TURKMENISTAN: FOREIGN MINISTER OPEN-MINDED ON

C O N F I D E N T I A L ASHGABAT 000722

SIPDIS

STATE FOR SCA/CEN, EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 06/05/2018
TAGS: PREL PGOV EPET AJ TX
SUBJECT: TURKMENISTAN: FOREIGN MINISTER OPEN-MINDED ON
NEW ENERGY IDEAS

Classified By: CDA Richard E. Hoagland: 1.4(B),(D)


1. (C) SUMMARY: During a nearly two-hour meeting on June 4
with U.S. Special Envoy for Eurasian Energy C. Boyden Gray,
Deputy Prime Minister/Foreign Minister Rashid Meredov:

-- praised U.S.-Turkmenistan energy cooperation;

-- expressed cautious interest in an idea that could by-pass
the current Turkmenistan-Azerbaijan deadlock on the disputed
Caspian gas field Serdar/Kyapaz and get early gas flowing
West through an interconnector; and

-- reasserted that by law onshore exploitation of hydrocarbon
deposits can be done only by Turkmen companies, but for the
first time appeared to take on board that this law could be
revised or amended.

Meredov was unusually relaxed, open, and positive. As a key
adviser to President Berdimuhamedov, he does not lightly
promise to consider new ideas. His willingness to do so
during this meeting is reason to be encouraged. The value of
very regular high-level engagement like Special Envoy Gray's
cannot be overstated. Turkmenistan's evolution needs close
attention. END SUMMARY.


2. (C) Foreign Minister Rashid Meredov said President
Gurbanguly Berdimuhamedov, who was out of town, had asked him
to convey the president's readiness to continue
Turkmenistan's energy dialogue with the United States.
Special Envoy C. Boyden Gray's meetings in Ashgabat offered
an opportunity to share views on bilateral and regional
cooperation and find "mutually acceptable solutions." Gray
stressed U.S. support for upstream investment and pipeline
diversification. Stating, "We want to know what we can do to
help," the Special Envoy recognized that developing
production takes much money and technology, and he offered to
help stimulate interest in investment by U.S. and European
firms.

ENERGY DIALOGUE IS YIELDING RESULTS


3. (C) Noting that bilateral energy talks have become more
active and broader over the past year, Meredov said the
dialogue is yielding results. U.S.-sponsored training for
Turkmen specialists is leading to better contacts that will
further develop the relationship. In addition, bilateral
cooperation has also led to meetings between Berdimuhamedov
and major U.S. petroleum firms in both Ashgabat and during
the president's September 2007 visit to New York City. These
contacts had led to greater understanding of each others'
interests. "I am quite sure the dialogue, contacts and
process of identifying priorities will yield results,"
Meredov stressed. He also recounted the exchange between
Presidents Bush and Berdimuhamedov at the NATO summit in
Bucharest, when President Bush said that, if proposals from
U.S. companies were of enough interest to Turkmenistan, there
will be cooperation. He recalled that President Bush also
told Berdimuhamedov Turkmenistan is a sovereign country and
will choose for itself what companies to work with in future.
"That's healthy pragmatism," Meredov said with approval,
"I'm very optimistic."

DEVELOPING TURKMENISTAN'S POTENTIAL


4. (C) Commenting again on the training that the United
States has provided to Turkmenistan's hydrocarbon officials,
Meredov said, "We have potential -- a huge potential -- but
we must find a way of realizing it." Special Envoy Gray
responded that U.S. companies are always available to provide
assistance with training, but added that results will be
better if the companies can share, as partners, in the risks
and benefits. Eurasian Energy Coordinator Steven Mann noted
that, in Baku on June 3, SOCAR had a very positive view of
the technical capabilities of Turkmenistan's specialists, but
had also noted that those specialists need to catch up with
international developments. Acknowledging the need for
Turkmenistan's hydrocarbon experts to constantly develop,
Meredov responded, "We need to keep in pace in the
development of technologies together."

GRAY: TURKMENISTAN NEEDS TO PROMOTE FOREIGN INVESTMENT
ONSHORE


5. (C) Mann noted Turkmenistan's direction in the oil and
gas sector has been very positive in the past 12-18 months.
Reiterating the willingness of the United States to help, he
added that some things, such as hydrocarbon development, need
to be done by the private sector rather than by the U.S.
government. Gray acknowledged Turkmenistan's distinction
between foreign investment in its offshore and onshore
fields, and urged the government to develop foreign
investment onshore as well. Meredov replied that this policy
is an element of Turkmenistan's strategic plan for
hydrocarbon development to 2030, a document that was adopted
by Turkmenistan's People's Council in 2006 and is, thus,
enshrined in law. While the plan states that only
Turkmenistan entities can work onshore, foreign companies are
welcome to work onshore in a service capacity. The Charge
added, "Except for China," drawing a laugh. Meredov stated
that European companies have been extensively involved in
building onshore infrastructure -- gas compression stations,
pipeline and gas liquifaction installations, and those
investments have already started to bring returns. Onshore,
he said, foreign companies can do anything except extract
hydrocarbon resources. Acknowledging the Charge's point on
China National Petroleum Corporation's production sharing
agreement on the right bank of the Amu Darya River, Meredov
added that discussion of the agreement had begun before the
strategic plan had been approved, and therefore had been
allowed to go forward.

ASHGABAT ACTS BUT THINKS BAKU BALKS


6. (C) Meredov said Berdimuhamedov has a clear vision for
delivering energy to world markets. Rather than merely
making a declaration about Turkmenistan's willingness to
broaden its deliveries, however, the government has actually
taken action to promote implementation, including of plans to
export gas across the Caspian. During the Tehran Summit of
Caspian states, Berdimuhamedov contradicted Russian President
Putin by making clear a pipeline could be constructed simply
with the consent of the countries involved. He has also
agreed to leave the question of legal delimitation of the
Caspian border for the experts to work on and to proceed with
economic development plans.


7. (C) Meredov stressed that the important thing is to reach
a general agreement for commercial development. Reasserting
that the disputed Serdar/Kyapaz gas field belongs wholly to
Turkmenistan, he told Gray Ashgabat wants to export to the
West all gas extracted from the Serdar field. The
government's plan is for a small pipeline (production
pipeline, interconnector) to link Serdar to existing Azeri
infrastructure in the Caspian so that Turkmen gas can start
flowing to Europe. This would benefit both Turkmenistan and
Azerbaijan. Turkmenistan has been discussing this with
Azerbaijan since March, but so far Baku has not responded.
Mann noted Azerbaijan's President Aliyev had told Special
Envoy Gray he had been very satisfied with Berdimuhamedov's
recent visit to Baku and that the relationship is growing in
many piositive ways. Meredov replied that Berdimuhamedov,
too, is very pleased in general. He pointed out that rather
than waste time by waiting for the two countries to resolve
their border differences, Berdimuhamedov made his
Serdar/Kyapaz proposal. Acknowledging that Berdimuhamedov
had taken an important, concrete, and strategic step, the
Charge emphasized that Baku had not rejected the proposal,
but only has not answered yet because they are stuck on the
owndership of Serdar/Kyapaz.

MANN: LIVANOV MORE FEASIBLE SHORT-TERM THAN SERDAR


8. (C) Mann agreed, stating that SOCAR is willing to buy
Turkmenistan's gas at the border and will build the
production pipeline itself. However, he added, SOCAR is not
talking about Serdar, because developing Serdar will take
10-12 years. And if Serdar turns out to have significant gas
reserves, a new pipeline would be needed from Baku to Erzerum
to accommodate the Serdar gas, because the current pipeline's
volume -- 20 billion cubic meters (bcm) -- will be filled by
gas from Shah-Deniz (Meredov, a keen student of details,
corrected that to "21 bcm"). Mann added there is a capacity
for absorbing smaller volumes -- 5-10 bcm -- through
different onshore options in Azerbaijan. For that reason,
the United States likes the idea of transporting early gas
from the Livanov field (Turkmenistan's Block I, currently
worked by Petronas) and other Caspian blocks belonging to
Turkmenistan. SOCAR believes that it can build the requisite
infrastructure in 18-20 months, so this could be an effective
first step toward giving Turkmenistan a presence in the
Western market.

MEREDOV PROMISES TO CONSIDER LIVANOV IDEA


9. (C) Noting that Turkmenistan is in a new economic and
political era, Mann asked why it does not extend this
readiness for new thinking to the energy sector. Meredov
said, "We must think about this. I'm saying this because
we've been working on this for a long time. Last year when
we started to discuss this possibility (of sending gas to
Azerbaijan),we also said that we would need to look into it,
and now we've given a concrete proposal." The proposal, he
continued, has many possible variations, including the
possibility of sending LNG to Europe. But it is up to Europe
to decide what it wants to do. Mann summarized the results
of last year's USTDA study for Kazakhstan on cross-Caspian
gas options, including LNG, which produced a negative
netback. Meredov appeared very interested in the explanation.


10. (C) Charge noted that when the United States first
raised the possibility of transporting Caspian gas to
Azerbaijan during the summer and early autumn of 2007,
Meredov had also said, "I have to think about this." "Look
what fundamentally new decisions your president has made to
go in a very new direction since then," the Charge continued.
While recognizing that the hydrocarbon development plan to
2030 was approved by the People's Council, the Charge
suggested that it could be revised in conjunction with the
ongoing revision of Turkmenistan's constitution, which
reportedly is to include eliminating the People's Council
law-approving powers. Meredov listed the many reasons that
the development plan has to remain in effect even though the
People's Council is to be eliminated in its current form.
The Charge said, "Any document can be revised or amended if
this would be beneficial to the government and the people.
So there is room sometimes to think in new ways." Nodding
thoughtfully, Meredov said, "Understood."


11. (C) Meredov noted considerable room remains for
additional cooperation in the energy sector, particularly
with the United States. The idea of expanding cooperation
with U.S. companies onshore is "interesting" and something
that Turkmenistan must think about further. The Charge urged
that President Berdimuhamedov meet with ExxonMobil, and
Meredov responded that the government was considering the
meeting.


12. (C) On the same day as this meeting Russian media
reported that visiting Gazprom CEO Aleksey Miller was not
received by Berdimuhamedov, despite the former's pilgrimage
to the city of Turkmenbashi where the president was touring.
If true, we view that as the Turkmen Government's desire to
behave evenhandedly, since it was not possible to offer
Special Envoy Gray a meeting -- and as a sign of
Berdimuhamedov's developing confidence.


13. (C) COMMENT: Meredov was unusually relaxed, open, and
positive. As a key adviser to President Berdimuhamedov, he
does not lightly undertake to consider new ideas. His
willingness to do so during this meeting is reason to be
encouraged. The value of very regular high-level engagement
like Special Envoy Gray's cannot be overstated.
Turkmenistan's evolution needs close attention. END COMMENT.


14. (U) Special Envoy Gray and Coordinator Mann cleared this
cable.

HOAGLAND