VZCZCXRO0471
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHNEH RUEHPW RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHAH #0015/01 0061314
ZNR UUUUU ZZH
P 061314Z JAN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2064
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 4637
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RHEHNSC/NSC WASHDC
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RUEHVEN/USMISSION USOSCE 3180
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ASHGABAT 000015 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
PLEASE PASS TO USTDA DAN STEIN 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: EPET ECON PREL CH TX
SUBJECT: TURKMENISTAN: DELAY OF COMPLETION OF GAS PIPELINE 
TO CHINA LIKELY 
 
¶1. (U) Sensitive but unclassified.  Not for Internet 
distribution. 
 
¶2. (SBU) SUMMARY:  In a recent statement released by the 
Turkmen state information agency, a detailed status report on 
the construction of the gas pipeline to China omitted mention 
of the long anticipated 2009 start of operations.  Instead, 
the statement referred to deliveries to China "in coming 
years," a signal that gas would not flow in 2009.  Possible 
explanations include insufficient production, a bottleneck 
further downstream in the pipeline, or constraints on the 
availability of Chinese capital.  The delay could strengthen 
the perception of Russia as Turkmenistan's most reliable gas 
customer and export route.  END SUMMARY. 
 
GAS TO CHINA "IN COMING YEARS" 
 
¶3. (SBU) An article, "Turkmenistan-China Gas Pipeline Takes 
On Real Contours," was released by the Turkmenistan State 
Information Agency on January 2.  In addition to pointing out 
the long-term significance of the project in terms of export 
diversification and access to energy markets, the statement 
described in unusual detail the extent of work completed 
during 2008.  Survey work and plans for the project were 
completed according to schedule, and construction work on the 
Turkmen section was proceeding at full speed.  However, in 
the only reference to the timing of the pipeline's 
completion, which had previously been announced as sometime 
in 2009, the statement noted that Turkmenistan will begin 
delivery of its gas to China "in coming years." 
 
CONSTRUCTION OF TURKMEN FEEDER PIPELINE UNDERWAY 
 
¶4. (SBU) According to the state-owned monopoly Turkmengas, 
work is being carried out on a 188-kilometer gas pipeline 
from the Malay gasfield to Bagtyyarlyk gasfield on both sides 
of the Amu Darya River and at the river crossing itself.  The 
terminus of this stretch will be at the Uzbek border, in 
accordance with the Turkmen policy of selling its gas 
exclusively at its border.  The general contractor for the 
project is the Russian firm "Stroytransgaz."  According to 
its contract, construction will include a 1420 mm diameter 
pipe across the Amu Darya, gas processing facilities, and 
compressor stations built by the Belgian company ENEX, all at 
a cost in excess of 395 million euros. 
 
SOURCES OF GAS FOR CHINA SPECIFIED 
 
¶5. (SBU) The article pointed out that, according to the April 
2006 pipeline agreement, Turkmenistan is required for 30 
years to deliver to China up to 30 bcm of gas per year.  It 
was noted that, based on the "confirmation by independent 
experts of colossal deposits of hydrocarbon resources," that 
figure would increase to 40 bcm in the future (NOTE: The 
additional 10 bcma was agreed in August 2008 and may have 
been offered in compensation for expected delays in the start 
of deliveries.  END NOTE.)  In the first stages of the 
pipeline's operation, Turkmengas is obligated to deliver 17 
bcma from the Malay and Udadzhi deposits.  In addition, gas 
from the Bagtyyarlyk area (which is covered by the China 
National Petroleum Corporation ("CNPC") production sharing 
agreement) would provide the remaining 13 bcma.  It was noted 
that CNPC became the only foreign company recently to be 
issued an operating license for exploration and extraction on 
land, and that for more than a year the company has been 
carrying out exploration and construction of related 
infrastructure. 
 
CHINESE EXPLORATION AND CONSTRUCTION EFFORTS 
 
ASHGABAT 00000015  002 OF 002 
 
 
 
¶6. (SBU) In June 2008, construction began on the first of two 
planned gas refining plants (Block A) at the Samandepe gas 
deposit on the right bank of the Amu Darya.  Besides removing 
hydrogen sulfide gas, the plant, with a capacity of five 
bcma, will produce solid sulphur.  Towards the end of 2010, 
construction is planned for a second gas purification plant 
with a capacity of eight bcma (Block B), to be built at the 
Altyn Asyr deposit near Yashildepe.  According to the State 
Hydrocarbons Agency, the project will be tied together by 68 
kilometers of pipeline with a diameter of 914 mm.  Welding is 
already completed on three kilometers and pipe put in place 
on 30 kilometers.  From Block B to the 
Turkmenistan-Uzbekistan border, a ten kilometer pipeline with 
a diameter of 1067 mm will be constructed. 
 
¶7. (SBU) COMMENT: Noticeably absent from the pipeline 
progress report was mention of the expected date for the 
initial shipment.  According to the text of the 2006 pipeline 
agreement, article two provided that the Chinese side would 
buy Turkmen gas at the Turkmenistan border at the beginning 
of operation of the pipeline in 2009.  They also agreed that 
gas would be provided from deposits on the right bank of the 
Amu Darya according to the PSA, but that if necessary, the 
Turkmen side guaranteed to provide an additional amount from 
other gas deposits.  In a January 3 news item about the 
Turkmen statement, Russian news agency ITAR-TASS highlighted 
that no firm date to begin deliveries was mentioned, but 
rather deliveries "in years to come" that the Russians 
characterized as a postponement. 
 
¶8. (SBU) COMMENT (CONT.): The delay in pipeline completion 
could have several causes.  On January 3, state television 
reported that Turkmenistan plans to produce 75 bcm of gas in 
2009, including 51.95 bcm for export.  Gas production at the 
planned level would only be sufficient to meet export 
commitments to Russia and Iran in 2009.  Despite CNPC's PSA 
for gas on the right bank of the Amu Darya, difficulties in 
developing those deposits could have delayed new production. 
There were also reports earlier in the year that delays in 
the completion of the Uzbek section of the pipeline would set 
back completion of the project until 2010.  Finally, a local 
IOC representative suggested that the Chinese themselves 
might have slowed the pace of construction in light of the 
global shortage of capital and related funding problems. 
Whatever the cause, the delay is a temporary setback for 
Turkmen efforts to enhance their pricing leverage through 
export diversification.  END COMMENT. 
MILES