TURKMENISTAN: LOTS OF GAS, BUT WHAT ABOUT OIL?

UNCLAS SECTION 01 OF 02 ASHGABAT 001563 SENSITIVE SIPDIS STATE FOR SCA/CEN; EEB; NEA/IR ENERGY FOR EKIMOFF/BURPOE/COHEN COMMERCE FOR EHOUSE E.O. 12958: N/A TAGS: EPET PGOV EINV TX SUBJECT: TURKMENISTAN: LOTS OF GAS, BUT WHAT ABOUT OIL? REF: ASHGABAT 798 ASHGABAT 00001563 001.2 OF 002 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY. Annual oil production in Turkmenistan has varied from 9 to 10 million tons for the past six years, but the Turkmen Government has announced plans to increase the oil production to 50 million tons by 2020. Turkmenistan consumes about 6 million tons locally and exports the rest through Iran and Georgia. Turkmenistan refines oil into gasoline, polypropylene, and motor oil at the country's two oil refineries. Turkmenistan's proven oil reserves are estimated to be 100 million tons. Although the government has ambitious plans to increase oil production and become a serious player in the oil market, oil output is unlikely to significantly increase if no new large oil fields are discovered in the near future. END SUMMARY. ¶3. (SBU) Natural gas is by far Turkmenistan's most important natural resource, but oil also has strategic importance for the country. Turkmenistan relies on revenue from oil exports during periods when gas exports decrease or there is a disruption, as is the case with the current gas dispute with Russia. Moreover, oil production plays a significant political role within the country, as the GOTX considers subsidized gasoline as a crucial means to maintain stability in the country. Currently, every car owner receives 120 liters (about 32 U.S. gallons) of gasoline free-of-charge each month and can purchase additional gasoline for about USD 0.22 per liter. ¶4. (SBU) Although current oil production and reserves are sufficient to meet local consumption for years ahead, the top leadership of the Turkmen oil industry seems serious about increasing the country's oil output. The oil industry leadership's efforts to increase oil production are driven by goals set in the National Program for Oil and Gas Industry Development, which envisages that oil production will reach 50 million tons by 2020 and 100 million tons by 2030. Turkmen oil officials take compliance, or at least visible efforts to comply with these National goals, very seriously, given that their careers often depend on meeting such national goals. ¶5. (SBU) Turkmenistan produces most of its oil in the country's southwest region in a number of oil fields located on a 70-kilometer wide strip of land stretching along the Caspian coast. The country's largest oil fields -- Goturdepe and Barsagelmez -- were discovered during Soviet times and their production peaked in the 80s, but they still provide about 35 percent of the country's total oil output. A number of smaller fields in that area were also discovered during the Soviet era and peaked in the 80s and 90s. The Turkmennebit State Concern that operates those fields has to rely increasingly on the gas lift method of operation to maintain the current rates of oil production. Using this method usually indicates that an oil field has already passed its peak production. ¶6. (SBU) Turkmennebit has also started extracting oil from small fields located in the central part of the country (reftel) in an effort to meet the goals of the National Program. The Turkmen Government has signed a number of production sharing agreements with foreign companies to develop mostly offshore oil fields. Although foreign companies working under PSAs are gradually increasing their production, this factor is unlikely to significantly improve total oil production statistics, and there are no grounds to believe at this point that there will be any major offshore fields discovered in the near future. Turkmenistan also gets ASHGABAT 00001563 002.2 OF 002 a share of the oil produced in the Yashyldepe-Kokdumalak oil field, located on the Turkmen-Uzbek border and operated by an Uzbek national oil company. ¶7. (SBU) The Turkmen Government is currently considering two possibilities to increase oil production in the short and midterm. According to a Ministry of Oil and Gas expert, the top management of the oil industry is looking into options for bringing state-of-the-art well stimulation technologies to the country. Well stimulation technologies will allow Turkmennebit to increase oil output from currently developed fields in the short term. ¶8. (SBU) According to the Ministry official, Turkmennebit is most interested in cooperating with scientific institutes rather than with oil field service companies on well stimulation projects. The expert asserted that ideally the GOTX would like to bring in highly qualified engineers and scientists who would apply new well simulation technologies while simultaneously training Turkmennebit engineers in applying the technologies. In other words, the Turkmen oil and gas sector management would like to acquire technologies instead of purchasing services. As for the mid and long term, Turkmen geologists believe that new producing layers can be discovered in southwestern Turkmenistan at depths below 4,000 meters. The Government is expected to intensify exploration drilling in that area starting with drilling deeper wells at the oil fields that are under exploration now. ¶9. (SBU) COMMENT: Although well stimulation technologies increase the rate of oil recovery from a reservoir to some extent, the chief advantage of these technologies is that they allow for pumping oil out of the reservoir faster than regular technologies do. If Turkmennebit widely applies well stimulation technologies to its fields, some Turkmen geologists believe that Turkmenistan will see an increase of oil production for the next five to seven years, or until the oil fields are depleted to such an extent that even well stimulation technologies won't help. If no new oil fields or new producing layers in the old fields are discovered, the Turkmen oil industry will see a gradual and inevitable decrease of oil production that will come in direct conflict with national oil production goals for 2020 and 2030. END COMMENT. ECKSTROM