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Cablegate: Turkmenistan Energy: Myradov Avers Amu Darya Basin

VZCZCXRO9744
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHAH #0728/01 2041148
ZNR UUUUU ZZH
P 231148Z JUL 07
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9038
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHRL/AMEMBASSY BERLIN PRIORITY 0402
RUEHLM/AMEMBASSY COLOMBO PRIORITY 0436
RUEHKA/AMEMBASSY DHAKA PRIORITY 0458
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 2146
RUEHBUL/AMEMBASSY KABUL PRIORITY 0895
RUEHLO/AMEMBASSY LONDON PRIORITY 0446
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0943
RUEHFR/AMEMBASSY PARIS PRIORITY 0375
RUEHKO/AMEMBASSY TOKYO PRIORITY 0297
RHMFIUU/CDR USCENTCOM MACDILL AFB FL//CCJ2/HSE/CCJ5// PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHINGTON DC//DHO-2/REA/NMJIC-J2// PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 04 ASHGABAT 000728

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB, DRL

E.O. 12958: N/A
TAGS: PGOV PREL PHUM EPET EINV RS CH AZ TX
SUBJECT: TURKMENISTAN ENERGY: MYRADOV AVERS AMU DARYA BASIN
NOT CLOSED TO U.S. ENERGY FIRMS

REF: A. ASHGABAT 0699
B. ASHGABAT 0690
C. ASHGABAT 0559
D. ASHGABAT 0550
E. ASHGABAT 0326

1. (U) Sensitive but unclassified. Not for public Internet.

2. (SBU) SUMMARY: At an hour-long meeting on July 12 with
Executive Director of Turkmenistan's State Agency for
Management and Use of Hydrocarbon Resources Bayrammyrat
Myradov, SCA Principal Deputy Secretary Steven R. Mann, EUR
DAS Matt Bryza, and EEB Rob Garverick emphasized the benefits
of the "Western model" for long-term hydrocarbon development,
and the need to send a signal to the European market that
Turkmenistan intends to become a trustworthy supplier of oil
and gas. Mann advocated that Turkmenistan move to the next
stage -- "serious talks with serious Western companies."
Myradov repeatedly stated his State Agency is eager to talk
with all companies about hydrocarbon exploration off-shore in
Turkmenistan's area of the Caspian Sea. Myradov also
stressed that proposals were being considered only on their
economic merits, and not on a political basis. Citing
commercial confidentiality for his refusal to provide
details, he said his agency is reviewing proposals from many
companies and countries. About a possible Trans-Caspian
Pipeline, he added many questions remain to be answered
before construction could begin. Most significant, Myradov
averred -- contrary to what the delegation heard from Deputy
Chairman for Gas and Oil Tagyev (REFTEL B) -- Turkmenistan
will look seriously at concrete proposals from Western
copanies seeking exploration rights in the Amu Darya Basin.
END SUMMARY.

3. (SBU) Mann noted U.S. government support of the private
sector, and emphasized that such cooperation had already led
to success in the energy field. As in the meeting with
Foreign Minister Meredov (REFTEL A), Mann said that to answer
President Berdimuhamedov's question of "Where is my
pipeline?", the U.S. must ask, "Where is the gas?" He asked
for Myradov's views, assessments, and projections of new
fields that would supply the pipeline. Myradov stated that
he was eager to talk with any company about oil exploration
in the Caspian Sea blocks -- including companies from Iran,
if they offered the most compelling deal.

"U.S. COMPANIES TOO SLOW"

4. (SBU) Pleased by the international competition for
Turkmenistan's offshore reserves, Myradov acknowledged that
U.S. companies know the Caspian Sea well and are interested
in working in Turkmenistan. But discussions are not taking
place exclusively with U.S. companies. He confirmed that the
State Agency has held discussions with U.S. companies, but
refused to share names or details to protect confidentiality.
That said, American companies are not necessarily leaders in
this competition, he noted, because "they have been too
careful in discussions," and "don't respect time, taking too
long to make decisions."

5. (SBU) Mann reminded Myradov the United States has been
working closely with these companies for 10 years. He
emphasized that to engage in the more profitable "Western
model" of slow-but-steady investment and growth, it was
essential for Turkmenistan's energy concerns to speak with
major companies like Chevron, ConocoPhilips, ExxonMobil, and
others. If Turkmenistan were to continue on its current
course, it would be doomed to working with small companies
that would ensure a quick revenue stream in the short term,
but lower profits. For now, Turkmenistan needs to focus on
the upstream. Mann encouraged Turkmenistan to engage

ASHGABAT 00000728 002 OF 004


seriously with Western energy majors.

6. (SBU) Myradov repeated several times how his agency
works, relative to interested parties: all companies are
welcome to come and make proposals. He and his colleagues
appreciated the materials that the delegation presented.
After reviewing charts on the Norwegian model, he was
especially interested in a study of the production sharing
agreement (PSA) versus joint-venture approach. Mann offered
to have such an analysis prepared in Washington and also
recommended close consultations with the European market.

SEND THE EUROPEAN MARKET A SIGNAL -- NOW

7. (SBU) Bryza noted that Gazprom supplies 25% of Europe's
gas needs. Distributing maps indicating prices paid for gas
based on origin, Bryza explained that Gazprom manages to
continue this high level of supply to Europe by purchasing
gas from Turkmenistan, but there is a big gap between the
price Gazprom receives from the Europeans and the price it
pays Turkmenistan. The result to Turkmenistan is a
significant loss of profits. Bryza emphasized the United
States wants to see Turkmenistan receive a fairer profit
margin, and wants Turkmenistan and Europe to have the choices
that alternate pipelines would give them. Building a large
project like TPC right away is unnecessary, but a small
project such as an extension linking Petronas' gas production
in the Livanov field to the existing Shah Deniz system would
send a strong message to the European energy market that
Turkmenistan is serious about becoming a trade partner.
Emphasizing that Azerbaijan's President Aliyev had initially
wanted to focus on oil, rather than gas, Bryza noted Aliyev
has since opted to emphasize gas because he sees a window of
opportunity. With this in mind, Aliyev also sees new
possibilities for cooperation with Turkmenistan, since
pipelines will not have enough gas to supply Europe for the
next 30 years without Turkmenistan's participation. Bryza
concluded, "All wait for Turkmenistan to take the next step."

8. (SBU) Myradov pointed out that President Berdimuhamedov
said in Turkmenbashy during the
Berdimuhamedov-Putin-Nazarbayev Trilateral Summit in May that
Turkmenistan was not ruling out the possibility of a TCP.
"We're ready," he said. International experts claim the
Caspian has huge hydrocarbon resources, and Turkmenistan
wants to discuss seriously how to get those resources to
Europe. When Bryza stated that the most realistic immediate
possibility is sending gas from the Livanov field to
Azerbaijan, Myradov said, "I cannot tell you entirely what
was decided, but I can say that (the president's statement)
was a good signal." However, he continued, Turkmenistan
needs to see "realistic" proposals; gas flows from contracts.
When Mann asked who has the right to sell the gas from
Livanov, Myradov responded firmly it is the Government of
Turkmenistan. Mann stressed again that now is the time to
send a signal to European markets that there is a new source
of gas. He noted Petronas had expressed interest in selling
the Livanov gas through Azerbaijan. Sending the gas to
Azerbaijan would allow Turkmenistan to enter the European
market.

PETRONAS IRKED AT SOCAR

9. (SBU) In a separate meeting, the Petronas representative
in Turkmenistan complained he had gotten no answers from
Azerbaijan on transit tariffs if Livanov gas is shipped
westward. SOCAR did not keep its word. Petronas had booked
the Istiqlal rig a year in advance, but when the moment
arrived was told to wait another month, at significant cost
to Petronas.


ASHGABAT 00000728 003 OF 004


AMU DARYA BASIN NOT CLOSED TO THE WEST BY LAW

10. (SBU) Myradov stated that Turkmenistan is seriously
considering steps to get gas to Europe, not only through
Livanov, but also through other routes. (COMMENT: He may
have been alluding to Turkey's recent agreement in principle
to sell gas to Europe from Iran and Turkmenistan via Iran.
See ANKARA 1809. END COMMENT.) This is a historical problem
for Turkmenistan. Mann agreed that Turkmenistan has only one
route for now -- Gazprom -- but urged Turkmenistan not to
close off other options by signing a contract on the Caspian
littoral pipeline. In addition, Mann also stressed, while
Gazprom has been willing to accept Turkmenistan's "gas from
the border" model, the same model would not work for a
pipeline constructor who was investing billions of dollars
into the pipeline, nor would a constructor want to have to
renegotiate gas prices every few years, as Gazprom does. If
Turkmenistan's offshore blocks primarily offer up oil and
Turkmenistan wants to open up a new gas pipeline, then it
would be necessary to open new fields in the Amu Darya basin.
However, we had heard from Deputy Chairman for Gas and Oil
Tagyev (REFTEL B) that the Amu Darya region is open only to
China. We cannot understand why this would be so, Mann said.

11. (SBU) Myradov claimed the main issue is that no Western
company has yet offered a sufficiently detailed and lucrative
proposal. If Turkmenistan sees an offer in its favor, it
will seriously consider, possibly accept, the offer. When
Mann pushed him further, Myradov admitted Turkmenistan's 2030
hydrocarbons plan does not envision licensing foreign
companies onshore, but, in fact, there is nothing in
Turkmenistan's petroleum law that forbids such arrangements.
The area is not currently open for licensing to foreign
companies, but there is nothing to keep foreign firms from
making detailed serious proposals that the government would
consider seriously. Myradov added such a proposal would be
handicapped, however, because his agency is not the exclusive
government body regulating onshore contracts. Myradov stated
that there are "no secrets" regarding hydrocarbon reserves in
the Caspian, but did not offer any new data. He emphasized
again that Turkmenistan's interests are largely commercial.

POLITICAL REHABILITATION STARTING?

12. (SBU) We were surprised to see Former Principal Deputy
Minister of Foreign Affairs Yolbars Kepbanov participate in
this meeting as the new head of the State Agency's legal
department. He said he'd been on the job only one week.
Mann and Bryza remembered him from his previous work as lead
on Caspian delimitation issues. He disappeared from view
after Niyazov accused former Foreign Minister Shikmyradov of
playing a lead role in the attempted 2002 coup.

13. (SBU) COMMENT: This is post's first indication that the
freeze-out of U.S. companies from working the Amu Darya basin
may not be as hard-and-fast as some Turkmenistani officials
have so far maintained. While Turkmenistan is still a long
way from agreeing to allow Chevron -- or any other U.S.
company -- to work in the Amu Darya basin, this session
opened a door we had previously thought closed and locked.
Likewise, Myradov's view that U.S. majors are too slow and
cautious is further evidence that Turkmenistan does not
understand the Western model of investment and growth. Both
Azerbaijan and Kazakhstan should be strongly encouraged to
help educate Turkmenistan. For our part, it is essential to
identify and provide a steady stream of material to educate
the Turkmenistani government. Regular and high-level U.S.
delegations play an important educational role, but
Turkmenistan needs material it can pass broadly throughout
the government. END COMMENT.


ASHGABAT 00000728 004.2 OF 004


14. (U) PDAS Mann has cleared this cable.
HOAGLAND

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