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Cablegate: Gazprom's Surprise Visit to Turkmenistan Yields No

VZCZCXRO0515
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHAH #0673/01 1771226
ZNR UUUUU ZZH
R 261226Z JUN 06
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 7484
INFO RUCNCIS/CIS COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC//DHO-2/REA/NMJIC-J2//
RHMFIUU/CDR USCENTCOM MACDILL AFB FL//CCJ5-E//
RUEKJCS/JOINT STAFF WASHINGTON DC//J5/RUE//
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEHVEN/USMISSION USOSCE 1641
RUCNDT/USMISSION USUN NEW YORK 0362
RUEHGV/USMISSION GENEVA 1176

UNCLAS SECTION 01 OF 02 ASHGABAT 000673

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EPET ECON EFIN ENRG PGOV PREL TX RS UP
SUBJECT: GAZPROM'S SURPRISE VISIT TO TURKMENISTAN YIELDS NO
AGREEMENT


Summary
-------

1. (SBU) On June 19 President Niyazov invited Gazprom
Chairman Alexey Miller to Turkmenistan to discuss additional
gas supplies for 2006 and gas deliveries for 2007 and 2008.
Although no deal was struck, the Turkmenistani side offered
increased volume to Gazprom, but did not accept the offer to
keep the price at $65 per thousand cubic meters nor did it
make any formal counter-offer, despite press reports. END
COMMENT

Official Turkmenistan News: No New Deal?
----------------------------------------

2. (SBU) On the heels of Miller's visit to Ashgabat, the
official government of Turkmenistan website Turkmenistan.ru
reported that the parties reached no new agreements and that
Gazprom representative Alexey Miller asked to postpone the
negotiations in order to consult with Moscow. Two days
later, the same website ran an article covering the meeting
of the European Parliament delegation headed by European
Member of Parliament Jan Maat with the Oil and Gas and
Mineral Resources Minister Gurbanmyrat Atayev. In the
article Atayev said that Turkmenistan wanted to raise the
price of gas to $100 per thousand cubic meters starting in
the second half of 2006, but that Gazprom's offer was the
current $65 price [Note: In February, President Niyazov
announced that Turkmenistan would raise gas prices to $100
in September or October of this year. End note].

3. (SBU) However, during a meeting on June 23, Gazprom
Deputy Director of the Representative Office to Turkmenistan
Sergey Toropin told PolOff that the meeting with Miller was
requested by Turkmenistan and that no specific price was
discussed during the negotiations. According to Toropin,
the parties discussed only the possibility of increasing gas
volumes from Turkmenistan. Toropin further commented that
the request for a meeting was likely prompted by the recent
price deal of $140 per thousand cubic meters that Gazprom
made with Kazakhstan. He further explained the lack of a
deal by speculating that pricing factors such as the quality
of gas, length of transportation and the contract framework
were not taken into account by Turkmenistan. When asked
about Atayev's recent statements in the press that
Turkmenistan would "halt exports" to Russia without a
contract in the next month-and-a-half, Toropin "refused to
speculate."

4. (SBU) Toropin also gave an impression that Gazprom would
not be against cooperation in Turkmenistan with other energy
companies given the multitude of financial investment
required for various pipeline projects. He specifically
said that Gazprom would not oppose cooperation with U.S.
energy majors in Turkmenistan. Interestingly enough,
Toropin was skeptical about Niyazov's flurry of deals and
gas agreements, stressing that any long-term cooperation in
Turkmenistan should be based on an independent audit of gas
reserves of Turkmenistan and not the "very optimistic
estimates of Turkmen geologists."

Gazprom's Existing Deal With Turkmenistan
-----------------------------------------

4. (SBU) In 2003, Gazexport, a wholly-owned subsidiary of
Gazprom, and Turkmenistan signed a long-term gas sales and
purchase contract that is valid for the duration of the 25-
year Turkmenistan-Russia gas cooperation deal. In 2005,
Gazexport purchased around 8 bcm (billion cubic meters) of
gas from Turkmenistan at $44 per thousand cubic meters.
Later in 2005, Turkmenistan and Gazprom agreed to increase
gas supplies to Russia in 2006 to 30 billion cubic meters
per year but at an increased price of $65. [Note:
Turkmenistan also increased the gas price for its exports to
Iran to $65 earlier this year. End note].

Ukraine Still Trying to get a Deal with Turkmenistan
--------------------------------------------- -------


ASHGABAT 00000673 002 OF 002


5. (SBU) On June 19, Ukrainian President Victor Yushchenko
called Niyazov and asked him to meet with the Ukrainian Fuel
and Energy Minister Plachkov to discuss possible gas
supplies to Ukraine. No official information is available
whether Niyazov gave his consent. According to Vedomosti
website, Yushchenko has offered to buy 11 bcm of gas
required by Ukraine, but Niyazov decided to postpone his
answer until the completion of negotiations with Russia.
Gazprom's Toropin believes that such negotiations will
resume "in the nearest future." [Note: In December 2005
Ukraine agreed to purchase 40 bcm at $50 in the first half
and $60 in the second half of 2006. end note]. However,
during the meeting with the European parliament, Minister
Atayev said that Ukraine did not own any main pipelines to
transport gas from Turkmenistan, and "hence this matter
needs to be resolved with the transiting countries." In
tune with Atayev, Toropin told PolOff that "the Turkmen
contract with Ukraine has expired." On the subject of the
gas price for Ukraine, Toropin insisted that it is between
the trader [RosUkrEnergo] and the country to decide.
"Gazprom is just a transporter taking only a transportation
tariff".

Comment
--------------

6. (SBU) In previous years, Niyazov waited until winter --
the period when the demand for gas is in its peak -- to
start bargaining for new gas prices. However, it seems that
Niyazov, encouraged by his recent negotiating successes at
the end of 2005 and increased stature on the world energy
stage, believes that he can pull off a price hike victory
once again. But whether Russia will agree to a deal with
Turkmenistan at the expense of even further deteriorating
relations with Ukraine -- Russia's main gas transistor
country -- remains a major question. Another interesting
insight is that for all of Niyazov's maneuvering and new
pipeline deals -- which many believe to be purely to extract
a higher price from Russia -- he is apparently not fooling
the Russians. End Comment.

JACOBSON

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