TURKMENISTAN OIL AND GAS EXHIBITION: LARGE

C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 001588

SIPDIS

STATE FOR SCA/CEN, EEB

E.O. 12958: DECL: 12/07/2018
TAGS: EPET ECON ETRD PREL PGOV IR TX
SUBJECT: TURKMENISTAN OIL AND GAS EXHIBITION: LARGE
TURNOUT, NO BREAKTHROUGHS

Classified By: Charge d'Affaires, a.i. Richard M. Miles. Reasons 1.4 (B
) and (D).


1. (C) SUMMARY. The recent international oil and gas
exhibition in Ashgabat attracted participation from a
wide-range of foreign companies looking for opportunities in
Turkmenistan. Government officials repeated their
willingness to work with foreign partners. However, the gap
between Turkmen expectations and Western oil companies'
business terms remains considerable. European presenters
made the case for the attractiveness of their consumer
market, including discussions of the Nabucco pipeline and the
EU-proposed Caspian Development Corporation. A Gaffney Cline
expert provided context for that company's favorable audit of
Turkmen gas deposits. An Iran gas official commented on that
country's plans to be an active player in the global energy
trade, including increased gas exports. While foreign
companies serious about doing business in Turkmenistan felt
they had to be present at the conference in order to improve
their prospects, in a sense paying homage, there was little
opportunity for substantive negotiations with GOTX officials
and no breakthroughs on their proposals. As one Western
analyst urged the Turkmen officials in the audience, the
government still needs to start talking with the IOCs. END
SUMMARY.


2. (U) The thirteenth Turkmenistan Oil and Gas Exhibition and
Conference took place November 19-21 in Ashgabat with solid
participation by foreign companies looking for opportunities
in the sector. The exhibition hall was packed with
company-sponsored booths, with heavy participation by Russian
equipment suppliers as well as expansive displays by the
likes of Gazprom, Lukoil and Tatneft. Chevron and BP
exhibits also occupied high-visibility locations, as well as
those of the seven foreign companies that currently have PSAs
in Turkmenistan. Among U.S. service and equipment providers,
Weatherford, Cameron and NOV had prominent displays.

GOTX WELCOMES FOREIGN "PARTNERS" IN ENERGY SECTOR


3. (U) On November 20, the President's opening remarks, read
by Deputy Chairman for Oil and Gas Tachberdy Tagiev,
emphasized the central role that Turkmenistan's hydrocarbon
resources play in the overall development of the country.
The results of the Gaffney Cline audit were highlighted as
proof of Turkmenistan's ability to meet its gas export
commitments. Almost every aspect of gas exploration,
production and transportation were highlighted as areas for
potential partnership with foreign companies "on a mutually
beneficial basis." Continuing with the same themes, Minister
of Oil and Gas Annaguly Deryayev gave an overview of the
investment opportunities presented by Turkmenistan's
resources. The need for greater efficiency, new investment
and high technology mean the GOTX is "ready to expand the
role of foreign companies," over 60 of which have expressed
interest in deposits in the Caspian region.

U.S. SUPPORTS MARKET-ORIENTED DEVELOPMENT


4. (U) In his remarks, Coordinator for Eurasian Energy
Diplomacy Ambassador Steven Mann highlighted U.S. support for
market-oriented development of hydrocarbon resources in
Central Asia. He noted that it will be through international
cooperation that Turkmenistan will overcome the challenges
and realize the potential of its hydrocarbon sector. The
recently confirmed, massive deposits of high sulphur, high
pressure gas present an opportunity to create international
partnerships for their effective development. The mark of
American international oil companies is their commitment to
train national cadres and to share their technology and
expertise with producer countries.

PRESENTERS MAKE THEIR RESPECTIVE CASES


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5. (U) European presenters from the EU, Norway, French Total
and the International Energy Agency all offered Europe as a
market for Turkmen gas, stressing growing European demand for
gas through 2030. The EU speaker, Derek Taylor of the
Directorate for Energy and Transport, mentioned the Caspian
Development Corporation (CDC),describing it as a "single EU
interface" for Turkmenistan that would create demand for
upstream development, create stable income for producer
states and build needed infrastructure. An executive from
Austrian OMV painted an optimistic picture of the Nabucco
project, offering a matter-of-fact roadmap leading to the
closing of the project's final financial package. He
stressed that OMV is committed to linking Turkmenistan to
Nabucco, including the company's willingness to participate
in a Trans-Caspian pipeline. A Japanese official urged
cooperation between energy producer and consumer countries,
and offered Japanese technology, especially in the refining
sector. Kazakh and Afghan presenters used their
presentations as an opportunity to advertise the potential of
their own countries' resources. BP executive Michael Daly
described the challenge in the South Caspian as first
finding, then developing, deposits at ever greater depths.
He noted BP's experience in Azerbaijan's offshore and
suggested similar conditions exist on the Turkmen side,
adding that successful development would require local
knowledge combined with international expertise and a willing
government.

DETAILS ABOUT GAFFNEY CLINE AUDIT


6. (U) Jim Gillett, the business development manager at
Gaffney Cline, provided context about his firm's audit of the
South Yolotan/Osman and Yashlar gas fields, the results of
which have attracted widespread attention since their October
release. The scope of the audit had four aspects: modeling
the fields (April through October 2008); identifying issues
related to resource evaluation and field development;
providing independent resource estimates; and providing
recommendations for future development. The analysis
involved the use of 2D and 3D seismic imagery and the
drilling of nine wells in the South Yolotan field and four
wells in the Yashlar field. Gillette said the wide range of
the high and low estimates for the "gas initially in place"
("GIIP") was due to the availability of only 2D imagery
outside the central areas. He added that "these are not easy
wells to drill," but that they obtained enough data to
provide a "reasonable well characterization." In the case of
the Yashlar field, only one well penetrated the full section,
also contributing to the wider range of estimated GIIP. He
summarized the audit's findings by saying that the fields are
world-class in terms of both size and challenge, with
significant GIIP, but also high levels of sulphur, carbon
dioxide and pressure. (NOTE: A U.S. oilfield equipment
supplier commented to poloff that 20,000 pounds of pressure,
reported during a separate presentation, was extremely high
and that very few completed projects worldwide involve such
high pressure. END NOTE.) Concerning the future development
of the fields, Gillett suggested that 10 bcm per year would
be a reasonable size for development phases, an amount that
is the typical feed for an LNG facility. Production at that
level would produce 1,000 tons of sulphur daily. He also
said the fields could be developed more quickly, depending
upon export demand.

IRAN FOCUSING ON GAS PRODUCTION FOR EXPORT


7. (U) Speaking at a session on diversifying Turkmenistan's
gas transportation options, Seyedreza Kasaeezadeh, the
General Director of the National Iranian Gas Export Company,
used the opportunity to highlight Iran's gas industry. He
said Iranian gas production increased 11.3 percent during the
past year and that 60 percent of Iranian territory remains
unexplored. He expected Iranian production to reach 600 bcm
in 2008. Iranian domestic consumption is expected to reach

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420 bcm in 2008, compared to 188 bcm in 2001, and he said the
Iranian government wants to reduce the "unreasonable growth
in consumption" by removing subsidies. Iran's "strategic"
location was offered for pipeline routes from Central Asia
that would offer maximum revenues for project partners. Iran
could act as a "bridge" between Central Asia and Pakistan,
the Middle East and Europe. Kasaeezadeh noted that Iranian
pipelines have provided the opportunity for cooperation with
its neighbors for both transit and export purposes.
Highlighting foreign interest in Iranian LNG and gas
production projects, he said that implementation of the
Iranian government's policy to reduce domestic consumption
will allow "great potential" for more exports. Iran plans to
be an active player in the global energy trade, with plans to
increase gas exports by ten percent per year, with priority
given to neighboring countries.

REALITIY CHECK OFFERED BY INDUSTRY ANALYST


8. (U) John Roberts, an energy specialist with the Platts
newsletter, offered straightforward advice to international
oil companies regarding how to deal with the Turkmen. The
government of a producer country that has been isolated for a
long time has its own way of doing things, he said. The task
of Western companies is to put themselves in Turkmen shoes
and minds, a place that continues to believe in state
involvement in the economy. Roberts suggested that Western
companies need to match the pipeline policies of the Russians
and Chinese, adding his support for the EU's CDC proposal.
He also suggested some realities for the Turkmen to consider
-- that small companies cannot raise capital in the midst of
a global financial crisis and that few companies can tackle
the technical challenges posed by high sulphur, high pressure
gas. Finally, he warned the Turkmen that the international
oil companies will persevere in their attempts to gain access
for only so long, after which "the caravan will move on." In
closing, Roberts recommended three actions for the
Turkmenistan government. Its officials need to address the
Trans-Caspian pipeline issue directly, otherwise Europe will
question the Turkmen commitment to ship gas westward. The
outcome of an upcoming offer of blocks in the Caspian will be
an important indicator of the government's willingness to
work with IOCs. And last, the government needs to address
the risk-reward relationship for developing its gas fields,
in dialogue with the IOCs. "Not taking any decision would be
the biggest mistake of all."


9. (C) COMMENT: From the Turkmen perspective, the exhibition
had to be considered a success. Although this year's event
might have lacked the "electricity in the air" of last year's
first post-Niyazov gathering, the turnout by major industry
players was robust and no doubt reinforced the Turkmen belief
that they are sitting on a valuable resource and that the
energy industry will beat a path to their door for a chance
to develop it. The flashy and expensive displays by Chevron
and BP were, by their officials' own admission, intended to
enhance the companies' standing with the Turkmen by
demonstrating both their commitment to working in the country
and the advanced technology they can deliver. At the same
time, company executives attending the conference were unable
to conduct the substantive meetings with Turkmen officials
that were needed in order to advance their proposals. Oil
and gas sector officials were expected to attend the
conference sessions, and during coffee breaks, the crowd that
clustered around the door leading to the side meetings
resembled a mob scene. Nonetheless, U.S. companies, while
hoping for substantive engagement, were aware of its
unlikelihood, given the crush of events during the
conference. They also used the conference to connect with
foreign companies already on the ground in order to get a
sense of business conditions. Given Turkmen sensitivities,
IOCs who are serious about doing business here were smart to
make their presence known at the conference through
sponsorship and high-profile representation. On the other

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hand, the conference came and went with no breakthroughs for
the companies pursuing projects here. END COMMENT.
MILES