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DE RUEHAH #0695/01 1561131
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P 051131Z JUN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2918
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UNCLAS SECTION 01 OF 03 ASHGABAT 000695 
 
SENSITIVE 
SIPDIS 
 
SCA/CEN; EEB 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN:  TAKING ITS OWN PATH ON 
DIVERSIFICATION AND GAS SECTOR DEVELOPMENT 
 
¶1.  (SBU)  SUMMARY:  On May 29, Deputy Cabinet Chairman for 
Oil and Gas, Tachberdy Tagiyev, told members of the 
Morningstar delegation that Turkmenistan prefers Western 
technology and has had a long and successful working 
relationship with Western service firms.  He said 
Turkmenistan is very focused now on doing what it can to 
promote the development of multiple export pipelines, 
although the policy of selling its gas at the border has not 
changed.  Development plans are underway to modernize and add 
key elements of infrastructure to operational fields to 
gradually boost production.  Tagiyev understood it would take 
10-20 years of work with service companies to bring a field 
like South Yolotan to its maximum potential.  He seemed to 
suggest that a gradual increase in production was the goal, 
and that Turkmenistan was okay with the fact that it will 
take a long time for service companies to do it.  END SUMMARY. 
 
¶2.  (SBU)  Special Envoy for Eurasian Energy, Richard 
Morningstar, and his delegation met on May 29 with Deputy 
Cabinet Chairman for Oil and Gas, Tachberdy Tagiyev, to 
discuss the status of oil and gas development in 
Turkmenistan.  Tagiyev provided a familiar synopsis of 
developments in the sector, noting that Turkmenistan buys 
European, Japanese or U.S. equipment and technology to 
modernize wells, pipelines and compressor stations.  He also 
reiterated the standard policy regarding the availability of 
Caspian offshore blocks to foreign companies interested in 
production sharing agreements (PSAs), and opportunities for 
foreign companies to obtain service contracts for onshore 
work.  He favorably mentioned the array of foreign companies, 
including some American companies, which have been doing 
service work here for a long time. 
 
FOCUS ON DIVERSIFICATION 
 
¶3.  (SBU)  Tagiyev also repeated the government policy of 
selling gas at the border, but noted that they are "paying 
attention to issues of diversification" of pipelines.  He 
specifically mentioned the existing pipeline to Iran, and 
said the line taking gas to China would be operational in 
2010, and would eventually take 40 bcm per year to China.  He 
noted that Turkmenistan "is thinking about the European 
direction also", and mentioned the government's signature of 
a framework agreement with German energy company RWE in 
April.  He said a state committee is negotiating now on the 
TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline, and 
had determined the route of the new pipeline.  The committee, 
he added, is currently studying the markets of Pakistan and 
India. 
 
¶4.  (SBU)  Turkmenistan, he said, holds an estimated 24 
trillion cubic meters (tcm) of gas, according to experts.  He 
noted the 2008 audit that confirmed that South Yolotan and 
Osman hold a combined estimated 6-14 tcm of gas.  Tagiyev 
said that work had begun at Yashlar, where officials believe 
some 3-5 tcm will be extracted. (NOTE: The numbers Tagiyev 
cited for Yashlar were 3-5 times the 0.3-1.5 tcm the Gaffney 
Cline audit assessed to be there.  Industry geologists 
question the validity of this audit, which was based on 
severely limited data.  END NOTE.)  Offshore gas reserves, he 
said, are estimated to be 6 tcm, but offshore development is 
needed.  He said the State Agency for the Management and Use 
of Hydrocarbons can negotiate directly with foreign companies 
interested in PSAs offshore.  There are 32 blocks in the 
Turkmen-claimed portion of the Caspian, and four are being 
developed now.  He claimed negotiations were underway for the 
rest.  He noted that Western Geco had done the offshore 
exploration research, and interested foreign companies could 
obtain the data. 
 
ASHGABAT 00000695  002 OF 003 
 
 
 
SEEKING INVESTMENT AND COMPETITIVE PRICING 
 
¶5.  (SBU)  Tagiyev said Turkmenistan was interested in 
companies that are ready to invest.  Building the East-West 
pipeline will facilitate the country's export diversification 
goals for a Littoral pipeline, a Trans-Caspian pipeline, or a 
line to Europe.  Alternatively, Turkmenistan can also produce 
LNG and ship it across the Caspian or via rail in multiple 
directions, he said.  Tagiyev said that from 2009 on, 
Turkmenistan wants to sell its gas at the European market 
price, and this has made the goal of diversification more 
important.  (NOTE:  It was interesting that he stated this, 
given Russia's desire to re-negotiate the price for Turkmen 
gas downward from the European market price formula the two 
countries agreed to in 2008, at the first opportunity.  END 
NOTE.)  Tagiyev said Turkmenistan has good relations with all 
its neighbors, but noted that "Russia is not actually our 
neighbor."  He reiterated that Turkmen law stipulates that 
gas is to be sold at the border, but noted that it doesn't 
matter to whom it is sold.  "Just build us a pipeline, and 
we'll deliver," Tagiyev said. 
 
LIGHT SHED ON DEVELOPMENT PLAN 
 
¶6.  (SBU)  Tagiyev made comments that provided some insights 
into Turkmen thinking on the rate and pace of the gas 
sector's development.  He said no gas field could be 
developed in just two or three years.  It takes about 30 
years to develop the range of necessary infrastructure. 
However, a gas processing plant and sulfur separation 
facility were going to be built at South Yolotan, and 
officials had assessed that they would be able to extract 
some 10 bcm from the field in about three years. 
Infrastructure maintenance, he said, is also a factor.  He 
said officials expect it will take 10-20 years of service 
work to bring South Yolotan up to a level of development 
where it can produce 30 cm per year.  The field, Tagiyev 
confidently assessed, would then last 100-200 years at that 
rate of production.  He said that companies like Chevron 
understand this vision, and added that companies like 
Schlumberger will thus be here for the next 100 years, 
performing geological research and other services. 
 
MOTIVATED ON ADDITIONAL PIPELINES 
 
¶7.  (SBU)  Tagiyev said that the government and foreign 
companies still need to make adjustments in their terms to 
get closer to a point where they can look at onshore work. 
He noted that China was building a 7,000 kilometer export 
pipeline, and "they'll get our gas."  However, Europe was 
"still talking, but should do something," he added.  Tagiyev 
then responded to an inquiry about whether there was any 
consideration of taking a more active role in export pipeline 
discussions.  He said that currently, Turkmenistan has no 
capacity to develop its interests abroad, but perhaps would 
have in the future.  He hinted that the government was 
considering some level of involvement in construction of the 
TAPI pipeline, but provided no further detail.  He did note, 
however, that construction of the TAPI would strengthen 
Turkmenistan's foreign policy position in all directions, as 
well as improve Turkmenistan's security position.  He did not 
elaborate further. 
 
¶8.  (SBU)  COMMENT:  Tagiyev's comments on development of 
South Yolotan suggest the government is focused primarily on 
modernization of existing infrastructure on the field and 
construction of a dedicated gas processing facility.  As he 
described the timeline for the field's development, it was 
 
ASHGABAT 00000695  003 OF 003 
 
 
clear that the government's priority is not to get as much 
gas out of the ground as quickly as possible, and may not be 
to develop the entire field in an integrated way.  Rather, he 
seemed to suggest that a gradual increase in production was 
the goal, and they are happy to wait for the service 
companies to do it.  END COMMENT. 
 
¶9.  (SBU)  Postscript:  Tagiyev left for China a day or so 
after this meeting to, among other things, discuss possible 
Chinese financing for development of South Yolotan. 
 
¶10.  (U)  Ambassador Morningstar cleared this cable. 
 
MILES