Cablegate: Turkmen Gas to Ukraine; Forward to the Past?

VZCZCXRO0189
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDBU RUEHDF RUEHIK RUEHLH RUEHLN
RUEHLZ RUEHNEH RUEHPW RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHAH #1135/01 2510953
ZNR UUUUU ZZH
P 080953Z SEP 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 3420
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 5633
RUEHBJ/AMEMBASSY BEIJING 3352
RUEHKO/AMEMBASSY TOKYO 3216
RUEHIT/AMCONSUL ISTANBUL 3876
RUCNDT/USMISSION USUN NEW YORK 1125
RHMCSUU/CDR USCENTCOM MACDILL AFB FL
RUEHVEN/USMISSION USOSCE 3870
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 02 ASHGABAT 001135

SENSITIVE

SIPDIS

STATE FOR SCA/CEN; EEB; NEA/IR
ENERGY FOR EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: N/A
TAGS: EPET PGOV EINV TX UP
SUBJECT: TURKMEN GAS TO UKRAINE; FORWARD TO THE PAST?

REF: ASHGABAT 462

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

2. (SBU) SUMMARY: A number of Turkmen media reports recently
speculated that Ukrainian President Yushchenko will discuss the
possibility of importing natural gas directly from Turkmenistan
during his visit to the country scheduled for mid-September. The
media reports cited Yushchenko's energy envoy Bohdan Sokolovskiy,
who reportedly stated that the Ukrainian president will try to
secure an alternative to Russian gas supplies. The reports come as
Ukraine negotiates a reduction of gas imports from Russia due to
reported plummeting demand for gas in Ukraine. Moreover, Gazprom
could block Ukraine's chances for directly purchasing Turkmen gas by
insisting that Ukraine not get its own deal with Turkmenistan. The
two nations cooperated in the gas sector in the past, when
Turkmenistan was the key gas supplier to Ukraine from 1999 - 2006.
END SUMMARY.

3. (SBU) Turkmenistan started selling its gas to Ukraine in 1999,
shipping the gas through the Soviet-era Central Asia - Center gas
pipeline which crossed Russian territory on its way to Ukraine. The
price of gas then was 36 USD per thousand cubic meters (tcm) at the
Turkmen border and was increased to 44 USD per tcm a couple years
later. Ukraine paid only 50 percent of the sum in hard currency and
the other 50 percent in Ukrainian goods and services. Turkmen
officials labeled this system of payments as "the goods for gas"
system. The arrangement soured when the Turkmen accused the
Ukrainians of providing poor-quality and overpriced goods for gas,
while failing to pay for Turkmen gas on time. Nearly every
December, the Turkmen government threatened to cut gas supplies due
to Ukraine's delayed payments, and nearly every December then
Ukrainian President Kuchma would come to Ashgabat to negotiate
another extension of payment. Because of Kuchma's frequent December
visits, many Turkmen joked that they would know that winter was
approaching when Kuchma was in Ashgabat. In 2005, Gazprom entered
the scene, first through its gas-transit affiliated company
RosUkrEnergo (RUE) that purchased Turkmen gas and transported it to
Ukraine. Later, Gazprom was able to leverage Russian government
pressure to prevent Ukraine from directly importing any Turkmen
gas.

4. (SBU) Although energy envoy Sokolovskiy did not provide exact
dates for the visit, Yushchenko will most likely visit Turkmenistan
from September 15-16 to attend the inauguration of a railway bridge
over the Amudarya River, built by Ukrtransstroy, a Ukrainian state
construction company. The bridge was part of the services that
Ukraine provided within the "goods for gas" arrangement. Due to
various reasons related to payment for Turkmen gas, the construction
continued for about eight years and became a symbol of the
inefficiency of "the goods for gas" arrangement. According to a
Ministry of Oil and Gas official, Yushchenko and Berdimuhamedov will
probably discuss issues related to the remaining Ukrainian debt for
Turkmen gas supplied from 2000-2005, as well as other outstanding
financial obligations between the two countries. As for gas
supplies, the presidents will most likely confine themselves to a
general declaration of mutual interest in developing cooperation in
the energy sector.

5. (SBU) Technically, Turkmen gas can be delivered to Ukraine
through the Central Asia - Center gas pipeline network. These
pipelines have been almost empty since the April gas dispute between
Gazprom and Turkmenistan (reftel) and will not be used at full
capacity even if supplies to Russia resume, given that the volumes
are expected to be much lower than they were in 2008 due to
decreased demand. As a result, the Central Asia - Center pipeline
network would have enough capacity to transport significant volumes
of Turkmen gas to Ukraine if the Russians agreed to do so.

ASHGABAT 00001135 002 OF 002

6. (SBU) COMMENT: There are several issues that most likely will
prevent Turkmenistan gas supplies from being sold directly to
Ukraine. First, the Turkmen government does not seem to be
interested in supplying gas to Ukraine and does not consider Ukraine
a reliable partner, mostly due to the payment difficulties
associated with directly supplying gas to Ukraine in the past.
Moreover, it would be in Gazprom's interest to oppose any such deal,
as the company would unlikely choose to yield the Ukrainian market
to Turkmenistan in a period of low, global demand for gas. END
COMMENT.

CURRAN

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