VZCZCXRO7204
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHAH #0997/01 2651304
ZNR UUUUU ZZH
R 221304Z SEP 06
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 7824
INFO RUCNCIS/CIS COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 03 ASHGABAT 000997 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN (PERRY) 
 
E.O. 12958: N/A 
TAGS: EPET ECON PREL TX
SUBJECT: TURKMENISTAN'S OIL CHIEF UPBEAT ON OIL AND GAS 
SECTOR ACTIVITIES 
 
REF: A. 1) ASHGABAT 905 
 
     ¶B. 2) ASHGABAT 922 
     ¶C. 3) ASHGABAT 957 
 
Summary 
------- 
 
¶1.  (SBU) Citing Turkmenistan's estimated reserves of 45 
billion metric tons of oil equivalent, Garyagdy Tashliyev, 
chairman of Turkmenistan's state oil concern, advised emboffs 
September 13 that Turkmenistan would avoid the refining, sale 
and storage "mistakes" that previously afflicted the sector. 
Plans to increase refined product storage capacity, which 
augment recent pipeline additions in western Balkan Welayat 
(province), are designed to maximize revenues from refined 
product sales by allowing Turkmenistan to manage the release 
of product into the market.  Another natural gas pipeline 
could be built along the shores of the Caspian if Russia 
guarantees demand at 100 billion cubic meters per year. 
Additional foreign investment in offshore oil production 
could use idle refining capacity at Turkmenistan's two 
refineries.  End summary. 
 
Bypassing the Ministry of Oil and Gas 
--------------------------------------------- -- 
 
¶2.  (U) Garyagdy Tashliyev, chairman of Turkmenistan's state 
oil company, Turkmennebit, met emboffs for an hour at his 
Balkanabat headquarters September 13 for a discussion of oil 
and natural gas developments in Turkmenistan.  Tashliyev 
confirmed that Turkmennebit bypassed the Ministry of Oil and 
Gas to report directly to the Cabinet of Ministers.  In 
addition to covering oil production across the country, 
Tashliyev is responsible for natural gas production in 
western Balkan Welayat (province).  (Note: The state natural 
gas concern is based in Ashgabat, and handles natural gas 
production elsewhere in the country.  End Note.) 
 
Crude Numbers 
------------------- 
 
¶3.  (U) Tashliyev estimated that Turkmenistan's oil and gas 
reserves amounted to 45 billion metric tons of oil 
equivalent, but noted that more exact data would be provided 
at the October 25 meeting of the Halk Maslahaty.  (Note: The 
Halk Maslahaty is Turkmenistan's supreme legislative 
representative body.  End Note.)   He advised emboffs that 
Turkmennebit did not export any of its crude oil, which 
instead was directed to Turkmenistan's two refineries.  With 
an overall 12 million metric ton annual refining capacity at 
the two refineries, Tashliyev noted that Turkmennebit only 
provided 7 million metric tons to the Turkmenbashy refinery 
and 700,000 metric tons to the Seydi facility. 
 
Cutting Out the Azeri Middlemen? 
----------------------------------------- 
 
¶4.  (SBU) According to Tashliyev, refined products are 
exported largely to Russia, Iran and "via Baku."  He added 
that Baku had become a problem as its terminals were "held by 
one hand," and anticipated that Azeri tankers would soon be 
barred from various ports in the Caspian Sea due to the 
tankers' poor physical conditions.  Tashliyev did not suggest 
alternatives to Baku facilities or Azeri tankers, and lacked 
knowledge of the difference between single hull and double 
hull tankers.  However, Tashliyev proudly noted 
Turkmenistan's plans to expand its tanker fleet beyond its 
one existing tanker. 
 
Avoiding an Oil Slick 
-------------------------- 
 
¶5.  (SBU) Blaming "poor marketing," Tashliyev vowed that 
"mistakes" previously highlighted by President Niyazov in the 
refining, sale and storage of petroleum products would not be 
repeated.  Shortcomings in storage capacity forced the sale 
of refined products at lower-than-desired prices, and also 
hampered refinery operations.   In order to maximize higher 
profit margins for refined products, Tashliyev noted plans to 
construct additional storage facilities so the government 
"could hold rather than sell" refined products in the future. 
 
 
 
ASHGABAT 00000997  002 OF 003 
 
 
¶6.  (U) Along with increased storage capacity, Tashliyev 
voiced optimism that off-loading capacity for refined product 
at Turkmenbashy's port facilities could be doubled by 
reducing the transaction time from the sale to loading of 
refined products from the current six-month average to two or 
three months.  He expressed passing interest in the export of 
refined products to Afghanistan, but intimated that long 
transit times and congested rail routes made significant 
sales unlikely. 
 
The Missing Links 
---------------------- 
 
¶7.  (U) In addition to increased storage capacity, Tashliyev 
described recent and potential pipeline developments.  He 
said 170 kilometers of new pipeline, varying from 426 to 508 
millimeters in diameter, had been dedicated two months ago to 
transport crude oil from collectors located at Kotur Depe, 
Vyshka and Gumdag in Balkan Welayat.  According to Tashliyev, 
the westernmost, Caspian line of the Central Asia Center 
(CAC) network in Turkmenistan, CAC III, carries an annual 
equivalent of approximately 3.7 billion cubic meters (bcm) of 
natural gas.  He reiterated suggestions that a 30 bcm 
pipeline might be built parallel to the CAC III line, but 
linked such plans to increased, guaranteed purchases of 
natural gas from Turkmenistan. 
 
Chewing the Fat on Natural Gas 
-------------------------------------- 
 
¶8.  (U) Tashliyev reasoned one possible option to feed a 30 
bcm pipeline along the Caspian would be Russia's expressed 
desire to purchase annually 100 bcm of natural gas instead of 
the recently agreed annual 50 bcm figure (see ref C).  He 
confirmed plans by the Malaysian firm Petronas to build a 
natural gas treatment and LPG tanker terminal at Kianli, 
north of Turkmenbashy city (ref A).  Tashliyev said Petronas 
planned to produce 5 bcm of natural gas a year by 2009 or 
¶2010.  He questioned where Petronas would send all its 
production, but also held open the possibility that excess 
Petronas natural gas production could be absorbed by the 
pipeline network supplying Russia. 
 
Turkmen Waters Warming for Foreign Investment? 
--------------------------------------------- - 
 
¶9.  (U) Tashliyev, drawing emboffs' attention to a large map 
of Turkmenistan's oil and gas deposits above his conference 
table, said there were many offshore opportunities for 
foreign firms in Turkmenistan's Caspian waters.  He expressed 
optimism regarding lucrative offshore blocks running parallel 
to existing proven deposits onshore from the Iranian border 
north towards the Celeken/Hazar peninsula and offshore from 
Celeken towards Azeri fields arcing to Baku.  Tashliyev said 
that Turkmenistan wanted foreign firms to develop fields 
within 10-15 kilometers of the shore via production sharing 
agreements or service contracts. 
 
¶10.  (SBU) In response to emboff, Tashliyev said only two 
"small" Chinese firms were active in Turkmenistan and were 
working in the Gumdag and Kotur Depe fields.  He added that 
Chinese firms "were more than welcome on the right bank of 
the Amu Darya" and in the Yoloten field near Mary.  (Note: 
Embassy plans to visit the right bank of the Amu Darya later 
this month.  End Note.)  Among exhibitors at Ashgabat's oil 
and gas exhibition, which Oil and Gas Minister Gurbanmyrat 
Atayev opened September 19, at least three Chinese and two 
Iranian firms had stalls alongside larger exhibits by 
Malaysia's Petronas, Russia's Lukoil and Gazprom, and 
Ukraine's Naftogaz. 
 
Comment 
------- 
 
¶11.  (SBU) The idle capacity of Turkmenistan's two refineries 
likely increases the pressure that Turkmennebit and the 
separate state exploration concern face to raise domestic 
crude oil production.  Even though foreign crude oil 
producers in Turkmenistan export their product, Tashliyev's 
encouragement of foreign investment in oil and gas activities 
offshore could generate more crude input for Turkmenistan's 
refineries.  Existing production sharing agreements with 
foreign firms cede roughly half of production to 
 
ASHGABAT 00000997  003 OF 003 
 
 
Turkmenistan, ostensibly for refining domestically.  This 
method reduces Turkmenistan's capital expenditure to zero to 
bring new production on line, while generating profits from 
sales of the refined products. 
 
¶12.  (SBU) Plans to construct additional storage for refined 
petroleum products shed new light on the recent natural gas 
deal with Gazprom.  Concerns about previous mistakes with 
pricing and storage indicate Turkmenistan, understandably, is 
trying to maximize the value of its refined petroleum 
products.  However, Niyazov's insistence on $100 per thousand 
cubic meters of natural gas in the Gazprom agreement 
reflected a pricing decision well below market rates.  While 
current limitations on natural gas export routes restrict 
Turkmenistan's options vis-a-vis the more competitive 
marketplace for refined petroleum products in the Caspian Sea 
basin, Turkmenistan is still selling its natural gas at a 
substantial discount to Gazprom.  The pricing concession, 
however, generates speculation regarding undisclosed 
components of the Gazprom deal.  End comment. 
 
BRUSH