Identifier
Created
Classification
Origin
09ASHGABAT1486
2009-11-20 15:30:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN: STATE HYDROCARBON AGENCY CHIEF

Tags:  EPET ECON PGOV EINV BTIO TX 
pdf how-to read a cable
VZCZCXRO4265
PP RUEHAG RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW RUEHROV RUEHSL
RUEHSR
DE RUEHAH #1486/01 3241530
ZNY CCCCC ZZH
P 201530Z NOV 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 3770
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 5901
RUEHBJ/AMEMBASSY BEIJING 3604
RUEHKO/AMEMBASSY TOKYO 3463
RUEHIT/AMCONSUL ISTANBUL 4143
RUEKJCS/JOINT STAFF WASHDC
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEFDIA/DIA WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 1256
RUEHVEN/USMISSION USOSCE 4097
C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001486 

SIPDIS

STATE FOR SCA/CEN; EEB;
ENERGY FOR EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: DECL: 11/19/2019
TAGS: EPET ECON PGOV EINV BTIO TX
SUBJECT: TURKMENISTAN: STATE HYDROCARBON AGENCY CHIEF
UNCERTAIN ABOUT GAS SALES TO RUSSIA

REF: A. ASHGABAT 1481

B. ASHGABAT 1318

Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001486

SIPDIS

STATE FOR SCA/CEN; EEB;
ENERGY FOR EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: DECL: 11/19/2019
TAGS: EPET ECON PGOV EINV BTIO TX
SUBJECT: TURKMENISTAN: STATE HYDROCARBON AGENCY CHIEF
UNCERTAIN ABOUT GAS SALES TO RUSSIA

REF: A. ASHGABAT 1481

B. ASHGABAT 1318

Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d).


1. (C) SUMMARY. Turkmenistan's State Hydrocarbon Agency
Chief Yagshygeldi Kakayev told visiting SCA Deputy Assistant
Secretary George Krol that foreign energy companies should
either pursue offshore exploration blocks or onshore service
contracts. Kakayev said the GOTX viewed most foreign energy
companies as fairly equal competitors, stressing that the
government focuses on the strength of a company's business
proposal rather than the company's nationality. Kakayev was
uncertain about when Russia would resume purchases of Turkmen
gas, but suggested that Russia would purchase a reduced
volume in 2010. He reiterated the GOTX's policy of selling
gas at its border, while leaving transit pipeline building up
to potential buyers. He also felt that liquified and
compressed gas were not currently economical ways for the
GOTX to get its gas to potential customers, but he stressed
the GOTX was exploring many options to market its vast energy
resources. END SUMMARY.


2. (C) On November 16, DAS Krol met with Yagshygeldi
Kakayev, head of the Turkmen State Agency for the Management
and Use of Hydrocarbon Resources. Kakayev reiterated the
GOTX's stance of only offering service contracts to foreign
companies that want to operate onshore, citing that Turkmen
law requires his agency to enforce this policy. In line with
this policy, he noted that ExxonMobil, Chevron, Marathon, and
others were working on proposals to partner with Turkmen
state oil and gas companies, but to date these companies
could only count on service contracts for onshore activities.
He also stated that ConocoPhillips was very interested in
developing an offshore block in the Caspian with its new
UAE-based partner Mubadala (ref B). Kakayev acknowledged
that the majority of U.S. companies in Turkmenistan would

like an onshore production sharing agreement (PSA),but
reiterated that the GOTX "could not go around the law."


3. (C) Kakayev told DAS Krol that there are other
possibilities for foreign companies to partner with Turkmen
energy companies besides a PSA. He briefly mentioned risk
service agreements, but did not provide any details. (NOTE:
It seems doubtful that the Turkmen would allow companies to
book reserves as part of a risk management agreement, since
the GOTX has indicated that allowing foreign companies to
book reserves might threaten the country's energy supplies
and security. END NOTE.)


4. (C) DAS Krol asked Kakayev if he thought U.S. energy
companies were different from the other international oil and
gas companies (IOCs) vying for energy deals in the country in
light of the high technology and experience U.S. companies
represent. Kakayev responded that every foreign company was
unique in its own way, but the GOTX does not discriminate
among the growing number of IOCs seeking deals in the
country; he felt that most large IOCs had similar technology
and experience in hydrocarbon development. He added it was
advantageous to have a mix of companies from various
countries, emphasizing that for the GOTX a company's business
proposal is more important than from which country a company
hails. In the same breath, Kakayev said that business with
China was going well and the GOTX was in discussions with the
Chinese Development Bank in order to assess opportunities to
increase Chinese-Turkmen business in the energy sector
(Comment: In contrast, the Chinese Ambassador confided to DAS
Krol that while the pipeline has been a success, it was tough
going and other aspects of doing business in Turkmenistan
were awful.)

ASHGABAT 00001486 002 OF 002




5. (C) When asked about on-going gas negotiations with
Russia, Kakayev was less positive than Deputy Chairman for
Oil and Gas Hojamuhammedov who met with DAS Krol in the
morning, stating that the gas standoff created a lose-lose
situation for both countries (ref A). Kakayev asserted that
it was unclear how much gas Russia would be willing to buy in
2010, but he was convinced it would be significantly less
than prior to the April pipeline explosion. Also in contrast
to Hojamuhammedov, Kakayev was not convinced that the ongoing
gas row would be resolved soon. Kakayev hailed
Turkmenistan's progress toward diversifying its gas customer
base, citing the Central Asia pipeline that would pump up to
40 billion cubic meters of Turkmen gas to China annually and
the new pipeline to Iran which will pump from 8-14 bcm of gas
per year to the country's southern neighbor.


6. (C) When asked about a trans-Caspian pipeline, Kakayev
repeated that the GOTX was not in the business of building
pipelines outside Turkmenistan; the GOTX sells its gas at the
border, and interested parties and potential customers need
to arrange shipment from the Turkmen border. He noted that
Turkmen officials attended meetings with representatives from
the Caspian Development Corporation three times, highlighting
that several "papers" were signed by the EU in order to
promote the EU's Southern Corridor policy and the Nabucco
pipeline. Kakayev insisted that the Turkmen remain engaged
on plans to develop the Southern Corridor, but the GOTX would
not deviate from its policy of selling gas at its borders
only. He added that the GOTX was still very interested in
getting gas further East via a
Turkmenistan-Afganistan-Pakistan-India pipeline, but he felt
this project would remain idle until the political situation
in Afghanistan became more stable. The GOTX views the
Russian-proposed littoral pipeline along the Caspian coast as
another viable option for selling an additional 10 bcm of
gas.


7. (C) Kakayev discussed the GOTX's other options for
creating revenue from its energy resources. He felt that
offshore Caspian blocks provided potential private sector
business opportunities, such as building and operating
refineries, in the event additional oil and/or gas was
discovered. Liquified natural gas (LNG) and compressed
natural gas (CNG) might be options for the future, but
because of transportation costs, LNG and CNG were not yet
economically viable options. He added that the GOTX is
looking at using natural gas as an alternative to gasoline,
and the GOTX is strongly considering setting up natural gas
pumps at local fuel stations for vehicles that can run on
natural gas.


8. (C) COMMENT. Kakayev's cautious take on gas negotiations
with Russia differed significantly from Hojamuhammedov's
positive view, but it's not obvious which interlocutor was
being more straightforward. Many energy company
representatives in Ashgabat for the Turkmenistan
International Oil and Gas Exhibition (TIOGE) viewed the event
as an opportunity to move closer to striking a deal with the
reluctant Turkmen, given the GOTX's well-known pledge to
diversify its gas clientele and the continuing breach with
Gazprom. In his meeting with DAS Krol, however, it appeared
that Kakayev, at least, was content to repeat his usual
talking points, while avoiding sending any clear signals to
eager U.S. companies that the GOTX was ready to do business.
END COMMENT.


9. (U) DAS Krol cleared this cable.
CURRAN