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C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000357 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR SCA (JGASTRICHT) AND EUR (MBRYZA) 
 
E.O. 12958: DECL: 04/05/2016 
TAGS: ENRG PREL CH TX
SUBJECT: NIYAZOV'S TRIP TO CHINA: TURKMENISTAN SIGNS DEAL 
ON GAS WITH CHINA 
 
 
Classified By: Amb. Tracy A. Jacobson for reasons 1.4 (b) and (d). 
 
Summary 
------- 
 
¶1. (C) During Niyazov's visit to China, Turkmenistan and 
China agreed to build a natural gas pipeline by 2009 between 
the two countries, and for Turkmenistan to sell 30 billion 
cubic meters of gas to China annually once it is completed. 
The agreement  includes joint exploration and development of 
gas fields on the right bank of the Amu Darya River as part 
of the product sharing agreement (PSA), the first time the 
GOTX has agreed to a PSA in gas production.  China is 
responsible for financing the pipeline and negotiating the 
pipeline route through neighboring countries; preliminary 
discussions with Uzbekistan and Kazakhstan were not 
conclusive. Such agreements are not always seen as binding by 
the GOTX.  The deal contains no solid pricing information; 
the Chinese Ambassador told us previously Niyazov's current 
high demands ($150/tcm) would preclude pipeline construction. 
 Given the lack of concrete financial arrangements, we could 
expect the GOTX to say at some later date that the agreement 
is a non-binding expression of intention, rather than a 
commercial contract, should a better offer come along.  End 
Summary. 
 
Niyazov Goes to China 
---------------------- 
 
¶2. (U) As part of an official visit to China,  President 
Niyazov and Chinese officials signed an agreement on April 3 
to build a pipeline transporting  Turkmenistani gas to 
Western China, according to press reports and poloff's 
conversation with Chinese Embassy First Secretary Deng Hao. 
The deal also calls for the joint exploration and development 
of natural gas fields on the right bank of the Amu Darya 
River and for Turkmenistan to sell China 30 billion cubic 
meters of gas a year following completion of the pipeline in 
¶2009. 
 
¶3. (C) Deng told poloff on April 5 that Turkmenistan first 
broached the idea of a Turkmenistan-China pipeline several 
years ago.  However, China was concerned about the quantity 
of Turkmenistan's gas reserves and was reluctant to build a 
pipeline.  Deng said that joint development of Amu Darya gas 
fields was the key to overcoming these concerns, and admitted 
that China does not know if these fields are sufficient to 
supply the yearly 30 billion cubic meters of gas.  However, 
the GOTX is committed to diverting gas from other fields to 
make up any shortfall. 
 
Uzbekistan and Kazakhstan Consulted 
----------------------------------- 
 
¶4. (C) Deng said that while China is optimistic about the 
agreement, which he characterized as a "framework agreement," 
the Chinese government understood much work remained both 
with the GOTX and countries along the proposed route.  In 
particular, the pipeline route must still be determined and 
agreements worked out with the countries though which it will 
run, i.e., Uzbekistan and Kazakhstan.  Deng added that the 
PRC had conducted preliminary discussions with Uzbekistan and 
Kazakhstan.  He said that he expected Uzbekistan to be a 
particular problem because of its poor relationship with 
Turkmenistan, and because of the current "instability" in 
Tashkent. 
 
Comment 
------- 
 
¶5. (C) A pipeline to China would provide the GOTX with an 
alternative to Russia for getting its natural gas to market; 
and perhaps an alternative more palatable to Russia than a 
Trans-Caspian (TCP) or Tran-Afghan pipeline (TAP).  While the 
GOTX is hailing the deal, it is noteworthy that the gas 
eventually flowing through it may be the GOTX's only 
contribution.  In addition to being entirely responsible for 
construction and financing, the Chinese also will negotiate 
 
ASHGABAT 00000357  002 OF 002 
 
 
the pipeline route with Turkmenistan's less-than-friendly 
neighbors.  Because the gas fields under consideration for a 
Chinese pipeline are different than those being considered 
for the TCP or TAP, a deal with China does not necessarily 
close down prospect for either. 
 
¶6. (C) As we have seen with other such deals (including one 
on sales to Iran, approved by the President one month and 
unilaterally abrogated the next) the GOTX sees these 
agreements as expressions of political intent rather than 
commercial contracts.  We believe it unlikely that China will 
commit serious resources to actual pipeline construction 
without a clearer understanding of pricing potential and the 
quality and quantity of Amu Darya gas.  End Comment. 
JACOBSON