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DE RUEHAH #0648/01 1460843
ZNR UUUUU ZZH
P 260843Z MAY 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2853
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
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RUEHAK/AMEMBASSY ANKARA PRIORITY 5215
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2955
RUEHKO/AMEMBASSY TOKYO PRIORITY 2820
RUEHIT/AMCONSUL ISTANBUL PRIORITY 3459
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UNCLAS SECTION 01 OF 03 ASHGABAT 000648 
 
SENSITIVE 
SIPDIS 
 
SCA/CEN; EEB 
PLEASE PASS TO USTDA DAN STEIN 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EPET TX RS
SUBJECT: TURKMENISTAN:  STATUS OF ENERGY DEVELOPMENT AND 
SECTOR POLICY 
 
¶1.  (U) Sensitive but unclassified.  Not for Internet 
distribution. 
 
¶2.  (SBU) SUMMARY:  Oil and gas sector development in 
Turkmenistan is making progress, albeit slowly.  There has 
been no change in the policy of barring foreign companies 
from onshore PSAs, but the door appears to be open regarding 
the signing of other types of agreements.  Although PSA 
proposals are welcome for offshore projects, the government 
has not signed one since December 2007, although it signed a 
preliminary agreement in April with a German energy company 
that is likely to lead to a PSA.  Turkmenistan is now 
focusing more on its stated goal of export pipeline 
diversification, and chilled relations with Russia may help 
make Turkmen officials more receptive to Western export route 
discussions.  The country's export policy appears focused on 
balancing the level of exports in all directions to give the 
country the upper hand and prevent any single partner from 
gaining leverage over the government.  There has never been a 
better time to encourage the Turkmen to look westward for 
lucrative new opportunities to advance their diversification 
goals.  END SUMMARY. 
 
TURKMENISTAN'S PRODUCTION/EXPORT PICTURE 
 
¶3.  (SBU) According to official Turkmen Government 
information, in 2008 the country produced 70.4 bcm of natural 
gas, and exported 47.4 bcm (5 bcm to Iran, the rest to 
Russia).  (NOTE:  In late 2007, the President instructed 
sector officials to produce 81.5 bcm of gas in 2008, but 
actual production fell short by some 11 bcm.  END NOTE.)  In 
2008 the country produced 10.2 million tons of oil and 
exported more than half of it in the form of refined fuels 
and petrochemicals.  While the government has not yet 
published any production figures for the first quarter of 
2009, a Ministry of Oil and Gas official told Post's local 
POL/ECON Assistant in April that Turkmenistan had earned 
about $3.5 billion from gas sales in the first quarter, which 
by our rough estimate suggests that about 11 bcm of gas was 
exported.  Based on our understanding of earnings from 2008 
and first quarter 2009, there are no indications that 
Turkmenistan is going to feel a financial pinch anytime soon. 
 
RUSSIAN HALT IN TURKMEN GAS DELIVERY CONTINUES 
 
¶4.  (SBU) Turkmenistan is reportedly losing some $250 million 
in earnings each week the stoppage continues, and five weeks 
have already passed.  There are no indications that the loss 
in earnings has caused them any financial discomfort, given 
past earnings, and there is little chance the temporary loss 
in earnings will cause any significant budgetary problems. 
There are indications that the Turkmen Government is growing 
impatient with Russian rhetoric on the dispute and its 
unwillingness to resolve the problem as an equal partner. 
Post learned from a Western contact in early May that a group 
of foreign experts were in Turkmenistan in April to assess 
the cause of the pipeline explosion.  The group reportedly 
determined that Gazprom was to blame, paving the way for 
Turkmenistan to demand compensation from the Russian energy 
giant.  There are no signs, however, that Gazprom has 
accepted blame or agreed to compensate Turkmenistan.  A May 
21 article in Turkmen press suggested that the Turkmen 
Government increasingly viewed Russia as an unreliable 
partner, and that Turkmenistan would begin to focus more 
attention on the potential construction of alternate export 
pipelines. 
 
COMMERCIAL ACTIVITY IN SECTOR DEVELOPMENT UNCHANGED 
 
ASHGABAT 00000648  002 OF 003 
 
 
 
¶5.  (SBU)  The total number of foreign company Production 
Sharing Agreements (PSAs) in Turkmenistan remains at seven 
(three onshore:  CNPC, Mitro, and Burren Energy, four 
offshore: Dragon Oil, Wintershall, Petronas, Buried Hill). 
No offshore PSAs have been signed since Buried Hill in 
December 2007.  The German energy giant RWE -- a stakeholder 
in the EU-proposed Nabucco project -- signed a Memorandum of 
Understanding (MOU) with Turkmenistan on April 17 to explore 
offshore Block 23, but a final contract agreement has not 
emerged.  Onshore, no PSAs have been signed since July 2007 
with the Chinese national company, CNPC.  The Turkmen 
Government's policy of denying onshore PSA opportunities to 
international oil companies, formally stated in mid-2008, 
continues, although officials continue to publicly invite 
foreign companies to submit non-production sharing onshore 
proposals.  Foreign energy-related service companies like 
Schlumberger, Parker Drilling, and Weatherford appear to be 
thriving, in spite of the tough business environment, and 
logistical services and equipment companies such as Bertling, 
DRC Group LLC, and Cameron are also reporting positive 
business development plans here. 
 
PROGRESS ON SOME PIPELINE PROJECTS ... 
 
¶6.  (SBU) Beginning in 2008, Turkmen Government officials 
began stating more directly the national policy goal of 
diversifying the country's export pipeline infrastructure, 
and over the past year there has been marked progress in 
realizing it.  Construction of the Turkmenistan-China 
pipeline that will carry 30-40 bcm of gas is progressing, and 
the pipeline is expected to initiate at least small gas 
deliveries in 2010.  In February, Iran and Turkmenistan 
surprised everyone with the signing of a MOU that laid the 
ground work for Iranian companies to potentially develop the 
South Yoloten field and build a new export pipeline that 
would carry 10 bcm of Turkmen gas to northern Iran annually. 
Post has learned from Western contacts here that in April, 
Iranian technical experts visited the mega-giant gas field. 
In early May, Iranian officials announced that they had 
delivered their project proposal to the Turkmen Government. 
 
... AND LESS PROGRESS ON OTHERS 
 
¶7.  (SBU) There has been no progress on the development of 
the Caspian Littoral pipeline that was the subject of a 
December 2007 agreement between Russia, Kazakhstan and 
Turkmenistan.  Although Russia and Kazakhstan have ratified 
the agreement, Turkmenistan has shown no sign that it intends 
to ratify the agreement anytime soon.  Turkmen concerns about 
the agreement appear to center on a reluctance to expand the 
planned pipeline's capacity beyond 30 bcm and Russian efforts 
to make a planned domestic Turkmen East-West pipeline a 
dedicated feed line for the Littoral, according to a Western 
commercial contact.  Turkmen officials demonstrated their 
displeasure with Russian intrigues in April by issuing an 
international tender for the East-West pipeline's 
construction, just two days after President Berdimuhamedov 
refused to sign a no-bid construction contract for the 
pipeline with a Russian company in Moscow.  (NOTE:  Post 
learned in mid-May that the East-West tender will close in 
July, a month later than previously stated.  It may be that 
the government has not yet received a proposal that includes 
the kind of financing the government would probably like to 
see for the estimated $1 billion project.  END NOTE.) 
 
¶8.  (SBU)  COMMENT:  Turkmenistan's decision making policy 
over the last two years shows that the country is developing 
 
ASHGABAT 00000648  003 OF 003 
 
 
the sector at its own speed and in its own way.  Armed with a 
pragmatic neutrality policy, the Turkmen President appears to 
be especially receptive to bilateral package deals that 
contain investment for development, advance pipeline 
diversity and a political desire for long term partnership. 
The Chinese pipeline and production deal -- and possibly a 
future Iranian deal -- bring these benefits.  There has never 
been a better time to promote diversity in development and in 
export.  While Russia will continue to be a key partner for 
the foreseeable future, a variety of other partners will 
increasingly empower the Turkmen Government and allow it to 
resist pressure from any one direction.  Recent Turkmen 
Government actions suggest that it, too, wants to avoid deals 
that give one partner too much latitude over Turkmen 
commerce.  END COMMENT. 
MILES