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

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