Identifier
Created
Classification
Origin
09ASHGABAT291
2009-03-04 05:45:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:
TURKMENISTAN: WINTERSHALL MANAGER REPORTS LATEST
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C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000291
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SUBJECT: TURKMENISTAN: WINTERSHALL MANAGER REPORTS LATEST
ON ENERGY DEVELOPMENTS
Classified By: DCM 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 000291
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SUBJECT: TURKMENISTAN: WINTERSHALL MANAGER REPORTS LATEST
ON ENERGY DEVELOPMENTS
Classified By: DCM Sylvia Reed Curran for reasons 1.4 (b) and (d).
1. (C) SUMMARY: German energy company Wintershall's
general manager, Kal Sandhu, talked with poloff on March 2
about the company's failure in 2008 to find hydrocarbons in
two Caspian blocks. Although Wintershall continues to talk
to Turkmen officials about onshore work, the discussions have
made no progress. Sandhu shared news that the Turkmen
government may soon sign a PSA with German energy company RWE
Dea for Caspian block 23 and details about Gaffney, Cline and
Associates' role as project manager for the development of
Yolotan. Sandhu expressed amazement over Iran's agreement to
build and pay for a pipeline connecting Yolotan to Iran's
infrastructure. Construction of such a pipeline will take
time, however, and developing this major field to a point
where it can start producing gas for a new pipeline is still
years away. END SUMMARY.
TOUGH TIMES FOR WINTERSHALL
2. (C) Sandhu said Wintershall still holds a PSA for blocks
11 and 12 in the Caspian. Last year, however, it managed to
drill two dry holes, and is uncertain about the PSA's future.
The German energy company drilled one of the holes. When it
was determined to be dry, the company initially wanted to
cancel drilling plans for the second site, which company
geologists had assessed as having an eight percent chance of
striking hydrocarbons. Sandhu said that the company
generally does not spend money drilling at sites that are
assessed as having less than a 20 percent chance of success.
Turkmen government officials, however, stepped in and pressed
the company to drill at the site anyway, and after
considering the benefits to the business relationship, the
company relented and drilled at the site. This site, too,
was found to be dry. The company is now assessing next
steps, he said. Meanwhile, Sandhu continues to talk with
Turkmen government representatives about onshore work, but
the discussions have made no progress, he said.
POSSIBLE NEW CASPIAN PSA WITH GERMAN COMPANY
3. (C) Sandhu said that the Turkmen government is preparing
to sign its first production sharing agreement since 2007,
with a German company. The company, RWE Dea, based in
Hamburg, will be signing a PSA for Caspian block 23, he said.
(NOTE: RWE is a gas exploration and development company
with significant international experience in four North
African countries, as ell as Europe, including work in the
offshore shallows north of Germany. END NOTE.) Sandhu said
developing this block would be "high risk", because it is not
considered to have significant potential. None of the major
companies, for example, showed any interest in it. RWE,
however, may have additional plans in Turkmenistan beyond the
block, Sandhu suggested, and may be primarily interested in
onshore work. He added that the company is also currently
playing a role in the development of the Nabucco pipeline.
GAFFNEY, CLINE AS PROJECT MANAGER
4. (C) Sandhu commented also on the recent visit of
representatives of Gaffney, Cline and Associates, the firm
that performed last year's audit of Turkmenistan's
hydrocarbon fields at Yolotan, Osman and Yashlar. He claimed
that GCA will be acting as a project manager for Yolotan,
assisting the government in overseeing the activities of the
army of service companies that are being contracted to
develop the field. Sandhu observed that the Turkmen
government's decision to develop its onshore fields through
agreements with service companies was modeled on the Russian
ASHGABAT 00000291 002 OF 002
government's similar path in the early 1990s. He said the
Russian government eventually learned that it could not
manage the projects effectively, and ultimately had to bring
in the large IOCs to boost production with their expertise
and technology.
YOLOTAN AND IRAN
5. (C) The Wintershall manager expressed amazement at the
Turkmen government's February decision to sign a major
development contract with the government of Iran. He
described it as a deal that left both parties very pleased.
Turkmenistan had found a partner similar to the Chinese
company CNPC, to engage in development work on the Yolotan
field at cut-rate prices. Iran's agreement to build a new
gas pipeline connecting Yolotan's infrastructure to Iran's
existing transportation systems, and foot the bill for it,
demonstrates what a sovereign state can agree to, as opposed
to a private company, he said. Economic factors are not the
only consideration, he added. (NOTE: Iran has, since 1997,
received about 8 bcm per year from western Turkmenistan via a
pipeline that parallels the Caspian coast down into northern
Iran. Although that pipeline has a 14 bcm capacity, it has
never moved that much. END NOTE.)
6. (C) Sandhu opined that both Iran and Turkmenistan saw
this deal as win-win: Iran's goals were to increase its
import of Turkmen gas, and increase the reliability of
delivery by developing an additional transit route from a
different source. The Turkmen wanted to increase gas exports
and diversify their transit options, he said. He claimed
that the Iranians agreed to pay the same price the Russians
are paying per tcm for the gas that eventually will flow
through the new pipeline. (NOTE: Turkmen and Iranian press
reported that the February 2009 deal will secure another 10
bcm of natural gas for Iran, once construction of the new
pipeline is completed. END NOTE.)
7. (C) COMMENT: It is unclear where Iranian contractors
will build the new pipeline, but we would surmise that it
will extend from Yolotan south and west to connect with
existent gas pipeline infrastructure east of Mashhad, a
distance of about 160 kilometers. Construction of such a
pipeline would be the final stage of a development process
that is just getting underway at Yolotan, however, and
production that will feed this potential pipeline is likely
years away. END COMMENT.
MILES
SIPDIS
SCA/CEN; EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
E.O. 12958: DECL: 03/03/2019
TAGS: PGOV EINV EPET GM TX
SUBJECT: TURKMENISTAN: WINTERSHALL MANAGER REPORTS LATEST
ON ENERGY DEVELOPMENTS
Classified By: DCM Sylvia Reed Curran for reasons 1.4 (b) and (d).
1. (C) SUMMARY: German energy company Wintershall's
general manager, Kal Sandhu, talked with poloff on March 2
about the company's failure in 2008 to find hydrocarbons in
two Caspian blocks. Although Wintershall continues to talk
to Turkmen officials about onshore work, the discussions have
made no progress. Sandhu shared news that the Turkmen
government may soon sign a PSA with German energy company RWE
Dea for Caspian block 23 and details about Gaffney, Cline and
Associates' role as project manager for the development of
Yolotan. Sandhu expressed amazement over Iran's agreement to
build and pay for a pipeline connecting Yolotan to Iran's
infrastructure. Construction of such a pipeline will take
time, however, and developing this major field to a point
where it can start producing gas for a new pipeline is still
years away. END SUMMARY.
TOUGH TIMES FOR WINTERSHALL
2. (C) Sandhu said Wintershall still holds a PSA for blocks
11 and 12 in the Caspian. Last year, however, it managed to
drill two dry holes, and is uncertain about the PSA's future.
The German energy company drilled one of the holes. When it
was determined to be dry, the company initially wanted to
cancel drilling plans for the second site, which company
geologists had assessed as having an eight percent chance of
striking hydrocarbons. Sandhu said that the company
generally does not spend money drilling at sites that are
assessed as having less than a 20 percent chance of success.
Turkmen government officials, however, stepped in and pressed
the company to drill at the site anyway, and after
considering the benefits to the business relationship, the
company relented and drilled at the site. This site, too,
was found to be dry. The company is now assessing next
steps, he said. Meanwhile, Sandhu continues to talk with
Turkmen government representatives about onshore work, but
the discussions have made no progress, he said.
POSSIBLE NEW CASPIAN PSA WITH GERMAN COMPANY
3. (C) Sandhu said that the Turkmen government is preparing
to sign its first production sharing agreement since 2007,
with a German company. The company, RWE Dea, based in
Hamburg, will be signing a PSA for Caspian block 23, he said.
(NOTE: RWE is a gas exploration and development company
with significant international experience in four North
African countries, as ell as Europe, including work in the
offshore shallows north of Germany. END NOTE.) Sandhu said
developing this block would be "high risk", because it is not
considered to have significant potential. None of the major
companies, for example, showed any interest in it. RWE,
however, may have additional plans in Turkmenistan beyond the
block, Sandhu suggested, and may be primarily interested in
onshore work. He added that the company is also currently
playing a role in the development of the Nabucco pipeline.
GAFFNEY, CLINE AS PROJECT MANAGER
4. (C) Sandhu commented also on the recent visit of
representatives of Gaffney, Cline and Associates, the firm
that performed last year's audit of Turkmenistan's
hydrocarbon fields at Yolotan, Osman and Yashlar. He claimed
that GCA will be acting as a project manager for Yolotan,
assisting the government in overseeing the activities of the
army of service companies that are being contracted to
develop the field. Sandhu observed that the Turkmen
government's decision to develop its onshore fields through
agreements with service companies was modeled on the Russian
ASHGABAT 00000291 002 OF 002
government's similar path in the early 1990s. He said the
Russian government eventually learned that it could not
manage the projects effectively, and ultimately had to bring
in the large IOCs to boost production with their expertise
and technology.
YOLOTAN AND IRAN
5. (C) The Wintershall manager expressed amazement at the
Turkmen government's February decision to sign a major
development contract with the government of Iran. He
described it as a deal that left both parties very pleased.
Turkmenistan had found a partner similar to the Chinese
company CNPC, to engage in development work on the Yolotan
field at cut-rate prices. Iran's agreement to build a new
gas pipeline connecting Yolotan's infrastructure to Iran's
existing transportation systems, and foot the bill for it,
demonstrates what a sovereign state can agree to, as opposed
to a private company, he said. Economic factors are not the
only consideration, he added. (NOTE: Iran has, since 1997,
received about 8 bcm per year from western Turkmenistan via a
pipeline that parallels the Caspian coast down into northern
Iran. Although that pipeline has a 14 bcm capacity, it has
never moved that much. END NOTE.)
6. (C) Sandhu opined that both Iran and Turkmenistan saw
this deal as win-win: Iran's goals were to increase its
import of Turkmen gas, and increase the reliability of
delivery by developing an additional transit route from a
different source. The Turkmen wanted to increase gas exports
and diversify their transit options, he said. He claimed
that the Iranians agreed to pay the same price the Russians
are paying per tcm for the gas that eventually will flow
through the new pipeline. (NOTE: Turkmen and Iranian press
reported that the February 2009 deal will secure another 10
bcm of natural gas for Iran, once construction of the new
pipeline is completed. END NOTE.)
7. (C) COMMENT: It is unclear where Iranian contractors
will build the new pipeline, but we would surmise that it
will extend from Yolotan south and west to connect with
existent gas pipeline infrastructure east of Mashhad, a
distance of about 160 kilometers. Construction of such a
pipeline would be the final stage of a development process
that is just getting underway at Yolotan, however, and
production that will feed this potential pipeline is likely
years away. END COMMENT.
MILES