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PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDBU RUEHDF RUEHIK RUEHLH RUEHLN
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DE RUEHAH #0815/01 1810702
ZNR UUUUU ZZH
P 300702Z JUN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 3061
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
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RUCNDT/USMISSION USUN NEW YORK 1038
RHMCSUU/CDR USCENTCOM MACDILL AFB FL
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UNCLAS SECTION 01 OF 02 ASHGABAT 000815 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/CEN; EEB 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN:  CHINA GETS NO ADDITIONAL ONSHORE 
PRODUCTION, EVEN FOR AN EXTRA BILLION DOLLAR LOAN 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On June 24, the Governments of 
Turkmenistan and China agreed that the annual volume of 
Turkmen natural gas supplied to China will reach 40 bcm, which 
is ten bcm more than the initially planned volume.  They also 
signed a number of documents related to the Turkmenistan- 
Uzbekistan-Kazakhstan-China gas pipeline.  Among them were gas 
sale and purchase agreements and a four billion dollar loan 
agreement.  The two governments signed the documents during 
the visit of Chinese Vice Premier Li Keqiang to Turkmenistan. 
END SUMMARY 
 
¶3.  (SBU) Turkmengaz and the State Agency for Management and 
Use of Hydrocarbon Resources (State Agency) signed the gas 
sale and purchase agreements on behalf of Turkmenistan, and 
the Chinese National Petroleum Corporation (CNPC), 
PetroChina Company Limited, and Chinese National Petroleum 
Corporation International Ltd. (CNPCI) signed on behalf of 
China.  The agreement signed by Turkmengaz and CNPC envisages 
deliveries of 10 bcm of gas per year.  State-controlled 
Turkmen media did not specify the volume of gas envisaged in 
the agreement signed by the State Agency and PetroChina and 
CNPCI.  (NOTE:  On July 17, 2007, Turkmengaz signed a gas 
sales and purchase agreement with CNPC as part of the 
intergovernmental agreement of April 3, 2006 for construction 
of the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline, 
committing to deliver 30 bcm of Turkmen natural gas per year 
to China.  This earlier agreement reportedly provided for the 
sale of 17 bcm per year, which would be produced from the 
Malay and Uchajy gas fields.  The remaining 13 bcm per year 
would come from the Bagtyarlyk contractual territory operated 
by CNPC under a production sharing agreement signed in 2006. 
END NOTE.) 
 
¶4.  (SBU) On June 24, Turkmengaz also signed a four billion 
dollar loan agreement with the State Development Bank of 
China.  Previously, state media had reported that Deputy 
Chairman for Oil and Gas Tagiyev had negotiated a three billion 
dollar loan during his visit to China in early June to develop 
the South Yoloten gas field. 
 
¶5.  (SBU) COMMENT:  At this point, it looks like the extra ten 
bcm per year to increase annual deliveries from 30 bcm to 40 
bcm will come from the South Yoloten field and that a Chinese 
company, most likely CNPC, will be engaged to prepare the 
field for exploitation.  Based on the fact that CNPC signed 
the 10 bcm per year gas sale and purchase agreement with 
Turkmengaz and not with the State Agency, it is likely that 
the Chinese will not receive a production sharing agreement to 
develop the South Yoloten gas field, but rather will be hired 
as a contractor to drill wells and build the required 
infrastructure, after which Turkmengaz will take over as the 
field operator. 
 
¶6.  (SBU) COMMENT CONTINUED:  There have been no reports about 
why the loan amount was increased from three billion to four 
billion dollars.  The most obvious reason seems to be that the 
two sides decided that three billion dollars would not be 
enough to develop South Yoloten to the point where it could 
produce 10 bcm annually and decided to increase the amount of 
loan.  There is another possibility:  on June 25, the day 
after the loan agreement was signed, Turkmengaz officially 
extended for one month the deadline for tender proposals to 
construct the East-West Pipeline.  Taking into account the 
postponement and that the estimated cost of the new pipeline 
is reportedly about one billion dollars, the extra billion 
might be used to finance the construction of the pipeline. 
 
ASHGABAT 00000815  002 OF 002 
 
 
While it would not seem to make sense for China to provide a 
loan for a pipeline that would take Turkmen gas westwards, 
Chinese financing would ensure that the tender is not awarded 
to Gazprom (but rather to CNPC), thus diminishing the Russian 
presence in the Turkmen energy sector.  Also, if the flow was 
reversed, the new pipeline could deliver Caspian gas, due to 
start flowing in 2010, eastward to the China-bound pipeline. 
END COMMENT. 
 
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