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.

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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.

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