TURKMENISTAN: WHERE WILL PETRONAS SEND ITS CASPIAN GAS WHEN

UNCLAS SECTION 01 OF 02 ASHGABAT 000661

SENSITIVE

SIPDIS

STATE FOR SCA/CEN; EEB
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: N/A
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN: WHERE WILL PETRONAS SEND ITS CASPIAN GAS WHEN
IT STARTS FLOWING?


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


2. (SBU) SUMMARY: Petronas officials are making confident
statements regarding the company's goal of delivering its first
natural gas from offshore Block 1. The company is etimating it
will begin delivering five bcm per year of gas, ostensibly to
Turkmen state concerns, in late 2010. The company has almost
completed an offshore terminal and a gas processing facility north
of Turkmenbashy, and has begun construction of a pipeline that will
connect its offshore wells to the processing facility. Company
representatives are keeping mum about the details of precisely how
and in what direction the gas will be transported to a market, but
they may have initially planned to put it into the proposed Caspian
Littoral pipeline for transport to Russia. The old Central Asia
Center 3 (CAC-3) leading to Russia is too decrepit and lacks even a
modest capacity. With plans for the Littoral pipeline remaining
unclear, it seems likely that Petronas, along with other companies
operating offshore, may need to develop multiple, alternate plans
for getting their production to market, if they haven't already.
END SUMMARY.


3. (SBU) On May 15, Malaysian energy company Petronas President,
Muhammad Hasan Marikan, met with President Berdimuhamedov to discuss
the company's activities in the country and announced that Petronas
will begin producing five bcm of natural gas per year from its
operations in offshore Block 1, beginning in the second half of

2010. Marikan also noted that the production volume could
potentially increase to ten bcm in the longer term. Official
Turkmen media reported that President Berdimuhamedov gave Marikan
"specific instructions regarding the directions of natural gas
transportation," but the media did not provide further information
on the implied directions.


4. (SBU) Petronas has been operating in Block 1 under a 25-year
production sharing agreement (PSA) since 1996 and has invested some
$2.3 billion in developing the block's oil and gas potential.
Petronas began commercial production of oil from the Diyarbekir
offshore oil field in May of 2006 and has produced 800,000 tons of
oil over the last three years. Currently, the field produces about
6,000 barrels per day.


5. (SBU) The majority of the company's anticipated gas production
will come from the Magtymguly gas field, where the company has
already drilled four production wells and is in the process of
drilling a fifth. Petronas has already started laying gas pipelines
to transport natural gas 70 kilometers, from the wells to the
Turkmen shore. During an April visit to the coast, Political
Officer saw the company's new shore-based terminal and a gas
processing plant in Kiyanly, 30 kilometers northwest of
Turkmenbashy, which appeared to be nearing completion. Petronas is
also reportedly building a 53-kilometer pipeline to transport gas
from the new processing plant to an existing export pipeline.
(NOTE: It increasingly appears that Petronas is viewing future
natural gas production as the main income generator, rather than
oil. END NOTE.)


6. (SBU) The only export pipeline located such a short distance
from Kiyanly is the Central Asia Center 3 (CAC-3) pipeline, which
transported natural gas from Turkmenistan's western deposits to
Russia in the Soviet period. The CAC-3 had not been used for about
ten years, but the Turkmen Government again began using it to export
very small quantities of gas about five years ago. (NOTE: The
Caspian Littoral Pipeline project that Russia, Kazakhstan, and
Turkmenistan agreed to build envisions a larger export line
paralleling CAC-3, but Turkmenistan has been dragging its feet on
implementing the agreement. END NOTE.) Petronas Production Manager
in Turkmenistan, Abdul Halim, told Embassy officers on May 26 that
the company plans to sell its gas to the Turkmen Government and let
the government handle the export issue, since the company prefers to
distance itself from the geopolitics of regional gas export. He

ASHGABAT 00000661 002 OF 002


predicted that the gas the company produces will most likely be sold
to Russia and be transported through an existing pipeline
infrastructure, but he did not elaborate further.


7. (SBU) COMMENT: Although it seems obvious that the most
convenient route for exporting Petronas' natural gas will be to
Russia, such a route going from Western Turkmenistan north to Russia
remains in a proposal phase and its future remains uncertain. The
aged CAC-3 is already transporting State Concern Turkmengas'
production, and would not be able to accommodate Petronas' three
bcm. Petronas, however, expects to begin delivering gas supplies to
the new gas processing facility by late 2010. It is giving no
indication that it has a "Plan B" regarding where it would deliver
the gas if the proposed Littoral pipeline does not get off the
ground by then. The current reality is that, if the Littoral
pipeline does not get underway soon, Petronas and other offshore
enterprises will not have sufficient infrastructure to carry their
production to any market. They should be developing alternative
markets to ensure they have an outlet if needed. END COMMENT.

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