UZBEKS SIGN ON TO TURKMENISTAN-CHINA GAS PIPELINE

UNCLAS TASHKENT 000475 SIPDIS SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ENRG ECON ETRD PREL UZ SUBJECT: UZBEKS SIGN ON TO TURKMENISTAN-CHINA GAS PIPELINE Ref: Ashgabat 457 ¶1. (SBU) Summary: Uzbekistan's state oil and gas monopoly Uzbekneftigaz, has announced that Uzbekistan agreed on April 11 to a Chinese proposal for construction of the Turkmenistan-China natural gas pipeline (also known as the Trans-Asia pipeline),which will transit Uzbekistan. The Uzbeks will spend an estimated 1.5 billion USD in upgrades to existing east-west infrastructure as part of the deal. Construction is anticipated to begin by the end of 2008, with the first 17 billion cubic meters (bcm) of Turkmen gas scheduled for delivery in 2009. Initial capacity of the line will be 30 bcm per year, with a possibility of 40 bcm with subsequent improvements. End summary. ¶2. (SBU) In December 2007, Chinese oil and gas companies Petrochina and China National Oil and Gas Exploration and Development Corp. (CNODC) announced plans to invest USD 1.08 billion each in the development of a new natural gas pipeline from Turkmenistan to China. Initial capacity of the pipeline was/is 30 bcm per year with possible further extension to 40 bcm per year. The pipeline deal has been in the works for several years. The Turkmen first announced in 2007 that initial deliveries might begin as early as ¶2009. The deal came closer to reality in August 2007, when the leaders of Kazakhstan and China signed an agreement for construction of the Kazakh portion of the pipeline. While the pipeline could theoretically have been routed around Uzbekistan, the distance and cost would have been significantly greater. ¶3. (SBU) The 1,818 km pipeline is to begin in Turkmenistan's Gedaim field along the Uzbek border and run 188 km to Uzbekistan. The Uzbek portion will be 525 km and will involve roughly 1.5 billion USD in upgrades to existing Uzbek pipelines and infrastructure. The Kazakh portion is to cover 1,293 km and run to the Chinese border. ¶4. (SBU) The estimated cost of the project is USD 7.3 billion. Petrochina announced in December 2007 that the deal would involve an unspecified capital injection into partially-owned subsidiary CNPC Exploration and Development Co. Ltd. (CNPC E&D) and a 50-50 joint venture arrangement between Petrochina and CNODC. CNPC E&D has established a wholly owned subsidiary, Trans-Asia Gas Pipeline Co. Ltd., for implementation of the project and had previously announced plans to form separate joint ventures with state oil and gas companies in Kazakhstan and Uzbekistan. Kazakhstan, according to Uzbek media reports, had proposed in September 2007 that the participating nations establish a ministerial-level Coordination Council to handle the technical aspects of planning, design and construction. Post has no further information on the state of play of these various plans and proposals. ¶5. (SBU) Reftel reports that Gazprom-owned Stroitransgas has contracted to build the Turkmen sector of the pipeline. This adds a twist, and we would welcome further input from experts in Washington and elsewhere. As we read the pipeline maps, the Turkmen spur would flow into the existing Uzbek pipeline at a point where it could then flow either northward, to Russia, or eastward, per plan. Comment -------------- ¶6. (SBU) The Uzbeks' willingness to commit to 1.5 billion USD signifies a seriousness of purpose here. That is good news, as the Uzbeks have a tendency to play the holdout and the spoiler. The project could still face technical hurdles upgrading infrastructure along the portions of the Uzbek pipelines feeding the capital, Tashkent, and other major urban areas. ¶7. (SBU) For the Uzbeks, gas and pipelines are first and foremost about business. However, a major Uzbek foreign policy objective - balancing economic and political relations among the major powers - is also well served by this deal. Norland