TURKMENISTAN: AUSTRIAN ENERGY GIANT OMV HOPES TO

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001445 SIPDIS STATE FOR SCA/CEN; EEB; ENERGY FOR EKIMOFF/BURPOE/COHEN COMMERCE FOR EHOUSE E.O. 12958: DECL: 11/10/2019 TAGS: EPET ECON PGOV EINV BTIO AU TX SUBJECT: TURKMENISTAN: AUSTRIAN ENERGY GIANT OMV HOPES TO GET ONSHORE DEAL ASHGABAT 00001445 001.2 OF 002 Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. OMV, Austria's largest oil-producing, refining and gas company, recently increased its efforts to promote the Nabucco pipeline and strike an energy deal with the Turkmen government. Like many large energy companies, OMV's current plans focus on the lucrative, proven, onshore gas deposits. However, the GOTX is holding firm on its policy of allowing foreign energy companies to receive only service contracts for onshore development. The Austrian Ambassador responsible for Turkmenistan and OMV's Country Manager for Turkmenistan reported that GOTX officials asserted Turkmenistan operates independently of Russia and Russian gas contracts, and that constructing a trans-Caspian pipeline can be done without a total resolution of Caspian delimitation issues. The OMV representative is pushing for a trans-Caspian pipeline as a way for the Turkmen to regain their financial independence, but added that OMV would consider building a gas interconnector from Turkmenistan to Baku in order to get a gas deal with the Turkmen. END SUMMARY. OMV UPGRADES OFFICE, SENDS EXPAT TO RUN IT ¶2. (C) The Austrian Mineral Authority (abbreviated as OMV in German) has been seeking business in Turkmenistan since 2007 when it opened a small office. Three months ago, the company sent an expat country manager to find more appropriate office space and remain in the country to head the office. Prior to the expat's arrival, OMV's small representational office was run by two Turkmen employees. OMV's new country manager stated that the company asked him to move to Turkmenistan in order have a company official on the ground at all times in the event a deal would be forthcoming. The company representative stressed that OMV has gauged the economic and political climates in Turkmenistan, and felt it was a good time to increase the company's exposure in Turkmenistan. TURKMENISTAN INDEPENDENT OF RUSSIA, CAN WORK WITH AZERBAIJAN ¶3. (C) Ambassador Ursula Faringer, who is resident in Kazakhstan, met with Charge on November 9. During a meeting with Deputy Chairman for Oil and Gas Baymyrat Hojamuhammedov, he reportedly told Faringer and OMV's new country manager for Turkmenistan that GOTX relations with Russia over gas had not improved as of yet, stating twice that Turkmenistan is independent of the Russian Federation and any gas contracts with Russia. Moreover, Hojamuhammedov reportedly told the Austrian Ambassador that a trans-Caspian pipeline could be built independent of a Caspian delimitation resolution. OMV's country manager, who reportedly meets with Hojamuhammedov on a regular basis, told us that Hojamuhammedov was confident Turkmenistan and Azerbaijan could reach an agreement on a trans-Caspian pipeline on their own, given current on-going negotiations between the two countries and both countries' pledge to provide gas to Nabucco. A GAS INTERCONNECTOR? ¶4. (C) Both the Austrian Ambassador and the OMV country rep discussed OMV's willingness to support a feasibility study for a gas interconnector project between gas fields Kiyanly in western Turkmenistan and Baku, Azerbaijan. According to the OMV rep, there is existing infrastructure in the Caspian that could be rebuilt to create the interconnector. He estimated that this gas interconnector could transport 5 to 10 billion cubic meters (bcm) of gas per annum from Turkmenistan to Baku, but a trans-Caspian pipeline could transport 20 bcm or more. He quickly admitted that OMV would ASHGABAT 00001445 002.2 OF 002 prefer a trans-Caspian pipeline, but suggested that the Turkmen were intrigued by the gas interconnector idea, and as a result, OMV agreed to pursue a feasibility study. ONSHORE AND A PSA ONLY ¶5. (C) The OMV rep stated that his company was not interested in onshore service contracts to develop Turkmenistan's proven gas resources in the eastern part of the country. He underscored the importance of securing a production sharing agreement (PSA) with the GOTX, so OMV could later book production reserves -- something service contracts do not allow. He added that he recently broached the PSA topic with the Head of the Turkmen State Agency for the Management and Use of Hydrocarbon Resources Yagshygeldi Kakayev. According to the company rep, Kakayev boasted that Turkmengaz makes a large profit without the help of international oil companies and PSAs, and reportedly laughed when the OMV rep suggested that the Turkmen could double or triple their profits via a PSA. The rep added that Kakayev remains firm regarding the GOTX standing policy of protecting its onshore gas deposits from large energy companies and PSAs. THE TURKMEN NEED OPTIONS BESIDES RUSSIA AND CHINA ¶6. (C) According to the OMV representative, Turkmenistan was reportedly digging deep into its reserves to offset the lack of gas revenues from Russia since April. He cautioned that the Turkmen are falling into the same "Chinese cheap credit scheme" that the Kazakhs have fallen victim to, opining that the Chinese have "taken over" many sectors in Kazakhstan. He believed the $4 billion loan the Chinese gave to the Turkmen was the start of China's financial foothold in Turkmenistan. OMV's rep was adamant that the Turkmen financial situation is much bleaker than most realize, which has pushed the GOTX toward Europe as a potential gas customer. He believed that the Turkmen consider Nabucco a viable means of getting Europe as a direct customer, given the current gas row with Russia. At the same time, he predicted that the colder weather would force both the Russians and the Turkmen to "hold their noses and swallow their pride" in order to finally agree on price and volumes. He thought that the scheduled December visit of Russian President Medvedev would be an excellent opportunity for both sides to reconcile and sign a deal. ¶7. (C) COMMENT. Like many large energy companies in Turkmenistan, OMV sees the lucrative onshore gas deposits as the only option worth pursuing for now. Given the GOTX's tough stance on forcing foreign companies into onshore service contracts or the offshore, OMV is biding its time until the Turkmen President changes his mind. If the Turkmen are serious about reaching agreement with Azerbaijan to build a trans-Caspian pipeline, then OMV sees tremendous potential in Turkmenistan, especially for Nabucco. The presence of a proactive OMV representative in the country might at least help keep Nabucco on the Turkmen radar, should the Turkmen and Russians reach a gas deal and gas revenues return to Turkmenistan. END COMMENT. CURRAN