Identifier
Created
Classification
Origin
09ASHGABAT648
2009-05-26 08:43:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ashgabat
Cable title:  

TURKMENISTAN: STATUS OF ENERGY DEVELOPMENT AND

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UNCLAS SECTION 01 OF 03 ASHGABAT 000648 

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E.O. 12958: N/A
TAGS: PGOV PREL EPET TX RS
SUBJECT: TURKMENISTAN: STATUS OF ENERGY DEVELOPMENT AND
SECTOR POLICY

UNCLAS SECTION 01 OF 03 ASHGABAT 000648

SENSITIVE
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SCA/CEN; EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: N/A
TAGS: PGOV PREL EPET TX RS
SUBJECT: TURKMENISTAN: STATUS OF ENERGY DEVELOPMENT AND
SECTOR POLICY


1. (U) Sensitive but unclassified. Not for Internet
distribution.


2. (SBU) SUMMARY: Oil and gas sector development in
Turkmenistan is making progress, albeit slowly. There has
been no change in the policy of barring foreign companies
from onshore PSAs, but the door appears to be open regarding
the signing of other types of agreements. Although PSA
proposals are welcome for offshore projects, the government
has not signed one since December 2007, although it signed a
preliminary agreement in April with a German energy company
that is likely to lead to a PSA. Turkmenistan is now
focusing more on its stated goal of export pipeline
diversification, and chilled relations with Russia may help
make Turkmen officials more receptive to Western export route
discussions. The country's export policy appears focused on
balancing the level of exports in all directions to give the
country the upper hand and prevent any single partner from
gaining leverage over the government. There has never been a
better time to encourage the Turkmen to look westward for
lucrative new opportunities to advance their diversification
goals. END SUMMARY.

TURKMENISTAN'S PRODUCTION/EXPORT PICTURE


3. (SBU) According to official Turkmen Government
information, in 2008 the country produced 70.4 bcm of natural
gas, and exported 47.4 bcm (5 bcm to Iran, the rest to
Russia). (NOTE: In late 2007, the President instructed
sector officials to produce 81.5 bcm of gas in 2008, but
actual production fell short by some 11 bcm. END NOTE.) In
2008 the country produced 10.2 million tons of oil and
exported more than half of it in the form of refined fuels
and petrochemicals. While the government has not yet
published any production figures for the first quarter of
2009, a Ministry of Oil and Gas official told Post's local
POL/ECON Assistant in April that Turkmenistan had earned
about $3.5 billion from gas sales in the first quarter, which
by our rough estimate suggests that about 11 bcm of gas was
exported. Based on our understanding of earnings from 2008
and first quarter 2009, there are no indications that
Turkmenistan is going to feel a financial pinch anytime soon.


RUSSIAN HALT IN TURKMEN GAS DELIVERY CONTINUES


4. (SBU) Turkmenistan is reportedly losing some $250 million
in earnings each week the stoppage continues, and five weeks
have already passed. There are no indications that the loss
in earnings has caused them any financial discomfort, given
past earnings, and there is little chance the temporary loss
in earnings will cause any significant budgetary problems.
There are indications that the Turkmen Government is growing
impatient with Russian rhetoric on the dispute and its
unwillingness to resolve the problem as an equal partner.
Post learned from a Western contact in early May that a group
of foreign experts were in Turkmenistan in April to assess
the cause of the pipeline explosion. The group reportedly
determined that Gazprom was to blame, paving the way for
Turkmenistan to demand compensation from the Russian energy
giant. There are no signs, however, that Gazprom has
accepted blame or agreed to compensate Turkmenistan. A May
21 article in Turkmen press suggested that the Turkmen
Government increasingly viewed Russia as an unreliable
partner, and that Turkmenistan would begin to focus more
attention on the potential construction of alternate export
pipelines.

COMMERCIAL ACTIVITY IN SECTOR DEVELOPMENT UNCHANGED

ASHGABAT 00000648 002 OF 003




5. (SBU) The total number of foreign company Production
Sharing Agreements (PSAs) in Turkmenistan remains at seven
(three onshore: CNPC, Mitro, and Burren Energy, four
offshore: Dragon Oil, Wintershall, Petronas, Buried Hill).
No offshore PSAs have been signed since Buried Hill in
December 2007. The German energy giant RWE -- a stakeholder
in the EU-proposed Nabucco project -- signed a Memorandum of
Understanding (MOU) with Turkmenistan on April 17 to explore
offshore Block 23, but a final contract agreement has not
emerged. Onshore, no PSAs have been signed since July 2007
with the Chinese national company, CNPC. The Turkmen
Government's policy of denying onshore PSA opportunities to
international oil companies, formally stated in mid-2008,
continues, although officials continue to publicly invite
foreign companies to submit non-production sharing onshore
proposals. Foreign energy-related service companies like
Schlumberger, Parker Drilling, and Weatherford appear to be
thriving, in spite of the tough business environment, and
logistical services and equipment companies such as Bertling,
DRC Group LLC, and Cameron are also reporting positive
business development plans here.

PROGRESS ON SOME PIPELINE PROJECTS ...


6. (SBU) Beginning in 2008, Turkmen Government officials
began stating more directly the national policy goal of
diversifying the country's export pipeline infrastructure,
and over the past year there has been marked progress in
realizing it. Construction of the Turkmenistan-China
pipeline that will carry 30-40 bcm of gas is progressing, and
the pipeline is expected to initiate at least small gas
deliveries in 2010. In February, Iran and Turkmenistan
surprised everyone with the signing of a MOU that laid the
ground work for Iranian companies to potentially develop the
South Yoloten field and build a new export pipeline that
would carry 10 bcm of Turkmen gas to northern Iran annually.
Post has learned from Western contacts here that in April,
Iranian technical experts visited the mega-giant gas field.
In early May, Iranian officials announced that they had
delivered their project proposal to the Turkmen Government.

... AND LESS PROGRESS ON OTHERS


7. (SBU) There has been no progress on the development of
the Caspian Littoral pipeline that was the subject of a
December 2007 agreement between Russia, Kazakhstan and
Turkmenistan. Although Russia and Kazakhstan have ratified
the agreement, Turkmenistan has shown no sign that it intends
to ratify the agreement anytime soon. Turkmen concerns about
the agreement appear to center on a reluctance to expand the
planned pipeline's capacity beyond 30 bcm and Russian efforts
to make a planned domestic Turkmen East-West pipeline a
dedicated feed line for the Littoral, according to a Western
commercial contact. Turkmen officials demonstrated their
displeasure with Russian intrigues in April by issuing an
international tender for the East-West pipeline's
construction, just two days after President Berdimuhamedov
refused to sign a no-bid construction contract for the
pipeline with a Russian company in Moscow. (NOTE: Post
learned in mid-May that the East-West tender will close in
July, a month later than previously stated. It may be that
the government has not yet received a proposal that includes
the kind of financing the government would probably like to
see for the estimated $1 billion project. END NOTE.)


8. (SBU) COMMENT: Turkmenistan's decision making policy
over the last two years shows that the country is developing

ASHGABAT 00000648 003 OF 003


the sector at its own speed and in its own way. Armed with a
pragmatic neutrality policy, the Turkmen President appears to
be especially receptive to bilateral package deals that
contain investment for development, advance pipeline
diversity and a political desire for long term partnership.
The Chinese pipeline and production deal -- and possibly a
future Iranian deal -- bring these benefits. There has never
been a better time to promote diversity in development and in
export. While Russia will continue to be a key partner for
the foreseeable future, a variety of other partners will
increasingly empower the Turkmen Government and allow it to
resist pressure from any one direction. Recent Turkmen
Government actions suggest that it, too, wants to avoid deals
that give one partner too much latitude over Turkmen
commerce. END COMMENT.
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