TURKMENISTAN'S GAS PROSPECTS

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000549 SIPDIS SIPDIS SCA/CEN PERRY E.O. 12958: DECL: 06/01/2017 TAGS: ENRG EPET PREL SOCI TX US SUBJECT: TURKMENISTAN'S GAS PROSPECTS REF: 06 ASHGABAT 1150 Classified By: Charge d' Affaires Jennifer L. Brush for reasons 1.4 (b) and (d). Summary -------------- ¶1. (C) Deputy Chairman for Oil and Gas Tachberdi Tagyev was clear during his March 31 meeting with Principle Deputy Assistant Secretary for South and Central Asian Affairs, accompanied by senior-level representatives from four USG agencies, that his task in President Berdimuhammedov's administration was "to increase production of the Caspian." He also acknowledged that oil and gas revenues financed Turkmenistan and was a top priority for the government. Tagyev said that it was, "clear to us that we needed to attract investment," but then pursued a dialogue that evaded any substantial data, request or admission into meeting that objective, aside from reciting a list of foreign companies currently working in Turkmenistan. Of benefit to the USG was his realistic estimate of gas reserves in the South Yoloten field. Tagyev said that current data showed more than one trillion cubic meters (tcm),and he added that the Government of Turkmenistan thinks there is the potential for much more. End Summary. Tagyev Recites the Lofty 2030 Plan -------------- ¶2. (SBU) Mann, Regional Director for Europe and Eurasia at the U.S. Trade and Development Agency Dan Stein, Executive Director for the European Bank for Reconstruction and Development Mark Sullivan, Director of the Office of Russian and Eurasian Affairs at the Department of Energy Lana Ekimoff and senior oil and gas analyst Bud Coote met with Tagyev late on March 31, following their septel meetings with President Berdimuhammedov and Deputy Chairman for Foreign Affairs Meredov. Tagyev, respected by local oil and gas expatriates for his technical expertise in the oil sector - primarily in western Turkmenistan - repeated much of what he shared with Mann in March, which was low on substance. Mann opened the meeting by emphasizing the USG's interest in supporting Turkmenistan's priorities for developing the oil and gas sector through broadening the two governments' cooperative relationship. Tagyev responded by saying the Government of Turkmenistan already had a "good plan" for developing the hydrocarbon resource sector and pointed to Turkmenistan's ambitious (and vague) Oil and Gas Development Plan (2007-2030) rolled out last November during the National People's Council meeting (reftel). ¶3. (SBU) Tagyev used the current annual production figures: 10 million tons of oil and 80 billion cubic meters (bcm) of gas as a baseline for establishing the 2030 goal of 100 million tons of oil and 250 bcm of gas production. He noted the two existing gas export routes: 50 bcm to Russia and 8 bcm to Iran, but said the 2030 program includes diversifying export routes through Afghanistan, to China and through the Caspian Sea. Need to Attract Foreign Direct Investment -------------- ¶4. (SBU) In response to a call for increased foreign investment in the hydrocarbon sector, Tagyev noted that current onshore upstream production was a domestic concern supported by international service companies for seismology, drilling, equipment overhaul, construction and production intensification. He added that in regard to Caspian Sea offshore production, the "door is wide open" to foreign investors. He said that there was a flood of companies showing interest in Caspian Sea development and that he had met with Shell, Total, Chevron, British Petroleum, Lukoil and ConocoPhillips. Tagyev said there was over 6 tcm of gas and 12 bcm of oil in the Caspian, and noted that some companies ASHGABAT 00000549 002 OF 003 had already submitted concrete proposals for specific blocks. As an example of success, Tagyev pointed out that Petronas would start production in 2010 with 5 bcm of gas in the first year followed by the production of 10 bcm annually after ¶2012. ¶5. (SBU) In turning to onshore production, Tagyev said bluntly that Turkmenistan sees a bigger potential for gas extraction and the need for foreign investment. However, Tagyev offered little when he responded to PDAS Mann's assertion that the USG was ready to support diversified export routes, including through the Caspian Sea and to China, that were profitable for both Turkmenistan and the private companies. Analyst Coote added a request for specific information on Turkmenistan's plans to improve internal expertise and upgrade equipment, particularly in high pressure drilling, and how the USG could best assist. Tagyev responded defensively by asserting that since independence Turkmenistan had paid much attention to drilling, production and equipment to always maintain international standards. He said that Turkmenistan renovated equipment, overhauled wells, purchased American drill bits and used blow-out preventors as specific examples. (Comment: He did not mention the 2006 blow-out in the South Yoloten field that was being drilled by a Chinese company using Chinese technology. In the end, it was a U.S. company that contained the blow-out using special equipment flown in from the United Arab Emirates. End Comment.) ¶6. (SBU) Continuing on the same trajectory, Tagyev did not acknowledge any deficiencies or make any requests for assistance. He noted that foreign companies working offshore bring their own equipment and that onshore production is supported by Haliburton, Parker Drilling, Schlumberger, Chinese companies and pressure control systems from Cooper Cameron. In the past, he added, equipment was gauged for drilling at 250 bar (1 bar equals 16 pounds per square inch), but now the drilling is going deeper and must withstand 1000 bar. He then recited the mantra that this equipment met "international standards." Gas Sales Formula -------------- ¶7. (SBU) Tagyev said that Turkmenistan understood how gas was sold to Europe and China, and was vague regarding Mann's suggestion that Turkmenistan could increase the country's economic autonomy with a stable gas pricing formula and not be forced to negotiate gas prices annually. Tagyev said that Turkmenistan "needs time to work out the details, but would naturally come to that (better gas prices)." In response to USTDA Sullivan's question about future Petronas gas sales, Tagyev said that "everything will be sold at the highest price. This is the national wealth of the people of Turkmenistan." He added that there will be an additional pipeline to Russia (littoral) and that there would be more pipelines in the future. ¶8. (SBU) Department of Energy Ekimoff extended an invitation to Tagyev to visit the United States. Ekimoff forwarded a list of activities for bilateral engagement with the ministry for consideration, including private sector visits and training. Tagyev was polite, but noncommittal. He said that either "we" can go or "we" will send an apology. He concurrently acknowledged the benefits of international experience. ¶9. (SBU) Mann closed the meeting on a positive note, but said that Turkmenistan must improve the investment climate through simplifying the bureaucracy, starting with the onerous visa issuance process. Mann's second point was the need to certify the international school to attract Tier 1 petroleum companies to come with their families. Comment -------------- ASHGABAT 00000549 003 OF 003 ¶10. (C) Although Tagyev noted the need for increased foreign direct investment (FDI),he avoided ever actually discussing the details of how Turkmenistan could attract investors. His comments were repetitious and vacuous, and left the impression that he lacked a general understanding of international business. Tagyev's narrow focus in the industry might benefit development of the Caspian, but there was no evidence that Turkmenistan has a concrete plan for development of the sector in general. End Comment. ¶11. (U) PDAS Mann has cleared this cable. BRUSH