TURKMENISTAN ENERGY: MYRADOV AVERS AMU DARYA BASIN

UNCLAS SECTION 01 OF 04 ASHGABAT 000728 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB, DRL E.O. 12958: N/A TAGS: PGOV PREL PHUM EPET EINV RS CH AZ TX SUBJECT: TURKMENISTAN ENERGY: MYRADOV AVERS AMU DARYA BASIN NOT CLOSED TO U.S. ENERGY FIRMS REF: A. ASHGABAT 0699 ¶B. ASHGABAT 0690 ¶C. ASHGABAT 0559 ¶D. ASHGABAT 0550 ¶E. ASHGABAT 0326 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: At an hour-long meeting on July 12 with Executive Director of Turkmenistan's State Agency for Management and Use of Hydrocarbon Resources Bayrammyrat Myradov, SCA Principal Deputy Secretary Steven R. Mann, EUR DAS Matt Bryza, and EEB Rob Garverick emphasized the benefits of the "Western model" for long-term hydrocarbon development, and the need to send a signal to the European market that Turkmenistan intends to become a trustworthy supplier of oil and gas. Mann advocated that Turkmenistan move to the next stage -- "serious talks with serious Western companies." Myradov repeatedly stated his State Agency is eager to talk with all companies about hydrocarbon exploration off-shore in Turkmenistan's area of the Caspian Sea. Myradov also stressed that proposals were being considered only on their economic merits, and not on a political basis. Citing commercial confidentiality for his refusal to provide details, he said his agency is reviewing proposals from many companies and countries. About a possible Trans-Caspian Pipeline, he added many questions remain to be answered before construction could begin. Most significant, Myradov averred -- contrary to what the delegation heard from Deputy Chairman for Gas and Oil Tagyev (REFTEL B) -- Turkmenistan will look seriously at concrete proposals from Western copanies seeking exploration rights in the Amu Darya Basin. END SUMMARY. ¶3. (SBU) Mann noted U.S. government support of the private sector, and emphasized that such cooperation had already led to success in the energy field. As in the meeting with Foreign Minister Meredov (REFTEL A),Mann said that to answer President Berdimuhamedov's question of "Where is my pipeline?", the U.S. must ask, "Where is the gas?" He asked for Myradov's views, assessments, and projections of new fields that would supply the pipeline. Myradov stated that he was eager to talk with any company about oil exploration in the Caspian Sea blocks -- including companies from Iran, if they offered the most compelling deal. "U.S. COMPANIES TOO SLOW" ¶4. (SBU) Pleased by the international competition for Turkmenistan's offshore reserves, Myradov acknowledged that U.S. companies know the Caspian Sea well and are interested in working in Turkmenistan. But discussions are not taking place exclusively with U.S. companies. He confirmed that the State Agency has held discussions with U.S. companies, but refused to share names or details to protect confidentiality. That said, American companies are not necessarily leaders in this competition, he noted, because "they have been too careful in discussions," and "don't respect time, taking too long to make decisions." ¶5. (SBU) Mann reminded Myradov the United States has been working closely with these companies for 10 years. He emphasized that to engage in the more profitable "Western model" of slow-but-steady investment and growth, it was essential for Turkmenistan's energy concerns to speak with major companies like Chevron, ConocoPhilips, ExxonMobil, and others. If Turkmenistan were to continue on its current course, it would be doomed to working with small companies that would ensure a quick revenue stream in the short term, but lower profits. For now, Turkmenistan needs to focus on the upstream. Mann encouraged Turkmenistan to engage ASHGABAT 00000728 002 OF 004 seriously with Western energy majors. ¶6. (SBU) Myradov repeated several times how his agency works, relative to interested parties: all companies are welcome to come and make proposals. He and his colleagues appreciated the materials that the delegation presented. After reviewing charts on the Norwegian model, he was especially interested in a study of the production sharing agreement (PSA) versus joint-venture approach. Mann offered to have such an analysis prepared in Washington and also recommended close consultations with the European market. SEND THE EUROPEAN MARKET A SIGNAL -- NOW ¶7. (SBU) Bryza noted that Gazprom supplies 25% of Europe's gas needs. Distributing maps indicating prices paid for gas based on origin, Bryza explained that Gazprom manages to continue this high level of supply to Europe by purchasing gas from Turkmenistan, but there is a big gap between the price Gazprom receives from the Europeans and the price it pays Turkmenistan. The result to Turkmenistan is a significant loss of profits. Bryza emphasized the United States wants to see Turkmenistan receive a fairer profit margin, and wants Turkmenistan and Europe to have the choices that alternate pipelines would give them. Building a large project like TPC right away is unnecessary, but a small project such as an extension linking Petronas' gas production in the Livanov field to the existing Shah Deniz system would send a strong message to the European energy market that Turkmenistan is serious about becoming a trade partner. Emphasizing that Azerbaijan's President Aliyev had initially wanted to focus on oil, rather than gas, Bryza noted Aliyev has since opted to emphasize gas because he sees a window of opportunity. With this in mind, Aliyev also sees new possibilities for cooperation with Turkmenistan, since pipelines will not have enough gas to supply Europe for the next 30 years without Turkmenistan's participation. Bryza concluded, "All wait for Turkmenistan to take the next step." ¶8. (SBU) Myradov pointed out that President Berdimuhamedov said in Turkmenbashy during the Berdimuhamedov-Putin-Nazarbayev Trilateral Summit in May that Turkmenistan was not ruling out the possibility of a TCP. "We're ready," he said. International experts claim the Caspian has huge hydrocarbon resources, and Turkmenistan wants to discuss seriously how to get those resources to Europe. When Bryza stated that the most realistic immediate possibility is sending gas from the Livanov field to Azerbaijan, Myradov said, "I cannot tell you entirely what was decided, but I can say that (the president's statement) was a good signal." However, he continued, Turkmenistan needs to see "realistic" proposals; gas flows from contracts. When Mann asked who has the right to sell the gas from Livanov, Myradov responded firmly it is the Government of Turkmenistan. Mann stressed again that now is the time to send a signal to European markets that there is a new source of gas. He noted Petronas had expressed interest in selling the Livanov gas through Azerbaijan. Sending the gas to Azerbaijan would allow Turkmenistan to enter the European market. PETRONAS IRKED AT SOCAR ¶9. (SBU) In a separate meeting, the Petronas representative in Turkmenistan complained he had gotten no answers from Azerbaijan on transit tariffs if Livanov gas is shipped westward. SOCAR did not keep its word. Petronas had booked the Istiqlal rig a year in advance, but when the moment arrived was told to wait another month, at significant cost to Petronas. ASHGABAT 00000728 003 OF 004 AMU DARYA BASIN NOT CLOSED TO THE WEST BY LAW ¶10. (SBU) Myradov stated that Turkmenistan is seriously considering steps to get gas to Europe, not only through Livanov, but also through other routes. (COMMENT: He may have been alluding to Turkey's recent agreement in principle to sell gas to Europe from Iran and Turkmenistan via Iran. See ANKARA 1809. END COMMENT.) This is a historical problem for Turkmenistan. Mann agreed that Turkmenistan has only one route for now -- Gazprom -- but urged Turkmenistan not to close off other options by signing a contract on the Caspian littoral pipeline. In addition, Mann also stressed, while Gazprom has been willing to accept Turkmenistan's "gas from the border" model, the same model would not work for a pipeline constructor who was investing billions of dollars into the pipeline, nor would a constructor want to have to renegotiate gas prices every few years, as Gazprom does. If Turkmenistan's offshore blocks primarily offer up oil and Turkmenistan wants to open up a new gas pipeline, then it would be necessary to open new fields in the Amu Darya basin. However, we had heard from Deputy Chairman for Gas and Oil Tagyev (REFTEL B) that the Amu Darya region is open only to China. We cannot understand why this would be so, Mann said. ¶11. (SBU) Myradov claimed the main issue is that no Western company has yet offered a sufficiently detailed and lucrative proposal. If Turkmenistan sees an offer in its favor, it will seriously consider, possibly accept, the offer. When Mann pushed him further, Myradov admitted Turkmenistan's 2030 hydrocarbons plan does not envision licensing foreign companies onshore, but, in fact, there is nothing in Turkmenistan's petroleum law that forbids such arrangements. The area is not currently open for licensing to foreign companies, but there is nothing to keep foreign firms from making detailed serious proposals that the government would consider seriously. Myradov added such a proposal would be handicapped, however, because his agency is not the exclusive government body regulating onshore contracts. Myradov stated that there are "no secrets" regarding hydrocarbon reserves in the Caspian, but did not offer any new data. He emphasized again that Turkmenistan's interests are largely commercial. POLITICAL REHABILITATION STARTING? ¶12. (SBU) We were surprised to see Former Principal Deputy Minister of Foreign Affairs Yolbars Kepbanov participate in this meeting as the new head of the State Agency's legal department. He said he'd been on the job only one week. Mann and Bryza remembered him from his previous work as lead on Caspian delimitation issues. He disappeared from view after Niyazov accused former Foreign Minister Shikmyradov of playing a lead role in the attempted 2002 coup. ¶13. (SBU) COMMENT: This is post's first indication that the freeze-out of U.S. companies from working the Amu Darya basin may not be as hard-and-fast as some Turkmenistani officials have so far maintained. While Turkmenistan is still a long way from agreeing to allow Chevron -- or any other U.S. company -- to work in the Amu Darya basin, this session opened a door we had previously thought closed and locked. Likewise, Myradov's view that U.S. majors are too slow and cautious is further evidence that Turkmenistan does not understand the Western model of investment and growth. Both Azerbaijan and Kazakhstan should be strongly encouraged to help educate Turkmenistan. For our part, it is essential to identify and provide a steady stream of material to educate the Turkmenistani government. Regular and high-level U.S. delegations play an important educational role, but Turkmenistan needs material it can pass broadly throughout the government. END COMMENT. ASHGABAT 00000728 004.2 OF 004 ¶14. (U) PDAS Mann has cleared this cable. HOAGLAND