Gazprom's Turkmenistan Contract Secure

UNCLAS SECTION 01 OF 02 ASHGABAT 000055

SIPDIS

STATE FOR SCA/CEN (PERRY)

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EPET ECON ENRG ETRD PREL PGOV RU TX
SUBJECT: Gazprom's Turkmenistan Contract Secure

Ref: A) 05 Ashgabat 673
B) 05 Ashgabat 905

Summary
--------------


1. (SBU) A December 12 visit to Turkmenistan by Gazprom Board
Member Valeriy Golubev, a December 21 conversation with the local
Gazprom representative, and statements by Turkmenistan's Acting
President Gurbanguly Berdimuhammedov and Russian President Vladimir
Putin after Niyazov's death, confirm that Gazprom's forseeable
future here remains secure. Questions persist regarding
Turkmenistan's ability to deliver contracted volumes of gas to
Gazprom through the existing pipeline network, but the sitting
Government of Turkmenistan is publicly stressing that Niyazov's
business contracts and arrangements in the oil and gas sectors will
continue unaffected. End Summary.

December Gazprom Visit a Courtesy Call
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2. (SBU) On December 21, 2006, Poloff met with the Deputy Director
of Gazprom's Representative Office in Ashgabat, Sergey Toropin.
Gazprom did not cancel the meeting despite the public announcement
that morning of President Niyazov's death. This was Post's second
meeting with Gazprom, the first having occurred on June 23, 2006
(ref A). Toropin confirmed that the main objective of the December
12 visit by Gazprom Board Member Valeriy Golubev was to present
Golubev to Niyazov as the new person responsible for the Central
Asian region. Golubev also came to congratulate the president on
Neutrality Day. The parties did not discuss any changes to their
existing contract, signed in September 2006, whereby Turkmenistan
was to supply Russia a total of 162 billion cubic meters (bcm) of
gas in calendar years 2006-2009.

Volume - Likely; Capacity - Maybe
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3. (SBU) Gazprom is confident both that Turkmenistan can produce
the contractually agreed-upon volume of gas and that the company can
physically receive and transport it through Russia's gas network.
However, Toropin admitted, Turkmenistan's own gas transportation
network was in "uncertain" shape. No national survey had been
conducted to assess its current condition. During Golubev's meeting
with Niyazov, the two parties discussed the possibility of
rehabilitating the existing network and constructing, where
necessary, new connections in Turkmenistan.


4. (SBU) Toropin was cautious when describing the capability of
Turkmenistan's experts to conduct the necessary assessment. He
simply said that this was a demanding workload that needed to be
completed within a short time. Toropin noted that Gazprom was ready
to consider assisting with the assessment, should Turkmenistan's
authorities request it. Gazprom already had relevant agreements
with Uzbekistan and Kazakhstan for gas transshipment through those
countries' portions of the lines.


5. (SBU) With regard to Turkmenistan's specific sources, i.e.,
individual fields, of gas supplied to Russia, Toropin said Gazprom
was not focusing on the issue. It was more important for the
company to verify the overall volume of gas reaching the transfer
points. However, to Gazprom's knowledge, several fields fed gas
through the Central Asia-Center (CAC) mains (CAC-3 and CAC-4). The
CAC-3, along the Caspian Sea, was in poor condition, according to
Toropin. (Note: Burren Energy previously also reported this fact.
Ref B. End Note). In light of recent discoveries of significant
offshore gas reserves by Petronas and other companies, Niyazov had
seemed keen on construction of a new transit route; he proposed a
joint exploration of offshore fields to Gazprom, just as he had done
to the visiting German Foreign Minister a few weeks earlier.


6. (SBU) Toropin called the Dovletabad field audit results a
"commercial issue" for Turkmenistan, but said that Gazprom had a

ASHGABAT 00000055 002 OF 002


rough idea of reserves from the Soviet times, and that the announced
Southern Yoloten reserves of 7 tcm sounded realistic. But, he
added, these were not recoverable reserves, and all geological
layers had not been studied. Gazprom's understanding was that most
reserves lay at the lower depths, which would add to the cost of
production. (NOTE: During his June 23 meeting with us, Toropin had
said that any long-term cooperation in Turkmenistan should be based
on an independent audit of gas reserves of Turkmenistan, not on the
"very optimistic estimates of Turkmen geologists" (ref A). End
Note.)

Global Perspective with Message to Russia
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7. (SBU) Embassy notes that, during the joint press conference
given by Russian President Putin and Ukrainian President Yushchenko
in KYIV on December 22, the question was asked whether Russia would
be ready to deliver additional Russian-origin gas to Ukraine in the
event that Niyazov's death led to delivery problems with
Turkmenistan-supplied gas. Answering, Putin, for the first time
that of which post is aware, referred to Gazprom's agreements with
Turkmenistan as "agreements about delivering gas to Ukraine." Putin
also noted that the price of $135 to Ukraine, "is not Russia's
price, this is Turkmenistan's price. Turkmenistan sold all its gas
to Russia for $100 per 1000 cubic meters. The cost of transport
added to the overhead expenses results in the price you [Yushchenko]
mentioned."

8. (SBU) Turkmenistan's state-controlled Watan TV news broadcast
acting President Gurbanguly Berdimuhammedov on December 22 saying,
"These days certain mass media publish false information to harm
Turkmenistan's good relations with its partners in the oil and gas
sector." Berdimuhammedov said Turkmenistan "is confident in the
path chosen by Saparmurat Niyazov the Great and will rigorously meet
the commitments he made." Berdimuhammedov then was shown addressing
his audience, strikingly, in Russian -- vice his usual Turkmen --
"Let the foreign consumers of our oil and gas not worry.
Turkmenistan will strictly follow its commitments, and no events can
affect our supply. Tight control is established in this regard by
the government. A stable and peaceful situation is maintained in
Turkmenistan, and all government agencies function efficiently.
Turkmenistan upholds the reputation of a trustworthy and
business-like partner and is open to all interested to invest. We
will see to that."

Comment
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9. (SBU) Gazprom has every reason to expect its business position
in Turkmenistan's gas sector to remain unchanged. For the
Government of Turkmenistan, in turn, stability of its relationship
with Gazprom will be an integral part of confirming its own
authority and legitimacy. Any misstep or clash in this sphere would
invite disaster for a post-Niyazov administration. Hence, the
instant public reassurances from Berdimuhammedov and other senior
voices that the leadership succession will not mean any change in
business arrangements, i.e., the fact and the terms of the current
Gazprom deal. Gazprom's own quick gesture in kind was to send
Gazprom Chief Executive Officer Alexei Miller to Niyazov's December
24 funeral. End Comment.

BRUSH