VZCZCXRO3396
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHAH #0432/01 1150616
ZNR UUUUU ZZH
R 250616Z APR 06
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 7256
INFO RUCNCIS/CIS COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC//DHO-2/REA/NMJIC-J2//
RHMFIUU/CDR USCENTCOM MACDILL AFB FL//CCJ5-E//
RUEKJCS/JOINT STAFF WASHINGTON DC//J5/RUE//
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEHVEN/USMISSION USOSCE 1625
RUCNDT/USMISSION USUN NEW YORK 0342
RUEHGV/USMISSION GENEVA 1161

UNCLAS SECTION 01 OF 02 ASHGABAT 000432 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: EPET ECON EFIN ETRD PGVO PREL TX
SUBJECT: NIYAZOV IN THE OIL AND GAS WEEDS 
 
REF: ASHGABAT 366 
 
Sensitive But Unclassified - Please Protect Accordingly. 
 
Summary 
-------- 
 
¶1. (SBU) Shortcomings and proposed solutions in the oil and 
gas industry were raised by President Niyazov during an April 
20 oil and gas industry meeting in Turkmenbashy city. 
Niyazov reviewed the oil and gas industry's performance and 
production targets for the year, and reprimanded experts for 
inaction and lack of resolve.  Industry experts have 
complained about the lack of initiative in the ministry that 
is born by fear of Niyazov and his continual firings. 
Despite the obvious chaos, the GOTX plans to increase oil and 
gas production to 10 million tons and 80 bcm this year, 
respectively.  Several private energy sector experts have 
described the Ministry of Oil and Gas Industry and Mineral 
Resources personnel as too scared to make a decision.  The 
result has been an idle industry, caught in the 
reponsibility-avoidance doldrums.  End Summary. 
 
Niyazov Chews Out Oil and Gas Executives 
----------------------------------------- 
 
¶2. (SBU) President Niyazov berated oil and gas industry 
leaders on April 20 for corruption and nepotism and for not 
meeting expected performance indicators.  During the Soviet 
style meeting, the President demanded explanations for 
shortcomings, real or perceived, from virtually every senior 
manager in the oil and gas industries.  The common theme was 
that Turkmenistan is no producing or selling enough oil and 
gas.  Niyazov said that experts have told him that 
Turkmenistan has 45 trillion tons of oil equivalents, 
including 22 trillion tons of natural gas.  If these reports 
are accurate, Niyazov wondered, where are these reserves 
located and why have they not yet been found? 
 
Don't Give it to Foreigners! 
----------------------------- 
 
¶3. (SBU) Niyazov said it is permissible to give foreign 
companies oil and gas rights offshore, but that oil and gas 
executives should accept "as law" instructions not to give 
foreigners anything onshore.  He emphasized that Turkmenistan 
has oil and gas expertise, but that it lacked equipment. 
Therefore, the country should buy equipment, train its 
people, and do the work itself rather than giving the rights 
away and losing oil to foreigners.  Niyazov further 
instructed that oil and gas wells should not be drilled until 
experts were sure that they would be productive.  The 
President told the assembled audience to use unspecified 
modern scientific techniques to determine if oil or gas is 
present before drilling begins. 
 
Gas: Mission Impossible 
------------------------ 
 
¶4. (SBU) Oil and Gas Minister Gurbanmyrat Atayev told Niyazov 
that Turkmenistan would produce 80 bcm of natural gas in 
¶2006.  Turkmenistan last produced this amount in 1990, when 
it extracted around 82 bcm.  Production in 2005 was 63 bcm, 
and 8% increase over 2004.  The country is on course to 
produce approximately 75 bcm so far in 2006.  The GOTX's gas 
liabilities for 2006 total 53 bcm, excluding the still 
ambiguous agreements with Ukraine.  The GOTX plans to reduce 
domestic consumption in 2006 to 15 bcm.  If these projections 
are accurate, Turkmenistan will have a surplus of 27 bcm of 
natural gas in 2006; it is unclear what the GOTX intends to 
do with this uncommitted gas.  However, on April 19, a 
Gazprom delegation visited Ashgabat to begin negotiations for 
50 bcm per year; the terms of any agreements reached were not 
announced.  Turkmenistan additionally committed 14 bcm of gas 
to Iran for 2007 and beyond, and a 30 bcm Turkmen-China 
pipeline deal is slated to start in 2009. 
 
Oil: Mission Possible 
---------------------- 
 
ASHGABAT 00000432  002 OF 002 
 
 
 
¶5. (SBU) Atayev said that Turkmenistan would produce 10 
million tons of oil in 2006.  IN 2006, the GOTX reported that 
it produced 9.5 million tons of crude oil; foreign companies 
extracted 2.3 million tons.  Although foreign production 
increased by 30% in 2005 vice 2004, the total production 
figure was 1% less than the previous year.  The GOTX may 
fulfill the 10 million ton target if the debit of 
Turkmenistani operated fields does not fall this year and the 
foreign companies' production grows at the same rate. 
However, Niyazov reported that oil production in the first 
quarter of 2006 is 13% below the production level for the 
same period last year.  At the current production rate, 
Turkmenistan will be able to produce slightly over eight 
million tons of crude. 
 
Hydrocarbon Resources: The Devil is in the Details 
--------------------------------------------- ------ 
 
¶6. (SBU) During the April 20 meeting, Niyazov used the number 
of 45 trillion tons of oil equivalent, which includes 22 tcm 
of natural gas.  This number represents known resources, plus 
what has been extracted.  However, 22 tcm is not the amount 
anticipated for commercial recovery (reserves).  The natural 
gas reserves of Turkmenistan are likely to be more modest. 
The continued secrecy surrounding the certification of the 
Dovletabad gas field, earmarked for the TAP pipeline, is the 
cornerstone.  The Financial times periodical Financial 
Express reported on April 17 that the De Golyer and 
McNaughton Dovletabad field certification states that the 
field is currently producing about 27 bcm/year and possibly 
has reserves of 1.4 tcm.  (Note: According to the Society of 
Petroleum Engineers, possible reserves are those unproved 
reserves which geological and engineering data suggests are 
less likely to be recoverable than probable reserves.  End 
Note.)  The recoverable resources of Turkmenistan's largest 
gas field could be as low as 600-650 bcm. 
 
Comment 
-------- 
 
¶7. (SBU) Getting into "the weeds" in the oil and gas industry 
is nothing new for Niyazov, particularly as the recent 
reorganization of the oil and gas sector (reftel) 
strengthened his overall control of the industry.  The 
president's ranting, however, lead to little more than a 
unskilled and ineffective bureaucracy too scared to make any 
decisions.  Niyazov continues to make increasing (and 
increasingly improbable) commitments for future gas sales, 
but the lingering questions is whether Turkmenistan has the 
goods; so far, known facts do not support as bright a future 
as Niyazov is painting.  End Comment. 
JACOBSON