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PP RUEHAG RUEHDBU RUEHROV
DE RUEHAH #0699/01 1971243
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P 161243Z JUL 07
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9006
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHLM/AMEMBASSY COLOMBO PRIORITY 0417
RUEHKA/AMEMBASSY DHAKA PRIORITY 0439
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 2127
RUEHBUL/AMEMBASSY KABUL PRIORITY 0876
RUEHLO/AMEMBASSY LONDON PRIORITY 0440
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0924
RUEHFR/AMEMBASSY PARIS PRIORITY 0369
RUEHKO/AMEMBASSY TOKYO PRIORITY 0286
RUEHCG/AMCONSUL CHENNAI PRIORITY 0123
RUEHKP/AMCONSUL KARACHI PRIORITY 0172
RUEHCI/AMCONSUL KOLKATA PRIORITY 0094
RUEHLH/AMCONSUL LAHORE PRIORITY 0108
RUEHBI/AMCONSUL MUMBAI PRIORITY 0133
RUEHPW/AMCONSUL PESHAWAR PRIORITY 0446
RHMFISS/CDR USCENTCOM MACDILL AFB FL//CCJ2/HSE/CCJ5// PRIORITY
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RHEHNSC/NSC WASHDC PRIORITY
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RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 000699 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EUR/RUS, EEB 
 
E.O. 12958: DECL: 07/16/2017 
TAGS: PREL PGOV EPET EINV RS CH AZ
SUBJECT: TURKEMISTAN ENERGY:  FM MEREDOV SAYS U.S. 
INVESTMENT IN HYDROCARBON SECTOR WELCOME 
 
REF: ASHGABAT 0690 
 
ASHGABAT 00000699  001.2 OF 004 
 
 
Classified By: Charge d'Affaires Ambassador Richard Hoagland for reason 
s 1.4(B) and (D). 
 
¶1.  (C) SUMMARY:  SCA PDAS Steve Mann met for nearly two 
hours on July 11 with Turkmenistan's Deputy Chairman of the 
Cabinet of Ministers and Minister of Foreign Affairs Rashit 
Meredov.  Meredov: 
 
-- insisted Turkmenistan has significant gas deposits in its 
off-shore Caspian blocks that are open to Western companies; 
 
-- expressed fear that if Turkmenistan sells all of its gas 
now, there will be none for the future; 
 
-- did not understand that Turkmenistan selling its gas at 
its borders works only for Gazprom; and 
 
-- mentioned in passing Turkmenistan may need to take a new 
look at Caspian Sea delimitation methodology. 
 
¶2.  (C) SUMMARY CON'T:  Mann explained to Meredov 
Turkmenistan needs to make a choice between a short-term 
"Russian model" of hydrocarbon development, with limited 
results, or the "Western model," which, while slower and more 
complicated, would prove substantially more profitable for 
Turkmenistan.  If Turkmenistan wants to pursue a more 
profitable model, it would need the technology and resources 
that only private Western firms could provide.  To attract 
world-class companies, it would need to open new hydrocarbon 
fields, allow companies to develop onshore blocks, and ease 
its climate for doing business.  Meredov stressed 
Turkmenistan's desire to expand its energy dialogue with the 
United States.  Reiterating Turkmenistan's interest both in 
building a Trans-Caspian pipeline and in maximizing its 
profit, he urged Western companies to submit concrete 
proposals.  He told Mann that, during the May 2007 trilateral 
summit in Turkmenbashy, President Berdimuhamedov had only 
signed on to a framework agreement for a littoral pipeline. 
END SUMMARY. 
 
¶3.  (C) Mann told Meredov he had been in touch with Chevron, 
Conoco-Phillips and Exxon-Mobil, which were positive so far 
about their contacts with the Government of Turkmenistan. 
Noting SCA DAS Evan Feigenbaum's June 24-29 visit and other 
U.S. delegations to Turkmenistan, Meredov agreed that the 
relationship had progressed substantially over the last six 
months, and said he look favorably on the U.S. invitation for 
Turkmenistani officials to visit Washington during the next 
six months. 
 
WESTERN DEVELOPMENT MODEL MORE COMPLICATED BUT MORE PROFITABLE 
 
¶4.  (C) Meredov was positive about U.S. firms' efforts so far 
to do business in Turkmenistan.  The government was eager for 
foreign investment and looked forward to receiving concrete 
proposals.  (COMMENT:  The key to this is "concrete 
proposals."  END COMMENT.)  He reiterated Ashgabat is 
committed to multiple export routes for Turkmenistan's 
hydrocarbons. 
 
¶5.  (C) Stressing U.S. recognition of the need to move from 
theory to concrete action, Mann said,"We want to make this 
real."  He explained two models for energy development:  the 
 
ASHGABAT 00000699  002.2 OF 004 
 
 
short-term statist model Gazprom offers, which is fast but 
delivers modest results, and the Western model, which is more 
complicated and slower, but is more profitable in the long 
run.  If Turkmenistan chooses to implement the second model, 
there would be challenges, including the need to resolve 
three sets of issues: 
 
-- TAKE CARE OF THE UPSTREAM AND OPEN ACCESS TO NEW 
RESOURCES:  In his meeting with Feigenbaum, Berdimuhamedov 
had asked, "Where's my pipeline?"  The answer, said Mann, is, 
"Where's the gas?"  The first time a Trans-Caspian Pipeline 
(TCP) had been discussed, the consortium was willing to build 
a pipeline that could transport 30-35 billion cubic meters 
(bcms) of gas without gaining agreement on a dedicated gas 
field.  That business model, however, had been experimental, 
and it is premature to talk about a pipeline until access to 
long-term, serious sources of gas are identified.  The TCP 
was only the midstream.  Returning later to this topic, Mann 
pointed out that the Baku-Tbilisi-Ceyhan (BTC) and Shah-Deniz 
pipelines had been successful because they were connected 
with specific oil and gas fields.  By comparison, the 
Odessa-Brody pipeline had been built without an assured 
supply, and it was not a successful model. 
 
-- OPEN UP TO NEW COMPANIES:  Turkmenistan has opened only 
its offshore Caspian Sea blocks to Western companies, yet 
these blocks primarily have oil, rather than gas.  Chevron is 
interested in opening up a new field in the Amu Darya basin, 
where there is gas, but it is being told that onshore blocks 
are closed to Western companies.  Turkmenistan needs to find 
a new way of doing things if it wants to increase direct 
foreign investment in the gas sector. 
 
-- EASE THE VISA REGIME FOR HYDROCARBON-RELATED EXPERTS: 
Although Turkmenistan allows representatives of U.S. 
petroleum companies to enter the country, other support 
experts -- e.g., energy and financial analysts -- have 
problems getting visas.  Easing the visa regime -- including 
for journalists, who need to be able to enter Turkmenistan 
freely -- is very important for increased investment. 
 
¶6.  (C) Mann presented Meredov a case study of Norway's 
hydrocarbon development experience, which he suggested has 
many parallels to Turkmenistan's situation.  Norway, which 
had developed its offshore fields, had benefited by promoting 
multiple pipelines.  By becoming an investment partner in its 
pipelines, it had realized a high percentage of profit. 
Turkmenistan, too, had the ability to participate as an 
investor.  Likewise, Azerbaijan -- through SOCAR -- had 
similarly profited from its investment in the BTC pipeline. 
Thus, the "sell at the border" model does not maximize 
Turkmenistan's profit. 
 
LIMITED WINDOW OF OPPORTUNITY 
 
¶7.  (C) Noting that Turkmenistan had only a relatively narrow 
window to take advantage of Europe's growing demand for gas, 
Mann urged Turkmenistan to act now to send a signal that it 
is seeking to enter the European market as a trustworthy gas 
supplier.  Specifically, he recommended Turkmenistan lay a 
pipeline from the Livanov field (worked by Petronas) to the 
pipelines in Azerbaijan.  Although this would involve only 
relatively small amounts of gas, it would nonetheless show 
the Europeans that Turkmenistan is seeking to enter the 
market. 
 
ASHGABAT 00000699  003.2 OF 004 
 
 
 
TURKMENISTAN NEEDS TO PRACTICE ENERGY NEUTRALITY 
 
¶8.  (C) Mann called for Turkmenistan to restore balance to 
its energy policy.  Turkmenistan has a policy of neutrality 
and says in principle it wants to sell gas in every 
direction.  Yet -- in practice -- Turkmenistan sells gas only 
north to Russia.  While the United States respects 
Turkmenistan's existing contracts with Gazprom, there is no 
balance.  For the United States, Turkmenistan energy 
"neutrality" was an issue of Turkmenistan's sovereignty, not 
personal interest, since not a single molecule of 
Turkmenistan's hydrocarbons would go to the United States. 
 
BROADEN THE CONTACTS 
 
¶9.  (C) Mann encouraged Turkmenistan to continue its dialogue 
on energy issues with Azerbaijan and Kazakhstan.  Mann said 
he recently had met with Azerbaijan's Deputy Foreign Minister 
Araz Azimov in Washington, who affirmed that Azerbaijan 
seriously wants a productive relationship with Turkmenistan. 
According to Azimov, the visit of Azerbaijan's Foreign 
Minister Mammadyarov to Ashgabat in May had been warm, but 
all agreed it would be good for more visits at the 
ministerial and presidential level to go forward.  Mann urged 
that Turkmenistan seek to establish contacts with the 
International Energy Agency in Paris, which has access to 
huge reserves of data, and make its November 2007 Oil and Gas 
Exhibit "big and serious." 
 
MEREDOV DEFENDS THE STATUS QUO 
 
¶10.  (C) Meredov responded that there are many issues that 
Turkmenistan needs to study, including strategic, tactical 
and technical ones.  Turkmenistan works with different 
companies and governments, and the Government of Turkmenistan 
does pay attention to the "nuances of the relations" between 
Turkmenistan and the firms' host countries.  Turkmenistan has 
enormous natural-resource wealth, which it needs to use 
rationally, for the future benefit of its citizens. 
Production pipeline design is linked to these concepts. 
Turkmenistan is willing to license offshore blocks through 
production sharing agreements, but only Turkmenistan would be 
allowed to develop onshore reserves.  Meredov added, during 
the last round of planning for a TCP, U.S. firms had gained 
access to information -- from seismic surveys and other 
sources -- on Caspian resources, and should draw on that now. 
 
¶11.  (C) While Meredov was willing to acknowledge that the 
Norwegian case study was interesting, he largely dismissed 
it, stating that it was for a different country which had its 
own approach.  When Mann pointed out the tremendous profit 
that Norway had received, Meredov added defensively that the 
Scandinavian country had its own methodology, based on its 
own principles.  "We have our own geography and neighbors," 
and Turkmenistan's priority was to develop its economic and 
social sector.  He fixed on the fact that Norway was using up 
all its reserves -- something, he stressed, that Turkmenistan 
wanted to avoid.  Turkmenistan, according to Meredov, was 
seeking new fields, but did not want to look at them on a 
short-term basis. 
 
LITTORAL PIPELINE ONLY A FRAMEWORK AGREEMENT -- SO FAR 
 
¶12.  (C) Mann noted that building a TCP would be unattractive 
 
ASHGABAT 00000699  004.2 OF 004 
 
 
to Western companies if they had access only to Caspian Sea 
blocks, because most of those blocks produce oil, rather than 
gas.  Meredov disagreed, and pointed out that Petronas had 
found gas in the Livanov field.  Reminding Meredov that 
Petronas had found only associated gas, Mann asked why 
Turkmenistan was unwilling to open onshore blocks to Western 
companies.  Chevron wanted to work in the Amu Darya basin. 
Meredov responded that a TCP would be in the western part of 
the country, so it made sense to let Western companies work 
fields in the west -- i.e., the Caspian blocks.  The 
Dovletabad fields were for the south (India and Pakistan), 
and the Amu Darya fields for the east (China).  When Mann 
pointed out that, practically speaking, Dovletabad was a 
Gazprom field, yet it was located in the south, Meredov 
firmly replied, "It is ours, not Gazprom's.  Gazprom has only 
a three-year contract."  Meredov also stressed that the 
25-year agreement signed during the May 
Berdimuhamedov-Putin-Nazarbayev summit in Turkmenbashy was 
only a framework agreement and did not offer up a loss of 
Turkmenistan's sovereignty.  Turkmenistan had agreed that it 
needed to build a littoral pipeline after identifying gas 
resources in the Caspian region -- which the president was 
willing to sell -- but the president had not actually agreed 
to build the pipeline. 
 
¶13.  (C) Commenting on the Caspian blocks, Meredov said -- 
briefly but significantly -- Turkmenistan may need to take a 
new look at Caspian Sea delimitation methodology.  (COMMENT: 
If this is in fact emerging Turkmenistani government policy, 
it is a significant development.  END COMMENT.) 
 
TURKMENISTAN HAS A CHOICE:  TOLKUCHKA SAUSAGE OR A BANQUET 
 
¶14.  (C) Mann reiterated that the window for building 
alternate pipelines to Europe is limited.  While Turkmenistan 
has gas, accessing that gas is difficult because of 
geological factors and technical difficulties.  Turkmenistan 
could quietly continue to extract its gas, but with limited 
profits.  Greatly increasing its production, however, would 
require world-standard technology -- which neither Gazprom 
nor China could deliver.  Turkmenistan needed to decide 
whether it wanted to eat a sausage at Tolkuchka Bazaar, quick 
and cheap, or to prepare for a grand banquet at a fine 
restaurant, which would be more complex but would deliver 
long-lasting satisfaction. 
 
COMMENT 
 
¶15.  (C) Mann's meeting with Meredov was significant for at 
least two reasons:  (1) it began to clarify for us Ashgabat's 
thinking on its energy development policy, and (2) it made 
clear the essential need for frequent and sustained 
high-level dialogue to nudge Turkmenistan toward 
understanding the advantages of Western investment and 
development models.  The 15-year-old virgin emerging from the 
closed convent has a steep learning curve to become a 
sophisticated actor on the international stage.  Sustained 
contact and dialogue are essential.  END COMMENT. 
 
¶16.  (U) PDAS Mann has cleared this cable. 
HOAGLAND