TURKMENISTAN: TAKING ITS OWN PATH ON

UNCLAS SECTION 01 OF 03 ASHGABAT 000695 SENSITIVE SIPDIS SCA/CEN; EEB ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: N/A TAGS: PGOV EPET EINV TX SUBJECT: TURKMENISTAN: TAKING ITS OWN PATH ON DIVERSIFICATION AND GAS SECTOR DEVELOPMENT ¶1. (SBU) SUMMARY: On May 29, Deputy Cabinet Chairman for Oil and Gas, Tachberdy Tagiyev, told members of the Morningstar delegation that Turkmenistan prefers Western technology and has had a long and successful working relationship with Western service firms. He said Turkmenistan is very focused now on doing what it can to promote the development of multiple export pipelines, although the policy of selling its gas at the border has not changed. Development plans are underway to modernize and add key elements of infrastructure to operational fields to gradually boost production. Tagiyev understood it would take 10-20 years of work with service companies to bring a field like South Yolotan to its maximum potential. He seemed to suggest that a gradual increase in production was the goal, and that Turkmenistan was okay with the fact that it will take a long time for service companies to do it. END SUMMARY. ¶2. (SBU) Special Envoy for Eurasian Energy, Richard Morningstar, and his delegation met on May 29 with Deputy Cabinet Chairman for Oil and Gas, Tachberdy Tagiyev, to discuss the status of oil and gas development in Turkmenistan. Tagiyev provided a familiar synopsis of developments in the sector, noting that Turkmenistan buys European, Japanese or U.S. equipment and technology to modernize wells, pipelines and compressor stations. He also reiterated the standard policy regarding the availability of Caspian offshore blocks to foreign companies interested in production sharing agreements (PSAs),and opportunities for foreign companies to obtain service contracts for onshore work. He favorably mentioned the array of foreign companies, including some American companies, which have been doing service work here for a long time. FOCUS ON DIVERSIFICATION ¶3. (SBU) Tagiyev also repeated the government policy of selling gas at the border, but noted that they are "paying attention to issues of diversification" of pipelines. He specifically mentioned the existing pipeline to Iran, and said the line taking gas to China would be operational in 2010, and would eventually take 40 bcm per year to China. He noted that Turkmenistan "is thinking about the European direction also", and mentioned the government's signature of a framework agreement with German energy company RWE in April. He said a state committee is negotiating now on the TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline, and had determined the route of the new pipeline. The committee, he added, is currently studying the markets of Pakistan and India. ¶4. (SBU) Turkmenistan, he said, holds an estimated 24 trillion cubic meters (tcm) of gas, according to experts. He noted the 2008 audit that confirmed that South Yolotan and Osman hold a combined estimated 6-14 tcm of gas. Tagiyev said that work had begun at Yashlar, where officials believe some 3-5 tcm will be extracted. (NOTE: The numbers Tagiyev cited for Yashlar were 3-5 times the 0.3-1.5 tcm the Gaffney Cline audit assessed to be there. Industry geologists question the validity of this audit, which was based on severely limited data. END NOTE.) Offshore gas reserves, he said, are estimated to be 6 tcm, but offshore development is needed. He said the State Agency for the Management and Use of Hydrocarbons can negotiate directly with foreign companies interested in PSAs offshore. There are 32 blocks in the Turkmen-claimed portion of the Caspian, and four are being developed now. He claimed negotiations were underway for the rest. He noted that Western Geco had done the offshore exploration research, and interested foreign companies could obtain the data. ASHGABAT 00000695 002 OF 003 SEEKING INVESTMENT AND COMPETITIVE PRICING ¶5. (SBU) Tagiyev said Turkmenistan was interested in companies that are ready to invest. Building the East-West pipeline will facilitate the country's export diversification goals for a Littoral pipeline, a Trans-Caspian pipeline, or a line to Europe. Alternatively, Turkmenistan can also produce LNG and ship it across the Caspian or via rail in multiple directions, he said. Tagiyev said that from 2009 on, Turkmenistan wants to sell its gas at the European market price, and this has made the goal of diversification more important. (NOTE: It was interesting that he stated this, given Russia's desire to re-negotiate the price for Turkmen gas downward from the European market price formula the two countries agreed to in 2008, at the first opportunity. END NOTE.) Tagiyev said Turkmenistan has good relations with all its neighbors, but noted that "Russia is not actually our neighbor." He reiterated that Turkmen law stipulates that gas is to be sold at the border, but noted that it doesn't matter to whom it is sold. "Just build us a pipeline, and we'll deliver," Tagiyev said. LIGHT SHED ON DEVELOPMENT PLAN ¶6. (SBU) Tagiyev made comments that provided some insights into Turkmen thinking on the rate and pace of the gas sector's development. He said no gas field could be developed in just two or three years. It takes about 30 years to develop the range of necessary infrastructure. However, a gas processing plant and sulfur separation facility were going to be built at South Yolotan, and officials had assessed that they would be able to extract some 10 bcm from the field in about three years. Infrastructure maintenance, he said, is also a factor. He said officials expect it will take 10-20 years of service work to bring South Yolotan up to a level of development where it can produce 30 cm per year. The field, Tagiyev confidently assessed, would then last 100-200 years at that rate of production. He said that companies like Chevron understand this vision, and added that companies like Schlumberger will thus be here for the next 100 years, performing geological research and other services. MOTIVATED ON ADDITIONAL PIPELINES ¶7. (SBU) Tagiyev said that the government and foreign companies still need to make adjustments in their terms to get closer to a point where they can look at onshore work. He noted that China was building a 7,000 kilometer export pipeline, and "they'll get our gas." However, Europe was "still talking, but should do something," he added. Tagiyev then responded to an inquiry about whether there was any consideration of taking a more active role in export pipeline discussions. He said that currently, Turkmenistan has no capacity to develop its interests abroad, but perhaps would have in the future. He hinted that the government was considering some level of involvement in construction of the TAPI pipeline, but provided no further detail. He did note, however, that construction of the TAPI would strengthen Turkmenistan's foreign policy position in all directions, as well as improve Turkmenistan's security position. He did not elaborate further. ¶8. (SBU) COMMENT: Tagiyev's comments on development of South Yolotan suggest the government is focused primarily on modernization of existing infrastructure on the field and construction of a dedicated gas processing facility. As he described the timeline for the field's development, it was ASHGABAT 00000695 003 OF 003 clear that the government's priority is not to get as much gas out of the ground as quickly as possible, and may not be to develop the entire field in an integrated way. Rather, he seemed to suggest that a gradual increase in production was the goal, and they are happy to wait for the service companies to do it. END COMMENT. ¶9. (SBU) Postscript: Tagiyev left for China a day or so after this meeting to, among other things, discuss possible Chinese financing for development of South Yolotan. ¶10. (U) Ambassador Morningstar cleared this cable. MILES