VZCZCXRO9840
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1851/01 2890609
ZNR UUUUU ZZH
P 160609Z OCT 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 9834
INFO RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHAH/AMEMBASSY ASHGABAT 0682
RUEHMO/AMEMBASSY MOSCOW 8420
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 BEIJING 021851 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EAP/CM AND EB/ESC SIMONS 
DOE OIC FOR PUMPHREY, OEA FOR CUTLER 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV EPET CH
SUBJECT: QUESTIONABLE PROGRESS ON SINO-TURKMENISTAN GAS 
PIPELINE DEAL 
 
 
SUMMARY 
------- 
 
¶1. (SBU) An industry contact questions recent reports that 
China has approved construction of a pipeline to carry gas 
imported from Turkmenistan -- a decision, that if carried 
through, would carry forward a deal announced last April by 
the presidents of both counties for gas sales.  Separately, 
the president of China National Petroleum Company (CNPC) 
International told us in August that his organization was 
still working on terms for a gas sale, a situation 
complicated by the "overpromising" of Turkmenistan's gas 
resources by President Niyazov.  END SUMMARY 
 
PIPELINE SERVICES EXECUTIVE: APPROVAL NOT YET GIVEN 
--------------------------------------------- ------ 
 
¶2. (U) A Dow Jones Newswire report from September 27 quoted 
an unnamed source as stating that China's National 
Development and Reform Commission (NDRC) has issued final 
approval for construction of a pipeline that would carry 
natural gas imported from Turkmenistan via western China to 
Guangzhou and other cities in southeast China.  The report 
further stated that the pipeline would be able to carry some 
30 billion cubic meters of Turkmen gas annually, with 
construction costs in the tens of billions of dollars. 
 
¶3. (SBU) A senior executive at a Chinese oil pipeline 
services company questioned the veracity of the report and 
told us that a final deal on the supply of natural gas has 
yet to be reached.  Projects of this sort typically require 
lengthy negotiations once governments have made an agreement 
in principal.  In the case of China and Turkmenistan, the 
two countries' presidents used an April 2006 state visit to 
China as the occasion to sign what was termed a general 
agreement to sell natural gas to China and build a pipeline 
to transport it. 
 
SALES DEAL A PRECONDITION, AND THAT MAY BE PENDING TOO 
--------------------------------------------- --------- 
 
¶4. (SBU) A senior executive with the China National Oil 
Exploration and Development Corporation (CNODC), the CNPC 
subsidiary conducting the negotiations, confirmed that a 
deal has not yet been reached on the supply of natural gas. 
CNODC is hopeful a deal can be reached by the end of 
October.  NDRC Chairman Ma Kai will travel to Turkmenistan 
to participate in the signing ceremony if a deal is 
concluded, according to the CNODC executive. 
 
¶5. (SBU) Wang Dongjin, President of CNPC International, told 
us in early August that the company was still negotiating a 
final deal for the supply of Turkmen natural gas.  He 
described Turkmenistan President Saparmurat Niyazov  as 
"overpromising" natural gas to potential customers, 
including China.  Niyazov is seeking the best deal possible 
and is using opposing bids bluntly against each other.  CNPC 
recognizes this tactic and is structuring its bid 
accordingly, said Wang. CNPC was at the time of our the 
August conversation still evaluating the best route for the 
pipeline through Central Asia were a deal to be reached, 
according to Wang's remarks. 
 
¶6. (SBU) Wang went on to say that CNPC's main competition 
for Turkmen natural gas is the Russian energy giant Gazprom. 
CNPC is emphasizing in its negotiations that a pipeline 
linking Turkmenistan with China rather than Russia would 
provide Ashgabat another outlet for its gas as well as 
leverage over Gazprom.  The existing Central Asia Center 
(CAC) pipeline - the primary pipeline transporting Turkmen 
natural gas to Russia -- is already fully contracted. 
CNPC is thus framing a Sino-Turkmen deal as a "win-win" for 
the two countries, offering Ashgabat greater bargaining 
power when renegotiating CAC pipeline pricing while giving 
Beijing natural gas to help China diversify its energy mix 
away from coal. 
 
PROGRESS ON WEST-EAST PIPELINE 
------------------------------ 
 
¶7.  (SBU) CNPC's Wang also said that if a Sino-Turkmen deal 
is reached, it would make sense to link the pipeline with 
China's West-East pipeline that runs from Xinjiang to 
Shanghai.  The new pipeline would then conceivably veer to 
 
BEIJING 00021851  002 OF 002 
 
 
the southeast to provide natural gas to Guangzhou and other 
cities in the region.  Liu Wei, a senior official in the 
Xinjiang Development Planning Commission's Department of 
Energy, recently told us that CNPC, while constructing the 
West-East pipeline, conducted the survey and basic 
preparatory work necessary to facilitate the construction of 
a second pipeline.  These efforts, however, were independent 
of a possible Sino-Turkmen deal and were conducted based on 
existing plans by local and national economic planners to 
move energy resources, including natural gas, from Xinjiang 
to other parts of China.  Liu stated that as many as four 
pipelines radiating from Xinjiang are currently in planning 
or in the early stages of development.