TURKMENISTAN: POTENTIAL OF THE PETROCHEMICALS INDUSTRY

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SUBJECT: TURKMENISTAN: POTENTIAL OF THE PETROCHEMICALS INDUSTRY


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Turkmenistan has decided to enter the
petrochemical sector by building a new refinery and oil and gas
cracker at a Soviet-era, white-elephant refinery in eastern
Turkmenistan that never did reach its full production. A
definitional mission carried out by a U.S. Trade and Development
Agency (USTDA) consultant determined that Turkmenistani personnel
lack the training and knowledge needed to ensure a successful start,
even though the country has the cheap feedstock that makes it a good
candidate for establishing a petrochemical industry. And, while
locating a new petrochemical industry at the refinery might make
political sense for the dying, one-industry town, the location lacks
some important qualities, such as proximity to hydrocarbon fields
and pipelines to transport oil and gas to the facility, that might
make the difference between success and failure. END SUMMARY.


3. (SBU) USTDA carried out a definitional mission to Turkmenistan
March 4-11 to assess potential areas of further technical assistance
in the petroleum sector. As part of the definitional visit, a USTDA
contractor met with a number of petroleum officials and made site
visits to assess the potential for establishing a successful
petrochemical sector in Turkmenistan. This visit was a result of
earlier discussions between the U.S. government and the Government
of Turkmenistan.

SEYDI TODAY -- TIRED, OUT OF DATE, AND LACKING RESOURCES


4. (SBU) Turkmenistan's Seydi refinery, located not far from
Turkmenabat City in northeastern Turkmenistan, was designed in the
1970's to process sweet crude oil from Tyumen in Siberia via the
Pavlodar (Russia)-to-Chimkent (via Uzbekistan) pipeline. The
pipeline still exists, but no oil has flowed from outside of
Turkmenistan to Seydi for years. The refinery's construction
stopped in 1991 with installation of only two processing units of
the original design: a crude oil refining unit (atmospheric
distillation and desalter) with a capacity to process 6 million tons
a year, and a catalytic reformer for 1 million tons of oil a year.
The reformer has not been operational since 1994 -- most likely
because of its obsolete technology.


5. (SBU) The refinery currently processes a mixture of gas
condensate from Mary and Lebap regions and crude oil from Yashildepe
field, located 200 kilometers southeast of Seydi. The refinery
currently processes around 1 million tons of oil a year to produce
straight-run gasoline, diesel fuel, and heavy fuel oil.
Insufficient supplies of raw materials forces the refinery to shut
down several times a year to accumulate a critical mass of
feedstock. The refinery was visibly not in operation during the
March 8 USTDA visit.

TURNING A WHITE ELEPHANT INTO A HIGH-YIELD NEW SECTOR


6. (SBU) Seydi's chief engineer, Dovlet Berdiyev, told the USTDA
consultant that a small team of engineers at the Seydi refinery had
made a desk study of various petrochemical production configurations
and had proposed to Turkmenistan's Cabinet of Ministers construction
of a new refinery and a petrochemical facility next to the original
production site. The proposed capacity for the new oil refining
plant is 3 million tons of oil a year. Turkmenistani experts
estimated that such production would saturate the demand for
gasoline and diesel in central and eastern Turkmenistan. The excess
crude, particularly in the west of the country, Turkmenistan plans
to export overseas.


7. (SBU) However, assuring sufficient availability of raw materials
for a Seydi petrochemical industry remains a question. Berdiyev
noted Kazakhstani officials had earlier proposed to transport oil
from the Kumkol field in Kazakhstan via the Pavlodar-Chimkent
pipeline and process it at Seydi. However, he gave no additional

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information whether the Government of Turkmenistan was giving due
consideration to this proposal, or to the possibility of an
alternative supply from Uzbekistan. Transportation may also be a
problem, since there are no pipelines from Turkmenistan's
hydrocarbon fields to the Seydi complex.


8. (SBU) The Seydi staff also proposed to produce 200,000 tons of
polyethylene from a new steam cracker and 90,000 tons of
polypropylene from a new catalytic cracker and/or steam cracker,
depending on the feedstock. When asked about the criteria for
choosing these particular production capacities, Berdiyev responded
that the proposal had used the Turkmenbashy refinery polypropylene
installation as the benchmark for the new facility. The capacity of
the steam cracker was based on the annual production of 3 billion
cubic meters of gas and the methane content in the natural gas at
Bagaja and Malay gas fields located near Seydi. Under their plan,
the ethane that would be used for producing polypropylene will be
extracted at the newly proposed refinery, although a new pipeline
would need to be built from the fields. The remaining methane would
be fed into the pipeline system. The propane and butane fractions
would be extracted at the wellhead.


9. (SBU) Turkmenistan also wants to assess the potential for
production of toiletries and detergents for the domestic market, but
recognizes that a detailed marketing study is required to determine
whether to produce feedstock or ready products. (NOTE:
Yashildepe's crude has a good aromatics content. END NOTE.)
However, the proposal with which the government is currently working
is somewhat limited in its marketing content, since it only used
prices in Russia for analysis.


10. (SBU) COMMENT: While Turkmenistan has the cheap feedstock it
needs to develop a successful petrochemical sector, Seydi, with its
distance from Turkmenistan's main hydrocarbon fields and its limited
transportation opportunities, may not be the best location for
establishing such a sector. It is also not clear that the scale of
production that the authorities are planning will make the project
competitive in a market that favors economies of scale. The
government may have made a political decision to locate its new
petrochemical facility at Seydi to help resuscitate the dying,
one-industry town. Given the high cost (our USTDA consultant
estimated $4-5 billion) of building a steam cracking facility, and
Seydi's limitations, it is critically important that Turkmenistan
understand from the beginning the cost of proceeding with this plan.
To do so, however, officials will need assistance, since even they
acknowledge that they do not have the capacity to properly analyze
the alternatives and make a well-informed decision. END COMMENT.

HOAGLAND