Identifier
Created
Classification
Origin
09ASHGABAT729
2009-06-10 08:59:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ashgabat
Cable title:
TURKMENISTAN: KAKAYEV DESCRIBES DEVELOPMENT
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UNCLAS SECTION 01 OF 03 ASHGABAT 000729
SENSITIVE
SIPDIS
SCA/CEN; EEB
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
E.O. 12958: N/A
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: KAKAYEV DESCRIBES DEVELOPMENT
STRATEGY FROM ANOTHER PERSPECTIVE
UNCLAS SECTION 01 OF 03 ASHGABAT 000729
SENSITIVE
SIPDIS
SCA/CEN; EEB
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
E.O. 12958: N/A
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: KAKAYEV DESCRIBES DEVELOPMENT
STRATEGY FROM ANOTHER PERSPECTIVE
1. (SBU) SUMMARY: The Morningstar delegation's May 29
meeting with State Agency for the Management and Use of
Hydrocarbons Chairman Kakayev provided some insights into
Turkmen thinking regarding the current energy sector
development strategy, the export pipeline question and
commercial proposals that fall outside of standard
definitions. He expressed confidence in the current
development strategy for Yolotan, which he said would bring
production up sufficiently to cover the country's gas
obligation to China. Kakayev asserted that there should be a
balance between the development of infrastructure, extraction
of resources, and transportation options, and Turkmenistan
will not increase production capacity before there is a
destination for the gas produced, he said. His general
comments show a flawed strategy that is unlikely to fulfill
national needs. Passively waiting for Western interests to
build a pipeline to give Turkmenistan access to Western
markets, for example, and putting minimal effort into
boosting production, means the country could lose out on key
opportunities to develop a western route. END SUMMARY.
2. (SBU) State Agency for the Management and Use of
Hydrocarbons Chairman Yagshygeldy Kakayev told members of the
SE/EE Morningstar delegation that the Agency is empowered to
license foreign companies to work in Turkmenistan through
direct negotiations, and is currently overseeing the
activities of seven production sharing agreements. (NOTE:
That includes the three onshore and the four offshore PSAs.
END NOTE.) He explained that one of the reasons Turkmenistan
is agreeable to PSAs offshore but not onshore is that
Turkmenistan has decades of experience performing onshore
exploration and development, and has the necessary equipment.
It has little, however, in the way of offshore development
experience. As a historic example, Kakayev said the Soviets
had only explored one field in the Caspian Sea, which is in
the Azerbaijan-claimed area of the sea.
SEEKING TECHNOLOGY AND INVESTMENT
3. (SBU) He acknowledged that development of the South
Yolotan field would demand huge investment and an infusion of
technology, and said the Turkmen government was now
negotiating the financing of a joint development project for
Yolotan. (NOTE: He may have been referring to the reported
Iranian proposal, which provides for the development of an
unidentified portion of the field and for the construction of
a new 10 bcm export pipeline to Iran. END NOTE.)
STATE AGENCY OPEN TO INVENTIVE PROPOSALS
4. (SBU) He said that the Turkmen government wants to bring
in foreign companies that will invest in the field and bring
in the necessary technology to develop it. He added that the
government was open to either foreign company-managed or
joint government-company projects. It would also be possible
for a foreign company that invests in and develops a field to
participate in a joint production effort. However, for
Turkmenistan, a service agreement means that a company will
not receive a portion of the field's resources, he said.
Kakayev noted that large international oil companies don't
want to participate in projects that lack the promise of
reserves or are short term in nature. Service companies,
however, are interested in such projects, especially the
drilling, well services and construction companies, he said.
YOLOTAN
5. (SBU) Kakayev rejected the delegation's research
indicating that Yolotan will require $190 billion in
ASHGABAT 00000729 002 OF 003
investment over the next 20 years. He also rebuffed the
proposition that the more gas Turkmenistan produces, the more
diversified its export pipelines will become, due to
commercial pressures to move the product to market. Kakayev
said that the government had decided to do what it takes to
raise production from South Yolotan by 10 bcm per year. He
said there was no reason to increase it by 60 bcm, because
there was no way to export such quantities now. He said that
the 20 bcm the Turkmen government expected to come from South
Yolotan in the next few years would be enough to meet the
Chinese agreement. (NOTE: The agreement President
Berdimuhammedov signed with the Chinese government in July
2007 stipulated that Turkmenistan would contribute 17 bcm to
the pipeline that will take some 30-40 bcm of gas to China
sometime after 2010. END NOTE.)
6. (SBU) Kakayev said that Yolotan is not like Dovletabad
in its geology and structure. Dovletabad has a smaller "pay
zone". Yolotan, he said, is a smaller territory, but the pay
zone is thicker and Turkmen operators still haven't hit water
during any drilling operations, which indicates the drilling
hasn't fully penetrated the pay zone. He acknowledged the
thick layer of salt that must be penetrated to access
Yolotan's gas, and the need for foreign company assistance to
properly drill through it and manage such operations.
PIPELINES
7. (SBU) Kakayev said the policy from the beginning of
independence was to sell Turkmen gas in all directions. He
reminded the delegation of failed efforts in 1992 to develop
an export line through Iran and Turkey, and Unocal's proposal
to build a line through Afghanistan in the late 1990s with
Shell and Bechtel. After those experiences, Turkmen
officials chose to establish a policy of selling gas at the
border. He noted that Turkmenistan is currently receptive to
Afghanistan and Pakistan building a pipeline to the Turkmen
border. Negotiations for a TAPI pipeline have been underway
since 2002, he said. In the same way, he noted, Turkmenistan
is open to a possible Trans-Caspian pipeline. Kakayev said
that the Malaysian energy company, Petronas will begin
delivering gas from its offshore fields in 2010. The current
plan is to sell this gas to Gazprom. The old coastal CAC-3
pipeline has some remaining capacity that could also be
tapped, he said, without providing details.
SEEKING BALANCE
8. (SBU) Kakayev asserted that there should be a balance
between the development of infrastructure, extraction of
resources, and transportation options. Turkmenistan will not
increase production capacity before there is a destination
for the gas produced, he said. The goal, he said, is to
adjust the pace of development to match the rate at which the
country is linked up with international infrastructure. He
argued that Turkmenistan does not want to assume
transportation or market risks, although it accepts
geological, financial and other risks. He then suggested
that by building infrastructure just to the border, and
allowing foreign interests to complete the connection abroad,
both the risks and profits of energy resources are shared
equally.
9. (SBU) COMMENT: Kakayev's assertion that it makes more
sense to pace resource development with international energy
transport development ran completely counter to what the
delegation was recommending, and makes no sense. Indeed, it
may simply be a way for the Turkmen to justify their plan for
slow onshore development using service companies. By taking
ASHGABAT 00000729 003 OF 003
a passive stance on the development of international
transportation routes (with the exception of seemingly
all-expense paid ones such as Turkmenistan-China),the policy
will impair Turkmenistan's ability to access westward transit
routes. Westward routes are more likely to be developed
because of commercial interests, whereas bilaterally-agreed
transit routes such as those that will go to China or
potentially Iran will make progress due to the political and
economic interests of the countries involved. Additionally,
his comments on where gas produced in the Caspian will go
seemed to almost suggest he expected the delegation to come
up with an alternative to the CAC-3. Without a significant
boost in production, however, it is unlikely that a Western
country or company will offer up a no-cost pipeline reaching
the country's border that will move Turkmen gas westward
anytime soon. END COMMENT.
MILES
SENSITIVE
SIPDIS
SCA/CEN; EEB
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
E.O. 12958: N/A
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: KAKAYEV DESCRIBES DEVELOPMENT
STRATEGY FROM ANOTHER PERSPECTIVE
1. (SBU) SUMMARY: The Morningstar delegation's May 29
meeting with State Agency for the Management and Use of
Hydrocarbons Chairman Kakayev provided some insights into
Turkmen thinking regarding the current energy sector
development strategy, the export pipeline question and
commercial proposals that fall outside of standard
definitions. He expressed confidence in the current
development strategy for Yolotan, which he said would bring
production up sufficiently to cover the country's gas
obligation to China. Kakayev asserted that there should be a
balance between the development of infrastructure, extraction
of resources, and transportation options, and Turkmenistan
will not increase production capacity before there is a
destination for the gas produced, he said. His general
comments show a flawed strategy that is unlikely to fulfill
national needs. Passively waiting for Western interests to
build a pipeline to give Turkmenistan access to Western
markets, for example, and putting minimal effort into
boosting production, means the country could lose out on key
opportunities to develop a western route. END SUMMARY.
2. (SBU) State Agency for the Management and Use of
Hydrocarbons Chairman Yagshygeldy Kakayev told members of the
SE/EE Morningstar delegation that the Agency is empowered to
license foreign companies to work in Turkmenistan through
direct negotiations, and is currently overseeing the
activities of seven production sharing agreements. (NOTE:
That includes the three onshore and the four offshore PSAs.
END NOTE.) He explained that one of the reasons Turkmenistan
is agreeable to PSAs offshore but not onshore is that
Turkmenistan has decades of experience performing onshore
exploration and development, and has the necessary equipment.
It has little, however, in the way of offshore development
experience. As a historic example, Kakayev said the Soviets
had only explored one field in the Caspian Sea, which is in
the Azerbaijan-claimed area of the sea.
SEEKING TECHNOLOGY AND INVESTMENT
3. (SBU) He acknowledged that development of the South
Yolotan field would demand huge investment and an infusion of
technology, and said the Turkmen government was now
negotiating the financing of a joint development project for
Yolotan. (NOTE: He may have been referring to the reported
Iranian proposal, which provides for the development of an
unidentified portion of the field and for the construction of
a new 10 bcm export pipeline to Iran. END NOTE.)
STATE AGENCY OPEN TO INVENTIVE PROPOSALS
4. (SBU) He said that the Turkmen government wants to bring
in foreign companies that will invest in the field and bring
in the necessary technology to develop it. He added that the
government was open to either foreign company-managed or
joint government-company projects. It would also be possible
for a foreign company that invests in and develops a field to
participate in a joint production effort. However, for
Turkmenistan, a service agreement means that a company will
not receive a portion of the field's resources, he said.
Kakayev noted that large international oil companies don't
want to participate in projects that lack the promise of
reserves or are short term in nature. Service companies,
however, are interested in such projects, especially the
drilling, well services and construction companies, he said.
YOLOTAN
5. (SBU) Kakayev rejected the delegation's research
indicating that Yolotan will require $190 billion in
ASHGABAT 00000729 002 OF 003
investment over the next 20 years. He also rebuffed the
proposition that the more gas Turkmenistan produces, the more
diversified its export pipelines will become, due to
commercial pressures to move the product to market. Kakayev
said that the government had decided to do what it takes to
raise production from South Yolotan by 10 bcm per year. He
said there was no reason to increase it by 60 bcm, because
there was no way to export such quantities now. He said that
the 20 bcm the Turkmen government expected to come from South
Yolotan in the next few years would be enough to meet the
Chinese agreement. (NOTE: The agreement President
Berdimuhammedov signed with the Chinese government in July
2007 stipulated that Turkmenistan would contribute 17 bcm to
the pipeline that will take some 30-40 bcm of gas to China
sometime after 2010. END NOTE.)
6. (SBU) Kakayev said that Yolotan is not like Dovletabad
in its geology and structure. Dovletabad has a smaller "pay
zone". Yolotan, he said, is a smaller territory, but the pay
zone is thicker and Turkmen operators still haven't hit water
during any drilling operations, which indicates the drilling
hasn't fully penetrated the pay zone. He acknowledged the
thick layer of salt that must be penetrated to access
Yolotan's gas, and the need for foreign company assistance to
properly drill through it and manage such operations.
PIPELINES
7. (SBU) Kakayev said the policy from the beginning of
independence was to sell Turkmen gas in all directions. He
reminded the delegation of failed efforts in 1992 to develop
an export line through Iran and Turkey, and Unocal's proposal
to build a line through Afghanistan in the late 1990s with
Shell and Bechtel. After those experiences, Turkmen
officials chose to establish a policy of selling gas at the
border. He noted that Turkmenistan is currently receptive to
Afghanistan and Pakistan building a pipeline to the Turkmen
border. Negotiations for a TAPI pipeline have been underway
since 2002, he said. In the same way, he noted, Turkmenistan
is open to a possible Trans-Caspian pipeline. Kakayev said
that the Malaysian energy company, Petronas will begin
delivering gas from its offshore fields in 2010. The current
plan is to sell this gas to Gazprom. The old coastal CAC-3
pipeline has some remaining capacity that could also be
tapped, he said, without providing details.
SEEKING BALANCE
8. (SBU) Kakayev asserted that there should be a balance
between the development of infrastructure, extraction of
resources, and transportation options. Turkmenistan will not
increase production capacity before there is a destination
for the gas produced, he said. The goal, he said, is to
adjust the pace of development to match the rate at which the
country is linked up with international infrastructure. He
argued that Turkmenistan does not want to assume
transportation or market risks, although it accepts
geological, financial and other risks. He then suggested
that by building infrastructure just to the border, and
allowing foreign interests to complete the connection abroad,
both the risks and profits of energy resources are shared
equally.
9. (SBU) COMMENT: Kakayev's assertion that it makes more
sense to pace resource development with international energy
transport development ran completely counter to what the
delegation was recommending, and makes no sense. Indeed, it
may simply be a way for the Turkmen to justify their plan for
slow onshore development using service companies. By taking
ASHGABAT 00000729 003 OF 003
a passive stance on the development of international
transportation routes (with the exception of seemingly
all-expense paid ones such as Turkmenistan-China),the policy
will impair Turkmenistan's ability to access westward transit
routes. Westward routes are more likely to be developed
because of commercial interests, whereas bilaterally-agreed
transit routes such as those that will go to China or
potentially Iran will make progress due to the political and
economic interests of the countries involved. Additionally,
his comments on where gas produced in the Caspian will go
seemed to almost suggest he expected the delegation to come
up with an alternative to the CAC-3. Without a significant
boost in production, however, it is unlikely that a Western
country or company will offer up a no-cost pipeline reaching
the country's border that will move Turkmen gas westward
anytime soon. END COMMENT.
MILES