TURKMENISTAN: FOUR WEEKS UNDER GAS SIEGE

UNCLAS SECTION 01 OF 02 ASHGABAT 000573 SENSITIVE SIPDIS STATE FOR SCA/CEN; EEB PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: N/A TAGS: EPET PGOV EINV TX SUBJECT: TURKMENISTAN: FOUR WEEKS UNDER GAS SIEGE REF: ASHGABAT 462 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: It has been almost four weeks since the supply of Turkmen gas exported to Russia stopped due to the April 8 gas pipeline blast. In the days following the accident, the two sides exchanged high-tempered public statements accusing the other of causing the blast (reftel). The situation appears to have calmed for the moment, but the Turkmen government and Gazprom have not made any movement towards resolving their issues. Gazprom is not taking any serious steps to resume gas export from Turkmenistan, which is understandable, given the decreasing demand in the global gas market. Turkmenistan still appears to be committed to its hard-line approach, and is claiming that Gazprom must compensate Turkmenistan for losses suffered as a result of the blast. Each has ways to put pressure on the other to resolve the dispute, and finding common ground in the near-term seems unlikely. END SUMMARY. ¶3. (SBU) Gazprom seems to be interested in maintaining the status quo with Turkmenistan at least until the beginning of June, when it will be able to re-negotiate its gas purchase prices in accordance with the current agreement. Sources in Turkmenistan's energy sector told post's local energy assistant that they believe the gas export flow to Russia might resume in the fall of 2009. They expect the seasonal increase in gas demand to compel Gazprom to restart the importation of Turkmen gas, but they also assessed that Gazprom would do so in part to retain control over Turkmen gas exports rather than for economic profit. They anticipate that Gazprom will most likely start with volumes of gas significantly smaller than previously imported volumes, and will promise to gradually increase the flow. (NOTE: Post's commercial sources are assessing that the global gas market has entered into a longer-term drop in demand that could last for several years. END NOTE.) ¶4. (SBU) Turkmenistan seems to be holding firm in its position on the issue, and has not demonstrated any flexibility until recently. During the televised April 13 session of the Cabinet, President Berdimuhamedov instructed cabinet members to invite international experts to assess the cause of the explosion and determine responsibility for the blast. He stated that Gazprom should compensate Turkmenistan's losses if international experts establish that the blast occurred because of Gazprom's actions. No further public statements were made on the issue, but, according to foreign commercial and government sources, a team of foreign experts has already arrived in Turkmenistan and has begun its investigative work, starting at the blast site. ¶5. (SBU) If and when the two sides resume their dialogue, Turkmenistan will come to the table from a strong position. The country reportedly holds substantial reserves of hard currency--over the first quarter of 2009, Turkmenistan earned more than $3 billion from gas exports to Russia alone. It also initiated an international legal claim against Gazprom to get compensation for the pipeline blast, and appears to be moving forward on the development of several alternative export pipelines, all of which will give Turkmenistan a fair amount of leverage when the two countries re-enter negotiations. ¶6. (SBU) Turkmenistan has significantly intensified its efforts in all directions to diversify its gas supplies. The country is planning to initiate a gas export flow to China in the beginning of 2010 through the new Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline. Iranian media recently reported that the Petropars Oil and Gas Company has been negotiating an agreement with Turkmenistan to develop the giant Yolotan-Osman gas field and to import gas from that field. The Turkmen state media has simply stated that Turkmenistan was discussing energy cooperation with Iran, and noted ASHGABAT 00000573 002 OF 002 that a group of Turkmen experts were in Iran April 14-18 to negotiate the price of Turkmen gas going to Iran in the second half of 2009 through the existing Korpeje-Kurt Kui pipeline. ¶7. (SBU) Over the last month the Government of Turkmenistan has also stepped up its activity with the European Union and has sent numerous signals of its receptivity to Nabucco as an export route option. The Turkmenistan Government's plan to send a delegation headed by Deputy Chairman of the Cabinet of Ministers Tagiyev to the May 8 Prague Southern Corridor Summit is another indication of Turkmenistan's interest in Nabucco. ¶8. (SBU) COMMENT: The Turkmenistan government appears to be committed to seeking compensation from Gazprom for the explosion, and is using its commercial relationships with Europe, China and Iran to keep up the pressure on Gazprom. Given the enormous earnings from Gazprom, upon which Turkmenistan relies for the majority of its budget, however, the Russian company can apply its own pressure to compel the Turkmen to close the book on the pipeline explosion. Gazprom, for its part, needs to resume gas imports to maintain its hold over Turkmenistan. Since both sides are in difficult positions, negotiations to get out of this mess will be tricky. END COMMENT. MILES