GAZPROM ON TURKMENISTAN PIPELINE EXPLOSION:

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000971

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
DOE FOR HEGBURG, EKIMOFF
DOC FOR JBROUGHER
NSC FOR MMCFAUL, JELLISON

E.O. 12958: DECL: 04/13/2019
TAGS: EPET ENRG ECON PREL RS
SUBJECT: GAZPROM ON TURKMENISTAN PIPELINE EXPLOSION:
"THINGS HAPPEN"

REF: A. ASHGABAT 462

B. MOSCOW 854

C. MOSCOW 367

D. 07 ASHGABAT 1644

Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b/d)

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SUMMARY
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1. (C) On April 13, Gazprom Director of Foreign Relations
Ivan Zolotov told us that Gazprom did nothing unusual that
could have resulted in the gas pipeline explosion in
Turkmenistan. He dismissed Turkmen accusations to the
contrary, and said Gazprom had given Turkmenistan sufficient
notice of reduced gas intake. The halt in supplies from
Turkmenistan, however, comes at a convenient time for
Gazprom, which is facing plummeting demand while paying
relatively high prices for Turkmen gas. The episode,
surrounded with the usual lack of transparency, supports our
continued push for consumers to diversify sources, routes,
and types of energy supplies. End summary.

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"THINGS HAPPEN"
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2. (SBU) Despite widespread coverage in the press, Gazprom
has not officially responded to Turkmen accusations that it
was responsible for the April 8 pipeline explosion in
Turkmenistan (ref A). The pipeline explosion has reportedly
resulted in a virtual halt of gas imports from Turkmenistan
and the Turkmen government had publicly blasted Gazprom's
"irresponsible and careless" behavior in causing the pipeline
damage. According to the official statements issued by the
government of Turkmenistan, Gazprom reduced its intake of
Turkmen gas by 90% without giving sufficient notice for the
Turkmen side to reduce supplies accordingly. This mismatch
between output and intake ostensibly caused the pipeline
rupture.


3. (C) Gazprom Foreign Relations Director Ivan Zolotov told
us on April 13 that Gazprom had indeed given the Turkmens
adequate notice. He stressed that Gazprom had done "nothing
unusual" that could have caused the explosion and that
Gazprom's staff had been in contact with their Turkmen
counterparts regarding Gazprom's reduced intake. While not
specifying the amount by which Gazprom had reduced its
imports from Turkmenistan prior to the explosion, Zolotov
maintained that the fluctuation was "within norms for this
time of year." Zolotov chalked up the accident to poorly
maintained Turkmen infrastructure and noted that gas pipeline
explosions are not an uncommon occurrence. He said a Gazprom
Deputy CEO, Valery Golubev, had just briefed Deputy Prime
Minister Igor Sechin on the situation, using "a stack of
documents to basically explain that "things happen."


4. (C) Murat Yazberdiev, Counselor at the Embassy of
Turkmenistan, would not comment to us about the situation,
and simply referred us to the official statement of the
Turkmen MFA, to which he said he has "nothing to add."

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CONSPIRACY THEORIES
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5. (C) As Alfa Bank Chief Strategist Ron Smith commented to
us about this incident, "conspiracy theorists love Russia
because it offers so much material." In this case,
conspiracy theorists point to a confluence of Russian
motivations in causing problems with Turkmenistan. Press
reports and analysts suggest the GOR and Gazprom were upset
that the recent visit of Turkmen President Berdymuhammedov
yielded little concrete progress on the proposed Caspian
Littoral Pipeline. According to these same reports, Gazprom
and the GOR were also further angered that Turkmenistan had
put out an open tender for a West-East pipeline for which a
Gazprom subsidiary had expected to receive the contract.


6. (C) Finally, Gazprom has benefited financially from the

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resultant drop-off in Turkmen gas, of which it imports some
40 to 50 bcm annually. Gazprom had committed to paying
"market prices" for Turkmen gas this year, but locked in the
market price last summer, at levels much higher than would be
justified today. Although the exact price is not known (ref
D),press and analyst reports have indicated the price to be
$200 to $230 per thousand cubic meters (mcm). Meanwhile, the
price for Russian gas to Europe could drop to $170 per mcm or
less later this year, meaning Russia would take losses on the
volumes from Turkmenistan at a time when gas demand is
dropping and Gazprom does not need the additional gas (ref
B). Given that Gazprom is facing a gas glut, plummeting
prices, and financial clouds (refs B and C),the timing of
this situation seems, as Smith put it, "convenient."

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COMMENT
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7. (C) Neither Gazprom nor its Turkmen counterparts are known
for transparency. Regardless of blame, however, both the
lack of transparency and the event itself should serve as
additional support for the need for energy consumers to
cultivate and maintain diverse sources, routes, and types of
energy supplies. As for Gazprom, we suspect this episode
will further damage its already strained reputation as a
"reliable energy partner," even if it benefits in the
short-term by avoiding imports of relatively expensive
Turkmen gas.
BEYRLE