Cablegate: Petronas in Turkmenistan: Full of Gas

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DE RUEHAH #1076/01 2780646
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P 050646Z OCT 07
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9496
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 02 ASHGABAT 001076

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB
PLEASE PASS TO USTDA DAN STEIN
COMMERCE FOR HUEPER
ENERGY FOR EKIMOFF

E.O. 12958: N/A
TAGS: PGOV PREL EPET RS AJ TX
SUBJECT: PETRONAS IN TURKMENISTAN: FULL OF GAS

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

2. (SBU) SUMMARY: Petronas, which unexpectedly hit
substantial (an estimated 20 billion cubic meters at maximum
production) reserves of ethane- and propane-rich natural gas
in the Caspian Sea, is looking at gas export options. These
options include sending the gas north to Russia via a
pipeline for which it would need to pay a substantial sum to
help rehabilitate (which it is planning on pursuing),
exporting natural gas to Iran, or -- now -- sending it west
via a connector pipeline proposed by the U.S. and Azeri
governments. Although Petronas mistrusts the Azeris and
Turks as potential business partners, the connector pipeline
could be the most economically attractive option, and
Petronas would be willing to cooperate with a U.S. Trade and
Development Agency-funded feasibility study. However, the
need to factor ethane and propane extraction into the overall
equation could create new complications. END SUMMARY.

3. (SBU) During a September 17 dinner, the General Manager
of Petronas in Turkmenistan, Suleiman Abdullah, told U.S.
Trade and Development Agency Regional Director for Europe and
Eurasia Dan Stein that his company, which works
Turkmenistan's Block 1 in the Caspian, has found significant
amounts of gas along with the oil that Petronas currently is
working. Although Petronas currently continues to burn off
the gas, it expects to produce up to 20 billion cubic meters
(bcms) per year of gas over the coming years. Petronas is
planning to build four drilling rigs and operate a collector
platform in Block 1. Abdullah told Stein Petronas is
entitled to obtain the highest available price for its gas
under its production sharing agreement.

4. (SBU) In general, Petronas favors sending the gas north
to Russia, since Petronas knows that it can count on
receiving its share of the gas proceeds, even though the $100
per thousand cubic meters (tcms) Turkmenistan receives from
Gazprom is far below the price the Europeans pay. To that
end, Abdullah said, his company is planning on rehabilitating
the Turkmenistan portion of the Caspian littoral (CAC-III)
pipeline, as foreseen in the May 12
Putin-Nazarbayev-Berdimuhamedov agreement in Turkmenbashy.
According to Abdullah, the entire Turkmenistan portion of the
pipeline would need to be replaced, and Petronas is
considering replacing the 42-inch pipe with 48-inch piping.
Petronas has also worked out a deal with Kazakhstan's
Kaztransgaz, owned by Kazmunaygaz, in which Kaztransgaz would
pay for the replacement of about 500 kilometers of bad Kazakh
pipeline and a compressor station located in Kazakhstan (the
compressor station has been non-functioning since it was
cannibalized some years ago), if Petronas guarantees payment
of transport fees for the next 20 years.

5. (SBU) Petronas is also looking at -- and, in fact, has
already broken ground for -- a gas treatment plant to remove
propane and butane from the gas and bring the gas up to
commercial pipeline standards. It expects to open the plant
north of the Caspian port city of Turkmenbashy in 2010. More
speculative plans for the facility would include not only the
gas treatment plant, but also a tank farm and -- potentially
-- a petrochemical plant to produce up to 450,000 tons of
ethylene per year. When Phase I of the plant is complete,
Abdullah said, Petronas expects to be able to process five
bcm of gas per year. With the completion of Phase II,
processing would increase to 10 bcm per year. Abdullah
reported that Petronas is considering selling the processed
gas to Iran, possibly as part of a swap arrangement.

6. (SBU) Petronas is moving forward on both these
possibilities, but Abdullah also said, "We will ship our gas

ASHGABAT 00001076 002.3 OF 002

wherever the Government of Turkmenistan tells us to do so."
Although he expressed considerable mistrust of both the Turks
and Azeris, he said Petronas would be willing to consider
sending its gas west through a connector pipeline to either
the ACG or Shah-Deniz lines -- if the market remained
constant and the price was higher than that from the other
two options. However, he stressed, while Petronas would be
willing to cooperate with such a plan, it would need to know
up front the opportunity costs of such participation, vice
pursuing either of the other two options. He seemed
interested in Stein's proposal to carry out a feasibility
study of constructing a connector pipeline to either the ACG
or Shah-Deniz platforms, but also urged Stein not to wait too
long to give the Government of Turkmenistan what it really is
interested in -- a bottom line on the estimated price that it
could receive for such an arrangement. Abdullah also stated
that he would be willing, in principle, to provide the
information that USTDA would need if it carried out a
feasibility study.

7. (SBU) One issue that Abdullah raised that could
substantially complicate plans for a connector pipeline,
however, is the composition of the gas Petronas has located:
the gas is rich in ethane, butane and propane, and the
company would want to extract at least the propane and butane
from the gas before it is transported from Turkmenistan. The
best option, from Petronas' perspective, would be to
transport the gas via pipeline to the Turkmenistan mainland,
where the substances could be extracted. In theory the gas
could utilize a connector pipeline and go onshore in
Azerbaijan, where the processing plant could be built as a
Turkmen-Azeri joint venture. However, that would be
difficult to sell to the Turkmen officials who would no doubt
prefer the plant be in Turkmenistan, since the plant would
create jobs and diversify the economy wherever it is built.

8. (SBU) COMMENT: Of all Petronas' export options, the
connector pipeline could be the most economically attractive
solution. While Petronas' cooperation is necessary for the
connector pipeline to go forward, the need to factor propane
and possible ethane extraction into the overall equation
could end up turning the connector pipeline into a
Trans-Caspian pipeline unless arrangements can be made to
carry out extraction in Azerbaijan. END COMMENT.

9. (U) USTDA Regional Director Dan Stein has cleared this
cable.
HOAGLAND

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