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Cablegate: Afghan Gas Fields -- Agreement in Principle

VZCZCXRO5562
OO RUEHDBU RUEHIK RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHBUL #1982/01 1710836
ZNR UUUUU ZZH
O 200836Z JUN 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8715
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEKJCS/OSD WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0492
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHFR/AMEMBASSY PARIS 2974
RUEHML/AMEMBASSY MANILA 1589
RUEHBY/AMEMBASSY CANBERRA 0264
RUEHOT/AMEMBASSY OTTAWA 1384
RUEHNE/AMEMBASSY NEW DELHI 7086
RUEHJA/AMEMBASSY JAKARTA 0052
RUEHRL/AMEMBASSY BERLIN 2095
RUEHUL/AMEMBASSY SEOUL 0065
RUEHLO/AMEMBASSY LONDON 3726

UNCLAS SECTION 01 OF 03 KABUL 001982

SIPDIS

STATE FOR SCA/A, SCA/FO (A/S BOUCHER, GASTRIGHT, DEUTSCH)
STATE PASS USTDA FOR DSTEIN/SGREENIP
STATE PASS OPIC, USAID
OPIC FOR MOSBACHER/ZAHNISER/STEELE
MANILA PLEASE PASS ADB/USED
PARIS FOR OECD/ENERGY ATTACHE
NSC FOR AHARRIMAN
USAID FOR JKUNDER, MWARD
TREASURY FOR ABAUKOL
OSD FOR SHINN, SHIVERS
CENTCOM FOR CFC-A, CG CJTF-76, POLAD, JICENT

SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: ENRG ECON EPET ETRD KPWR EAID PGOV AF
SUBJECT: Afghan Gas Fields -- Agreement in Principle

Ref: A) Kabul 1583/1206/1033/936/935/692/317/274/162
B) 06 Kabul 5353 and previous

KABUL 00001982 001.2 OF 003


Sensitive but Unclassified.

SUMMARY
-------

1. (SBU) On June 11, the Afghan Minister of Mines convened a
meeting attended by Embassy, USAID, and the Asian Development Bank
(ADB), at which the ADB and the GoA agreed in principle to a USG
proposal to combine USAID and ADB efforts to develop the natural gas
reserves in the Amu Darya basin. The joint project will combine a
$12 million ADB grant to the GoA with an existing $12 million USAID
project to create a $24 million project for comprehensive
development of the most promising fields in the Amu Darya basin.
This approach will save ADB the $4 million in mobilization and
supervision costs that would be incurred by a separate project.
USAID is proposing to go ahead with its initial development of the
first block of wells near a proposed power plant site at Sheberghan,
and then expand the project to more wells once the ADB money comes
online. Embassy believes this approach will save GOA and the donor
community embarrassment for lack of progress on the ADB gas
development project since it was first proposed in 2003. End
summary.


USG PROPOSAL
------------

2. (SBU) In May 2007, the USG had proposed that USAID and ADB
partner up and pool resources not just to rehabilitate selected
existing wells but to foster further development of a large part of
the Amu Darya gas basin. USAID's $12 million project will
rehabilitate three gas wells, with the aim of fueling the proposed
Sheberghan Power Plant that the USG is committed to building at the
site. When the ADB's $12 million and USAID's $12 million are
combined, there will be $24 million to cohesively develop the most
promising fields in the Amu Darya basin. (NOTE: The ADB's total
loan to the Ministry of Mines is $24 million. The Minister of Mines
has recently made it clear that he wants the remaining $12 million
of the $24 million ADB loan to fund rehabilitation of the Sheberghan
to Mazar-i-Sharif pipeline.) This development work will pave the
way for private sector participation through a production sharing
arrangement at Sheberghan. At present, private players are
reluctant to invest because they do not see a firm customer for gas
on the horizon. By the time the USAID-ADB development of the gas
fields is completed in 2008, USAID will be further along in its
design and planning for the Sheberghan Power Plant, which will be
seen by the private sector as an anchor customer.

3. (SBU) USAID is poised to begin work at Sheberghan. Through its
contract with Black and Veatch International (BVI), USAID will seek
a service provider to begin rehabilitating the initial block of
seven wells, starting around October. A task order has already been
prepared. To accelerate the project, ADB funds could be used under
the USAID task order, which could be broadened to include
development of several Amu Darya gas fields at Sheberghan. USAID
aims to award its tender in September 2007, so it will need to have
a firm commitment on pooling resources from ADB in place within the
next two months. Our proposal has the blessing of the Minister of

KABUL 00001982 002 OF 003


Mines and agreement in principle with ADB staff in Kabul, which has
received an initial go-ahead from Manila.

Project Scope
-------------

4. (U) The most promising potential for gas in the Amu Darya basin
is in: two blocks within three existing fields (Jar Quduq, Khoja
Gogerdaq, and Yatimtaq); two blocks with two exploratory fields that
have had exploratory drilling but no production (Jangalikolon and
Juma Bashikurd); and four wildcat blocks where there has been no
drilling but experts believe the geologic formations are likely to
contain gas reserves. The estimated gas reserves of the five
existing and exploratory fields are 77.6 billion cubic meters, more
than enough to supply a proposed 100 MW electric power plant for 20
years and meet the demand of future gas customers.

5. (SBU) If ADB does follow through on its agreement in principle
to partner with USAID to launch a $24 million project, we envisage
the following program components:

a) $24 million will be allocated for testing, data and information
gathering, and rehabilitation of wells in the three existing fields.
Data and information from these activities will serve to ensure
sufficient gas supplies for the proposed 100 MW electric power plant
and will be used for engineering design of the plant. There are 112
wells in place in the three existing fields, but it is assumed that
many of these wells are not usable.

b) If still more funding becomes available in the future, completion
of the first component would enable us to lay the groundwork for
broader private-sector development of the resource with the
following tasks:

-- Conducting an international gas tender offer process for a
Production Sharing Agreement (PSA) for the development and
production of the three existing fields as well as an exploratory
field. After the award of this initial PSA, a second gas tender
offer would be conducted for Juma Bashikurd exploratory field and
the remaining wildcat blocks.

-- Engineering design of a gas processing and treatment plant to
remove hydrogen sulfide and condensates from produced "sour" gas
from all eight blocks.

-- Develop a detailed gas market plan and feasibility study to
optimize utilization of the Amu Darya basin gas reserves, including
the viability of investments in long range gas treatment and gas
transmission and distribution systems.


Background on ADB Natural Gas Project
-------------------------------------

6. (SBU) The USG proposal came after a four-year ADB effort to find
a way to rehabilitate selected gas fields at Sheberghan in the Amu
Darya basin. The ADB and the Ministry of Mines (MOM) had been on
the verge of cancelling an ADB loan that was approved in 2003. Each
side blamed the other for failure first to find a service provider
to rehabilitate 12 gas wells and a gas pipeline from Sheberghan to
Mazar-i-Sharif, and after that was unsuccessful, for lack of

KABUL 00001982 003 OF 003


progress in preparing the groundwork for a tender for a production
sharing agreement.

7. (SBU) On May 17, Minister of Mines Ibrahim Adel had complained
to the Ambassador about the ADB's inability to get the project off
the ground. He said that President Karzai and his cabinet
colleagues had taken him to task for not taking steps to develop the
country's oil and gas reserves. Minister of Energy and Water Ismail
Khan and others in the GOA had also complained to us about delays in
Sheberghan development. ADB staff had expressed frustration at
working with MOM. The subsequent USG proposal appears to have
provided a positive way forward for both sides.

WOOD

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