves,
including offshore reserves of 18.2 tcm. It sets production targets
of:
-- 120 bcm of natural gas (of which 100 bcm for export) and 20
million tons of oil (8 million for export) for 2010;
-- 175 bcm (140 for export) and 50 million tons (30 for export) for
2020; and
-- 250 bcm (200 for export),as well as 110 million tons (80 million
for export) for 2030.


4. (U) Turkmenistan's existing pipeline export capacity is
estimated to be 60 bcm. In his October presentation, Atayev stated
without detail that the future increment would be exported by a new
Caspian-littoral pipeline, to carry 30 bcm by 2025. Even more
vaguely, he said Turkmenistan would also work towards a new
Trans-Afghan Pipeline.


5. (U) Other salient points of the 2007-2030 Plan:

-- Domestic investment is to be mostly in the gas sector. For
2009-2010, new investment is to total around $5.5 billion, in the
Garabil-Gurrukbil group of fields adjacent to Dovletebad field
(annual production 4 bcm),South Yolotan in Mary Welayat (initial
investments) and the Garajaowlak group of fields in south-central
Turkmenistan (3 bcm per year). A further $12 billion is earmarked
for South Yolotan and Garajaowlak in 2010-2024 so as to bring the
two fields' total production to 86.5 bcm per year.

-- FDI is projected to skyrocket. Current PSA Operators (Petronas,
Burren Energy, Maersk/Wintershall Consortium,
Mitro(Panama)/Turkmennebit consortium) have so far invested $1.34

ASHGABAT 00000242 002 OF 004


billion in local operations, according to government figures. By
2030, total FDI is meant to increase to $56.8 billion. Production
under PSAs is to total 527 million tons of oil (including gas
condensate) and 796 bcm of gas in 2007-2030. Turkmenistan's share
of this PSA production is to be about 60%.

-- Upstream: the oil-processing target is supposed to increase from
12 million tons in 2010 to 30 million in 2030, of which two-thirds
for export. Turkmenistan's two existing refineries currently
process about seven million tons a year. LNG/LPG output, 396,000
tons in 2005, is to rise to 800,000 tons a year by 2030. The Plan
makes no mention of how many new facilities will be built to support
the industry and at what cost.

Energy Contracts and Relations -- Global
--------------


6. (U) Turkmenistan's current gas-sale commitments are @50 bcm a
year to Gazprom (2007-2009),30 bcm per year to China (starting from
2009),and 7-8 bcm to Iran (14 bcm starting from 2008). Official
gas production in 2005 was 63 bcm, of which 45 bcm was exported. No
official figures for 2006 have yet been published, but there have
been no claims that the volume increased.


7. (U) Pipeline export capacity, which two decades ago was
reportedly some 90 bcm a year, is now widely suspected to have
declined to around 60 bcm, due to poor upkeep. This total breaks
down into an estimated 50 bcm to Gazprom's Russian pipeline network,
perhaps 8 bcm to Iran, and some 4 bcm to Kazakhstan. The CAC
(Central Asia-Center)-3 line along the Caspian is said to be in the
poorest condition. Built to handle 10 bcm a year, it reportedly now
can ship less than half that number. Especially in light of
significant new offshore discoveries by Petronas and others, Niyazov
was therefore keen on construction of a new, Caspian-littoral
transport route. Under Niyazov, Turkmenistan sought financing for
such a pipeline from a variety of sources, including Malaysian oil
company Petronas, or either jointly or alternatively with German and
Russian financing. No announcements to that effect have been made,
though.

Russia
--------------


8. (SBU) Berdimuhammedov constantly repeats the mantra that
Turkmenistan will uphold "all terms of our existing international
contracts." Russian PM Fradkov and GazProm CEO Miller in turn have
referred to Ashgabat's 25-year gas-sales agreement with Moscow.
Worth recalling is that the latter is just a framework agreement.
It mentions potential volumes, but not prices. For practical
purposes, Turkmenistan may view its obligations as extending no
further than the life of the specific contract with Gazprom signed
September 7, 2006 and applicable through calendar 2009, for a total
sale of 162 bcm at $100/tcm. Thereafter, the government is like to
deem the price negotiable. Niyazov's habit was to revisit existing
price arrangements yearly. A subtext of Berdimuhammedov's
utterances may be that he is committing not/not to do so through

2009.


9. (SBU) GazProm's Deputy Representative in Ashgabat told us
December 21 2006, that Gazprom was confident both that Turkmenistan
could produce the contractually agreed-upon volume of gas and that
Gazprom could physically receive and transport it through Russia's
own gas network. Transit arrangements had already been agreed with
both Uzbekistan and Kazakhstan, he said. However, Turkmenistan's
own gas transportation system was in "uncertain" shape. No national
survey had been conducted to assess its current condition. Our
contact said Gazprom would consider assisting with such an
assessment should Turkmenistan request it. He also mentioned that
Gazprom had a rough idea of Dovletebad reserves from Soviet data,
and judged the announced South Yoloten reserves of 7 tcm to be
realistic.


10. (SBU) Gazprom's CEO Miller met February 15 with top
Turkmenistan officials including Minister Atayev, Deputy Minister
Nuryev, and the then-head of Turkman Gas Concern. Little was

ASHGABAT 00000242 003 OF 004


published about the talks' content, but Gazprom's website openly
advertises, as part of the company's corporate strategy, its wish to
get involved in Turkmenistan's offshore productions. It also states
that Gazprom stands ready to help refurbish and develop the CAC
pipeline system.

Ukraine
--------------


10. (SBU) Unlike a year ago, the issue of direct Kyiv-Ashgabat
contracts and high-level negotiations on gas prices and supply does
not now exist. Ukraine buys its gas imports exclusively from its
subreputable RosUkrEnergo intermediary. Meanwhile, much
bureaucratic friction persists in Turkmenistan over costs and
payments of various Ukrainian construction projects -- the Amu Darya
bridge, underground construction in Ashgabat, etc -- that served as
barter-payment for Turkmen gas under previous arrangements. The two
sides have announced that payments for these projects will be
switched to a cash basis.

Azerbaijan
--------------


11. (SBU) Post notes recurrent reports out of Baku of Azerbaijani
officials declaring imminent upgrades to Azerbaijan/Turkmenistan
political relations. The local Azerbaijani Ambassador likewise told
DAS Feigenbaum in early-January that a head-of-state visit required
only a phone call to schedule. No step is more of a precondition
for a reviving TCP prospects, of course. From the Embassy Ashgabat
perspective, however, these hints are wishful thinking until proven
otherwise: this has been the status for several years, and neither
side is willing to initiate that call.

Iran
--------------


12. (U) Gas exports to Iran were 7 bcm in calendar 2006. In March
2006 Iran undertook to increase the price to $65 and to export up to
14 bcm a year from 2007. It is not known whether this deal is still
valid, given the hike in the price of Turkmenistan's gas for Russia
to $100. The Korpeje-Kurtkui (i.e. Turkmenistan-Iran) gas pipeline,
commissioned in 1997, has the installed capacity of 7 bcm/year.
There has been no evidence that upgrading has been carried out to
make the 14 bcm figure possible.

China
--------------


13. (SBU) China is a large but secretive presence on Turkmenistan's
gas scene. On the occasion of Niyazov's Beijing visit in April
2006, the two countries signed an agreement in Beijing for Chinese
construction of a gas pipeline through which China would start to
receive 30 bcm per year after 2009. Following President Niyazov's
November 2 statement about a major gas discovery in Southern
Yoloten, the Government of Turkmenistan announced November 20 that
the Chansi [transliterated from Turkmen] Oil Exploration
Administration, a subsidiary of Chinese National Petroleum Company
(CNPC) would drill 12 deep exploratory wells in the Southern Yoloten
field during the next three years. There has been no subsequent
news of any developments in this context, apart from a rumor that
the Chinese have already been displaced in Yolotan by the Turkish
Calyk Energi.

Top Questions/Issues to Raise
--------------


14. (SBU) Following are principal questions it would be useful to
ask directly in the course of your meetings here:

-- How pressing are gas-sector infrastructure constraints in light
of your Plan's ambitions to double production and exports by 2010
and again by 2020?

-- What is the projected cost of upkeep and additions to the
existing network? How reduced is the CAC-3 line's capacity now? Do

ASHGABAT 00000242 004 OF 004


you plan to ask for Gazprom's or other outside help in assessing
these factors?

-- Total domestic investment needs and plans for new refineries, new
field development, workovers over the next decade?

-- The 2007-2030 Plan includes increasing FDI over the next two
decades 50-fold, to 58 billion dollars, just in PSAs. What
commercial, legislative and other changes will your government
prepare to attract foreign investment?

-- Is Turkmenistan sure it will be able to provide China with the
contracted 30 bcm of gas a year after 2009?

-- Who makes the next step towards warmer relations w/ Azerbaijan?

BRUSH