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

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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