07MOSCOW2332, RUSSIAN ENERGY: THE RUSSIA-CENTRAL ASIA GAS DEAL

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07MOSCOW2332.
Reference ID Created Released Classification Origin
07MOSCOW2332 2007-05-18 13:26 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO9730
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2332/01 1381326
ZNY CCCCC ZZH
O 181326Z MAY 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0397
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 4230
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1103
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002332 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA 
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK 
DOE FOR HARBERT/EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR KLECHESKI 
 
E.O. 12958: DECL: 05/18/2017 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIAN ENERGY: THE RUSSIA-CENTRAL ASIA GAS DEAL 
 
REF: A. SOFIA 611 
     B. ASHGABAT 489 
     C. MOSCOW 2166 
     D. MOSCOW 2226 
 
Classified By: Amb. William J. Burns.  Reasons 1.4 (b/d). 
 
1. (C) Summary: During the course of DAS Paul Simons's May 
16-17 Moscow visit we spoke with several people about the gas 
agreements reached between Turkmenistan and Russia during 
President Putin's recent trip to Russia's southern neighbor. 
Most of those we spoke to said that they were not surprised 
that Turkmenistan cut a deal to upgrade the deteriorating 
pipeline infrastructure in Central Asia.  However, they 
pointed out that Turkmenistan did not make a specific 
commitment to deliver gas volumes to fill the upgraded 
pipelines.  Gazprom and the Russian Energy Ministry 
maintained that the cheapest route for sending Central Asian 
gas to Europe is through Russia and that this agreement was 
driven by economics rather than geopolitical considerations. 
In the end, the wild card here is the level of Turkmenistan's 
gas reserves.  If Turkmenistan has what they say they have 
(many here are doubtful), then they will have enough to 
fulfill their 25-year agreement to Russia and still have gas 
left over to send east and/or west.  End Summary. 
 
2. (C) State's DAS for Energy, Sanctions, and Commodities 
Paul Simons visited Moscow May 16-17 for energy-related 
meetings.  Russia's recent gas agreement with Turkmenistan 
was a constant theme in the meetings.  Among others, he met 
with Alexander Medvedev, Deputy CEO of Gazprom; Ian 
MacDonald, Chevron's Russia chief; Kris Sliger, Executive VP 
at TNK-BP; Ivan Materov, Deputy Minister of Energy; Vladimir 
Milov, President of the Institute of Energy Policy; and Ron 
Smith, Chief of Research at Alfa Bank. 
 
3. (C) Most observers we talked with view the Central Asian 
gas pipeline deal as nothing more than a general statement of 
intentions and appears to be a far less concrete result than 
the news on CPC expansion coming out of the trip (Ref D). 
The gas deal contains three parts: the upgrade of the 
existing Caspian littoral and Central Asia-Center pipelines 
and the construction of a new pipeline parallel to the 
littoral pipeline.  Beyond that, about as concrete as the 
agreement gets, according to the text, is that the four 
presidents (Putin, Nazarbayev, Karimov, and Berdymukhammedov) 
agreed to "...sign not later than September 1, 2007 an 
agreement on cooperation between the states on the 
reconstruction of the existing gas-transporting system and 
the building of new capacities for gas transportation from 
the region of Central Asia, which should include the 
preparation of a feasibility study...as well as joint 
commitments to create favorable conditions of economically 
efficient implementation of the project, including exchanging 
supplies of gas..."  Gazprom head Alexey Miller said that the 
agreement would, "eventually allow Russia to buy 80 bcm of 
Turkmen gas a year." 
 
4. (C) Medvedev and Materov said that the agreement was 
driven by economic realities rather than geopolitical 
concerns and Medvedev harshly criticized the USG for publicly 
castigating the deal "without sufficient analysis."  Medvedev 
maintained that alternate routes such as across the Caspian 
and into the Nabucco pipeline are much more expensive than 
sending the gas through Russia.  He said that Nabucco lacks 
the two things a project must have to be viable: gas 
commitments and a market, and as such any promotion of 
Nabucco is a fundamentally "political" project.  Materov said 
that "economic considerations were paramount" in cutting this 
deal.  Medvedev said that Russia is committed to 
"diversifying" its sources of supply and that upgrading the 
infrastructure in Central Asia was part of this drive and a 
necessity if Turkmenistan was to fulfill its agreement to 
deliver to Russia up to 80 billion cubic meters (bcm) of gas 
in 2009.  Medvedev said that Turkmenistan is free to send its 
gas in other directions, "if they have enough gas," after 
supplying Russia. 
 
5. (C) Chevron's MacDonald said that the Russian/Turkmen 
deal, "will happen," because Russia needs the gas, while 
 
MOSCOW 00002332  002 OF 002 
 
 
TNK-BP's Sliger was less sure.  Sliger described it as a 
typical Russian deal -- "an agreement to agree to nothing at 
some point in the future."  He noted that the Turkmen did not 
commit to any gas volumes but seemed more than happy to have 
Russia ultimately spend the money to upgrade the pipelines. 
Milov also pointed out that Turkmenistan has not commit
ted 
any gas and that the deal was really driven by Putin's worry 
over Turkmenistan's efforts to diversify.  In particular, 
Milov said that Turkmenistan's commitment of 30 bcm per annum 
(bcm/a) year to China and the extension of the pipeline to 
Iran (15 bcm/a) really got the Kremlin's attention. 
Separately, Chinese sources the IEA had been in touch with 
suggested that China is following the news closely but 
inevitably comes to the conclusion that reserves are at the 
core of any future Turkmen commitments beyond its obligations 
to Russia. 
 
6. (C) Alfa Bank's Smith added that this deal is more about 
price negotiations than anything and is certain the Turkmen 
are using TCP and a possible pipeline to China as leverage. 
He expects Turkmenistan to soon get a higher price for their 
gas (currently they receive $100/tcm) but that they will 
continue sending the bulk of their gas to Russia.  He said 
that the, "wild card is whether they (Turkmenistan) have more 
gas," than currently believed.  Echoing Smith, MacDonald said 
that the Turkmen, "believe they have a lot more gas than they 
actually do," and because of that a trans-Caspian pipeline 
(TCP) would not work unless there is a large new gas find. 
 
COMMENT 
 
7. (C) Russia needs gas from various sources to help address 
its looming supply-demand imbalance and geography makes 
Central Asia a logical supply source.  Whether Putin was 
trying to lock down Central Asian resources because he 
perceived Nabucco as a threat may be doubtful (Ref A).  More 
likely, he is concerned by China's aggressive energy 
overtures in the region.  As well, Uzbekistan's recent 
announcement that it would ship 13 bcm to China must have 
played into these Russian anxieties.  Berdymukhammedov's 
statement that he is preserving his right to examine 
alternatives but will fulfill his commitment to Russia (Ref 
B) would suggest that he and Putin agreed to little more than 
to do the infrastructure work necessary to ensure the 
physical flows that Turkmenistan promised Russia in their 
2003 25-year deal (Ref C). 
 
8. (C) Whatever the reasons, the salient facts appear to be 
that a decaying Soviet-era pipeline will be upgraded 
(something good for global energy security), some incremental 
new capacity may be built that appears aimed at fulfilling 
existing Turkmen commitments to Russia, and that 
Turkmenistan's ability to support any other pipeline routes 
in other directions is not out of the question, but depends 
on a more detailed understanding of Turkmenistan's reserves. 
BURNS

Wikileaks

Advertisements
Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: