This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L  ALMATY 001434 
 
SIPDIS 
 
 
DEPT FOR EB/ESC (JONES), EUR/SNEC, EUR/CACEN (MUDGE) 
 
E.O. 12958: DECL: 04/06/2010 
TAGS: ENRG CH KZ ECONOMIC
SUBJECT: CHINESE DEMAND CASPIAN OFFSHORE BLOC FOR GAS 
PIPELINE 
 
REF: A. ALMATY 1121 
 
     ¶B. STATE 61018 
 
Classified By: Ambassador John Ordway for reasons 1.4 (b) and (d). 
 
¶1. (C) Summary: The Director of the Kazakhstani Institute of 
Oil and Gas (KIOG), Serik Burkitbayev, reported that China is 
demanding an offshore Caspian bloc as quid-pro-quo for 
support of a natural gas pipeline to China. That pipeline, to 
be built in stages, will initially transport Turkmen and 
Uzbek gas, then Western Kazakhstani. KIOG is seeking the 
services of a U.S. consulting company to develop the project. 
 Burkitbayev also voiced growing Kazakhstani displeasure with 
China over the Atasu-Alanshankou oil pipeline.  End Summary. 
 
¶2. (C) Serik Burkitbayev, director of the Kazakhstani 
Institute of Oil and Gas (KIOG), accompanied former National 
Security Adviser Robert McFarlane, chairman of Energy and 
Communications Solutions LLC, in an April 5 meeting with 
Ambassador Ordway (See Paragraph 9 for Burkitbayev 
Backgrounder).  KIOG is part of Kazmunaigas (KMG), the 
integrated state producer. 
 
¶3. (C) McFarlane sought the meeting to discuss providing 
consulting services to KIOG.  He said he had been acquainted 
with Burkitbayev for over ten years.  McFarlane left the 
meeting for Astana to meet with KMG Vice-President and 
presidential son-in-law, Timur Kulibayev, among others. He 
planned no meetings with officials from the Ministry of 
Energy, to which KMG is subordinated. According to 
Burkitbayev, "Kulibayev can handle everything." 
 
----------------------- 
Quid pro Off-shore Bloc 
----------------------- 
 
¶4. (C) Burkitbayev announced that China is demanding an 
offshore Caspian bloc in exchange for supporting a 
Kazakhstani proposal to build a natural gas pipeline to 
China. He bluntly warned that, "No bloc, no gas pipeline." He 
added that both sides want to announce the deal when the 
Chinese president visits Astana in July on the occasion of 
Nazarbayev's 65th birthday. 
 
¶5. (C) Burkitbayev sketched out an initial route and a 
disputed second stage. Initially, the Kazakhstanis will lay 
500 km of pipe to link Almaty with the Chinese border town of 
Khorgaz. That connection will provide about 5-7 bcm of Uzbek 
and Turkmen gas through an already existing network. A 
follow-on stage will bring Western Kazakhstani gas, either 
north along side the Atasu-Alashankou oil pipe (Chinese plan) 
or south via Shymkent (Kazakhstani preference).He stressed 
the need to reduce energy dependence on Uzbekistan and 
Turkmenistan by bringing Kazakhstani gas to energy hungry 
southern Kazakhstan, where 50% of the population resides. 
Pending resolution of political uncertainties in Bishkek, 
about 70 km of pipe will be diverted out of Kyrgyzstan. 
Ultimate capacity could reach 30 bcm by 2020, with 8-10 bcm 
hoped for by 2008. The entire project could cost $3-4bn. 
 
¶6. (C) Burkitbayev was optimistic, though unclear, where 
volumes would be found. He said that that the Uzbeks and the 
Turkmen were against supplying gas to China, though some 
Lukoil fields in Uzbekistan may contribute. Major Kazakhstani 
production has still not come on line; much of that, anyway, 
such as Kashagan, will be reinjected. He ventured that many 
offshore blocs in the Central Caspian were gas fields and 
would serve as a possible source.  (Comment: If straight gas, 
they will not be developed without a pipeline. End Comment). 
 
----------------------------------------- 
Chinese-Kazakhstani Hydrocarbon Friction? 
----------------------------------------- 
 
¶7. (C) Burkitbayev griped that it was "difficult" to work 
with the Chinese. Referring to the Atasu-Alashankou oil 
pipeline, he added that, "the government is not happy, the 
oil companies are not happy." He hinted that the GOK lost a 
large degree of control when it agreed to let the Chinese 
finance and fill the pipeline. He also said that other export 
routes-CPC, BTC, and even the Russian pipeline system--might 
have been better options financially: "It (Chinese oil 
pipeline) is not a good deal for us." 
 
 
¶8. (C) Comment: China has been on a hydrocarbon buying spree 
in Kazakhstan.  Nevertheless, it has only managed to acquire 
small and medium size assets. It desperately wants a big oil 
project after being thwarted in a 2003 bid to acquire 16.67% 
of the mammoth Kashagan project.  After coming up dry on 
Kashagan, the Chinese will, most likely, not relent on their 
quid-pro-quo demand for an off-shore bloc. Given Kazakhstani 
preferences to work big off-shore blocs with a Western major, 
that may result in delays for the gas pipeline. End Comment. 
 
------------------------ 
Burkitbayev Backgrounder 
------------------------ 
 
¶9. (C) Backgrounder: Burkitbayev is currently embroiled in a 
commercial dispute with U.S. firm Byelocorp Scientific Inc. 
(BSI) over control of defense conversion success-story 
Byelkamit JV, JSC in Almaty (reftels).  After agreeing to pay 
BSI $5.5 million for their 65.5% stake in Byelkamit, which 
was converted from a weapons manufacturer to a supplier of 
high-end equipment for the oil and gas industry, the three 
firms, acting on Burkitbayev's behalf, managed to gain 
control of the shares without paying BSI the agreed price. 
The Ambassador took the opportunity after the meeting to 
alert McFarlane, in a private pull-aside, to the fact that 
his prospective business partner was involved in a matter 
that had the potential to become public soon, and negatively 
reflect on Burkitbayev and KIOG. 
 
 ORDWAY