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P 050646Z OCT 07
FM AMEMBASSY ASHGABAT
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UNCLAS SECTION 01 OF 02 ASHGABAT 001076 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB 
PLEASE PASS TO USTDA DAN STEIN 
COMMERCE FOR HUEPER 
ENERGY FOR EKIMOFF 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EPET RS AJ TX
SUBJECT: PETRONAS IN TURKMENISTAN:  FULL OF GAS 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Petronas, which unexpectedly hit 
substantial (an estimated 20 billion cubic meters at maximum 
production) reserves of ethane- and propane-rich natural gas 
in the Caspian Sea, is looking at gas export options.  These 
options include sending the gas north to Russia via a 
pipeline for which it would need to pay a substantial sum to 
help rehabilitate (which it is planning on pursuing), 
exporting natural gas to Iran, or -- now -- sending it west 
via a connector pipeline proposed by the U.S. and Azeri 
governments.  Although Petronas mistrusts the Azeris and 
Turks as potential business partners, the connector pipeline 
could be the most economically attractive option, and 
Petronas would be willing to cooperate with a U.S. Trade and 
Development Agency-funded feasibility study.  However, the 
need to factor ethane and propane extraction into the overall 
equation could create new complications.  END SUMMARY. 
 
¶3.  (SBU) During a September 17 dinner, the General Manager 
of Petronas in Turkmenistan, Suleiman Abdullah, told U.S. 
Trade and Development Agency Regional Director for Europe and 
Eurasia Dan Stein that his company, which works 
Turkmenistan's Block 1 in the Caspian, has found significant 
amounts of gas along with the oil that Petronas currently is 
working.  Although Petronas currently continues to burn off 
the gas, it expects to produce up to 20 billion cubic meters 
(bcms) per year of gas over the coming years.  Petronas is 
planning to build four drilling rigs and operate a collector 
platform in Block 1.  Abdullah told Stein Petronas is 
entitled to obtain the highest available price for its gas 
under its production sharing agreement. 
 
¶4.  (SBU) In general, Petronas favors sending the gas north 
to Russia, since Petronas knows that it can count on 
receiving its share of the gas proceeds, even though the $100 
per thousand cubic meters (tcms) Turkmenistan receives from 
Gazprom is far below the price the Europeans pay.  To that 
end, Abdullah said, his company is planning on rehabilitating 
the Turkmenistan portion of the Caspian littoral (CAC-III) 
pipeline, as foreseen in the May 12 
Putin-Nazarbayev-Berdimuhamedov agreement in Turkmenbashy. 
According to Abdullah, the entire Turkmenistan portion of the 
pipeline would need to be replaced, and Petronas is 
considering replacing the 42-inch pipe with 48-inch piping. 
Petronas has also worked out a deal with Kazakhstan's 
Kaztransgaz, owned by Kazmunaygaz, in which Kaztransgaz would 
pay for the replacement of about 500 kilometers of bad Kazakh 
pipeline and a compressor station located in Kazakhstan (the 
compressor station has been non-functioning since it was 
cannibalized some years ago), if Petronas guarantees payment 
of transport fees for the next 20 years. 
 
¶5.  (SBU) Petronas is also looking at -- and, in fact, has 
already broken ground for -- a gas treatment plant to remove 
propane and butane from the gas and bring the gas up to 
commercial pipeline standards.  It expects to open the plant 
north of the Caspian port city of Turkmenbashy in 2010.  More 
speculative plans for the facility would include not only the 
gas treatment plant, but also a tank farm and -- potentially 
-- a petrochemical plant to produce up to 450,000 tons of 
ethylene per year.  When Phase I of the plant is complete, 
Abdullah said, Petronas expects to be able to process five 
bcm of gas per year.  With the completion of Phase II, 
processing would increase to 10 bcm per year.  Abdullah 
reported that Petronas is considering selling the processed 
gas to Iran, possibly as part of a swap arrangement. 
 
¶6.  (SBU) Petronas is moving forward on both these 
possibilities, but Abdullah also said, "We will ship our gas 
 
ASHGABAT 00001076  002.3 OF 002 
 
 
wherever the Government of Turkmenistan tells us to do so." 
Although he expressed considerable mistrust of both the Turks 
and Azeris, he said Petronas would be willing to consider 
sending its gas west through a connector pipeline to either 
the ACG or Shah-Deniz lines -- if the market remained 
constant and the price was higher than that from the other 
two options.  However, he stressed, while Petronas would be 
willing to cooperate with such a plan, it would need to know 
up front the opportunity costs of such participation, vice 
pursuing either of the other two options.  He seemed 
interested in Stein's proposal to carry out a feasibility 
study of constructing a connector pipeline to either the ACG 
or Shah-Deniz platforms, but also urged Stein not to wait too 
long to give the Government of Turkmenistan what it really is 
interested in -- a bottom line on the estimated price that it 
could receive for such an arrangement.  Abdullah also stated 
that he would be willing, in principle, to provide the 
information that USTDA would need if it carried out a 
feasibility study. 
 
¶7.  (SBU) One issue that Abdullah raised that could 
substantially complicate plans for a connector pipeline, 
however, is the composition of the gas Petronas has located: 
the gas is rich in ethane, butane and propane, and the 
company would want to extract at least the propane and butane 
from the gas before it is transported from Turkmenistan.  The 
best option, from Petronas' perspective, would be to 
transport the gas via pipeline to the Turkmenistan mainland, 
where the substances could be extracted.  In theory the gas 
could utilize a connector pipeline and go onshore in 
Azerbaijan, where the processing plant could be built as a 
Turkmen-Azeri joint venture.  However, that would be 
difficult to sell to the Turkmen officials who would no doubt 
prefer the plant be in Turkmenistan, since the plant would 
create jobs and diversify the economy wherever it is built. 
 
¶8.  (SBU) COMMENT:  Of all Petronas' export options, the 
connector pipeline could be the most economically attractive 
solution.  While Petronas' cooperation is necessary for the 
connector pipeline to go forward, the need to factor propane 
and possible ethane extraction into the overall equation 
could end up turning the connector pipeline into a 
Trans-Caspian pipeline unless arrangements can be made to 
carry out extraction in Azerbaijan.  END COMMENT. 
 
¶9.  (U) USTDA Regional Director Dan Stein has cleared this 
cable. 
HOAGLAND