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
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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