TURKMENISTAN/IRAN: AGREEMENT FOR A NEW PRICE AND INCREASED

UNCLAS SECTION 01 OF 02 ASHGABAT 000886

SENSITIVE

SIPDIS

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

E.O. 12958: N/A
TAGS: EPET PGOV EINV TX IR
SUBJECT: TURKMENISTAN/IRAN: AGREEMENT FOR A NEW PRICE AND INCREASED
EXPORTS OF TURKMEN GAS

ASHGABAT 00000886 001.2 OF 002



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


2. (SBU) SUMMARY: On July 12, 2009, Turkmen state media reported
that Turkmenistan and Iran had agreed to a new price for Turkmen
natural gas, to be based on an international formula, as well as to
increase the volume of supplies to 14 billion cubic meters (bcm) of
gas per year, of which 8 bcm will come from the Korpeje field and 6
bcm from the Dowletabat field. Turkmenistan plans to construct a
gas pipeline from the Dowletabat field to the Iranian border in 2009
as part of the supplies increase plan. The two sides also discussed
the possibility of increasing the supplies to 20 bcm per year. The
decisions were made during the visit of an Iranian delegation led by
Seyed Reza Kasaeizadeh, Advisor to the Minister of Oil of Iran and
Director General of the National Iranian Gas Export Company. END
SUMMARY.


3. (SBU) Turkmenistan began supplying gas to Iran in 1997, after
the Korpeje - Kurtkui gas pipeline was built, linking Turkmenistan's
western gas fields to Iran's Sarakhs - Sari pipeline. The pipeline
was capable of carrying 8 bcm annually and the pipes allowed for
further increases in pressure to pump up to 13 bcm of gas per year.
The two countries had enjoyed a good partnership until January 2008,
when Turkmenistan cut gas supplies to Iran over a gas price
disagreement, citing maintenance construction problems on the
Turkmen section of the pipeline. The supplies resumed in April
2008, when the two sides agreed on a new price, which was never
announced publicly.


4. (SBU) The Turkmen section of the new pipeline will likely
stretch for 15 kilometers, running from the Dowletabat compressor
station to a point at the Iranian border close to the existing
Sarakhs - Sari gas pipeline, which is 720/900 millimeters in
diameter and is capable of carrying up to 10/12 bcm annually. The
pipeline was originally built to transport natural gas from the
Sarakhs, Gonbadli, and Khangiran gas fields to feed the city of
Mashhad, Iran and a large electrical power plant in Neka. Iran will
also need to construct a short pipeline (approximately 7 kilometers
long) linking the Turkmen section to the Sarakhs - Sari gas
pipeline.


5. (SBU) The Dowletabat gas field, which is the largest operating
field in Turkmenistan, is capable of producing 40 bcm of natural gas
annually and is considered the main supplier to the Central Asia -
Center pipelines system transporting gas to Russia. Those supplies
ceased and most of its wells shut down following the April 9
pipeline blast and the resulting row between Russia and
Turkmenistan. In addition to the existing capacities, Turkmenistan
recently completed the construction of a new pipeline that is
designed to bring 4 bcm annually from the southern Garabil/Gurrukbil
fields to the Dowletabat gas facilities, thus making it possible to
pump 44 bcm from the Dowletabat compressor station annually.


6. (SBU) COMMENT: The price of Turkmen gas supplied to Iran is
unlikely to be made public anytime soon. It is probably
significantly lower than either the price Turkmenistan got from
Gazprom before the April 9 blast and or what it will try to get from
Gazprom if the supplies to Russia resume this year. The Iranian
price, if made public, could be used by Gazprom as a means to insist
on a lower price for Turkmen gas in future negotiations over the
resumption of gas supplies to Russia.


7. (SBU) COMMENT CONTINUED: Turkmenistan is capable of delivering
on its commitment to increase supplies to Iran. It will not take a
great amount of time or financial investment to build a 15-kilometer
pipeline, especially as this will not require building compressor
stations, and Turkmenistan has sufficient expertise and resources to

ASHGABAT 00000886 002 OF 002


complete it in time. According to a Ministry of Oil and Gas
representative, the Korpeje and surrounding gas fields can easily
supply 8 bcm per year. Although it will take significant resources
and time to restart the Dowletabat wells, this work can be completed
even faster that the construction of the new pipeline. Even if
supplies to Russia from Dowletabat resume this year, the volume of
supplies in the near future would likely be much lower than that of
previous years, making sufficient quantities available for export to
Iran. Moreover, the supplies to Iran are expected to increase
gradually, as it will take time for Iran's level of consumption to
increase twofold. Nevertheless, exports of Turkmen gas to Iran will
increase steadily and could reach 14 bcm per year by mid-2010 as
consumption in northern Iran grows and production in Iran's Gonbadli
and Khangiran fields decline due to depletion. Moreover, increased
volumes of Turkmen gas can help Iran in meeting its export
obligations as the Sarakhs - Sari pipeline is connected to the Iran
- Turkey pipeline through the Sari - Rasht - Tabriz pipeline, which
is capable of transporting only small volumes of gas.


7. (SBU) COMMENT CONTINUED: The two sides may have discussed the
possibility of increasing the volume of supplies up to 20 bcm
annually for the following reasons: Iran is currently working on
the ambitious project of constructing the Sarakhs - Jask pipeline,
which will transport Central Asian gas from northern Iran to the
Persian Gulf. Gas from the Dowletabat field could be used for these
purposes. Turkmenistan also might be interested in discussing large
export volumes as it strengthens its position in negotiations with
Russia for the resumption of supplies to Gazprom. END COMMENT.

MILES