NABUCCO ENVOY SEES GREATER INTEREST AMONG TURKMEN

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001289 SIPDIS STATE FOR SCA/CEN; EEB ENERGY FOR EKIMOFF/BURPOE/COHEN COMMERCE FOR EHOUSE E.O. 12958: DECL: 10/12/2019 TAGS: PGOV EPET EINV TX SUBJECT: NABUCCO ENVOY SEES GREATER INTEREST AMONG TURKMEN OFFICIALS REF: 08 ASHGABAT 1619 Classified By: Charge Sylvia Reed Curran, Reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: Hungary's envoy for the Nabucco project was recently in Ashgabat for meetings with government officials. He noted that the officials were all well-briefed and had concrete questions that indicated genuine interest in the project. The Turkmen were also supportive of the proposed international Nabucco council, unofficially suggesting that they would consider observer status. While the Turkmen had earlier pursued export diversification, the gas dispute with Russia seems to have accelerated the process. Still, getting Turkmen gas shipped through Nabucco remains a long-term prospect, depending in large part on resolving the uncertainty that still hangs over other aspects of the project. END SUMMARY. ¶2. (C) On October 9, Hungarian Nabucco Envoy Mihaly Bayer briefed the Charge about the pipeline project's progress and his latest discussions with Turkmen officials. Bayer characterized efforts on the project as "accelerating" and provided an overview of the lead-up to the signing of the Nabucco agreement in July and various financing options. He noted that maintaining the momentum of political support remains a priority. Bayer said a major goal of his visit was to follow-up with the Turkmen about the Hungarian prime minister's proposal to establish an international Nabucco council with the participation of all interested parties as either members, observers or guests. It would serve as a forum for participants to express support for and concerns about the project. ¶3. (C) Bayer said that, since progress is being made on Nabucco, Turkmenistan has become more supportive. While during earlier visits there was no Turkmen reaction to his presentations, Bayer described this visit, his fifth, as the "best and most informative." He met with Deputy Chairman for Oil and Gas Baymyrat Hojamuhammedov, Director of the State Agency for Management and Use of Hydrocarbon Resources Yagshygeldi Kakayev, (now former) Minister of Oil and Gas Annaguly Deryaev and Deputy Foreign Minister Toyli Komekov. He said all the officials had been briefed on the subject and asked a lot of concrete, pointed questions, not "empty questions" as previously. He had the sense that it was not a question of "if" the Turkmen would participate, but that the affirmative decision had been made and it was a question of "when." Bayer suggested that Russian actions had been "the best support" for Nabucco, contributing to the success of the Nabucco Summit in the wake of last winter's gas crisis. He thought the Turkmen-Russian dispute was also helpful in prompting the Turkmen to expand their options, and said it was typical of the short-sighted lack of planning of Russian policy. ¶4. (C) Given that the Turkmen had already been working on long-term diversification of markets for their gas, for example the China pipeline, Bayer nonetheless thought the dispute with Russia had accelerated Turkmenistan's openness to the West. In their meetings with Bayer, Turkmen officials wanted to know who they should talk to about gas export volumes, current prospects for a Caspian Development Corporation trans-Caspian pipeline, and what Turkmenistan could expect concerning the international Nabucco council. Hojamuhammedov was supportive of the international council and said that, while he could not offer Turkmenistan's official position on the question of its participation, it would probably would be appropriate for their status to attend as an observer since they sell their gas at the border. Hojamuhammedov also rejected that notion of re-export of its gas. It would only accept a ASHGABAT 00001289 002 OF 002 producer-consumer agreement with transit agreements as needed. Bayer did not consider this policy problematic since no Nabucco parties planned to resell gas. ¶5. (C) Turkmen officials would not tell Bayer if a decision had already been made to sell gas to Europe and, if so, how much. Bayer thought that despite existing commitments to deliver gas to Russia, China and Iran, it is not a zero sum game for Turkmenistan to supply gas to Nabucco. It was his view that there would be enough gas to meet existing commitments and also deliver to Europe. Bayer mentioned that the Chinese Ambassador in Ashgabat, Hongbin Wu, had told him that he thought the Turkmen could eventually send 40 billion cubic meters per year to Europe. ¶6. (C) In Bayer's meeting with Kakayev, the State Agency head confirmed that Turkmenistan will resume gas deliveries to Russia next month. Kakayev reported that the price structure had changed and that it would now be based on the European price minus the cost of transport. Kakayev said, "See, Nabucco is already helping us." Bayer considered it a victory that the Turkmen now see the Nabucco project making a difference in the region. Since he thought Turkmenistan would be a "last supplier," Bayer thought there was still plenty of time to work out the details of Turkmen participation. Kakayev also shared that the Turkmen had needed to shut down most of their wells following the April pipeline explosion and are currently doing an assessment to determine the extent of the resulting well damage. Kakayev said he could not as yet comment on the damage as they were only now restarting the wells, but Bayer noticed that Kakayev did not seem concerned. Kakayev was also matter-of-fact about building a pipeline from an onshore purification facility to send gas westward by means of a connection with existing Azeri pipelines. He did not seem to think it would be a problem to connect with the Azeris if there would be a need. ¶7. (C) Bayer noted that the Turkmen think it is strange that a Hungarian diplomat is coming to Ashgabat on behalf of Nabucco. He thought EU representatives should also be making the trip, not only an Hungarian. If the Turkmen need information about some aspect of Nabucco, they should not have to make an effort to find an answer. The EU should be coming to Ashgabat and answering. In Bayer's view, the Turkmen will move towards selling more of their production to transparent markets on straight commercial terms. ¶8. (C) COMMENT. Although Bayer was upbeat about Nabucco progress during the past year, he was also frank about remaining challenges that could undermine the project's credibility and ultimately derail it. Among those were complicated Turkish-Azeri negotiations and the need for Azerbaijan to commit its production. As Nabucco's prospects have improved, so has Turkmen interest in the project increased. The Russian dispute was no doubt a further motivator. It is possible that Turkmen interest could become a commitment if and when the remaining obstacles are resolved and the project begins construction. That, in turn, could be a blessing for foreign companies looking for onshore opportunities, if and when the Turkmen need to boost production in order to match increased export capacity. END COMMENT. CURRAN