08ASTANA480, KAZAKHSTAN: PRESSURE BUILDING FOR NEW OIL EXPORT

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Reference ID Created Released Classification Origin
08ASTANA480 2008-03-11 09:37 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTA #0480/01 0710937
ZNY CCCCC ZZH
P 110937Z MAR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1950
INFO RUCNCIS/CIS COLLECTIVE 0430
RUEHAK/AMEMBASSY ANKARA 2149
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L ASTANA 000480 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
ENERGY FOR EKIMOFF 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 03/05/2018 
TAGS: PGOV PREL EPET KZ
SUBJECT: KAZAKHSTAN: PRESSURE BUILDING FOR NEW OIL EXPORT 
ROUTES 
 
REF: A. ASTANA 206 B. ASTANA 225 C. ASTANA 338 D. 
     ASTANA 354 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4(B) AND (D) 
 
1. (C) Summary:  On February 27, ExxonMobil Kazakhstan 
General Manager Steven Rose gave the Ambassador a detailed 
overview of ExxonMobil's presentation to Kazakhstan on the 
Kazakhstan Caspian Transportation System (KCTS).  ExxonMobil 
is attempting to be the Kashagan consortium's lead voice in 
KCTS negotiations.  A primary theme of the presentation is 
that Kazakhstan will face significant oil transport problems 
without additional export routes. While ExxonMobil is pushing 
for an ownership interest of the pipeline portion of KCTS, 
Energy Minister Mynbayev told the Ambassador separately on 
February 28 that Kazakhstan will build the pipeline on its 
own.  End Summary 
 
Clock Ticking on KCTS 
--------------------- 
 
2. (C) Steven Rose, ExxonMobil Kazakhstan General Manager, 
showed the Ambassador on February 27 an extensive briefing 
that ExxonMobil gave to KazMunaiGas on their vision for the 
Kazakhstan Caspian Transportation System (KCTS) (Note: Rose 
said that ExxonMobil would be able to share the same briefing 
material with Eurasian Energy Diplomacy Coordinator Mann). 
Rose told the Ambassador that ExxonMobil is trying to head 
the Kashagan consortium's KCTS negotiations, although Total 
has thus far opposed ExxonMobil's leadership. Rose first 
showed the Ambassador ExxonMobil's projections on oil 
production in Kazakhstan through 2020.  ExxonMobil's basic 
message, said Rose, is that "time is running short" because 
current routes are "tightening up". The surge will result 
largely from increased Tenghiz output and the start of 
Kashagan production.  (Rose believes Kashagan will initially 
produce at least 300,000 barrels per day (bpd) and could push 
up to 400,000 to 450,000 bpd.) Rose added that KCTS must come 
on line before CPC expansion and expressed his belief that 
the Russians will not invest in CPC until there is another 
competing route. 
 
3. (C) Rose then defined for the Ambassador ExxonMobil's core 
principles for KCTS. ExxonMobil must have guaranteed priority 
access to export capacity, the right to expand capacity, 
stable tariffs, and guarantees of timely construction.  Rose 
said that KazMunaiGas officials raised no concerns when told 
of these core principles. 
 
4. (C) Rose told the Ambassador that the Eskene-Kurik 
pipeline will have a capacity of up to 60-90 million tons per 
annum (1.2 to 1.8 million bpd). The pipeline will have a 42 
to 48 inch line, with two to four pumping stations between 
Eskene and Kurik.  Section two of the system is the 
trans-Caspian marine transport.  Rose said tankers are the 
starting point with a Trans-Caspian pipeline a future 
consideration.  He noted that a pipeline and tankers are not 
mutually exclusive because tankers provide security if 
another route is lost. Rose defined section three of the 
system as terminal and storage facilities near Baku and 
connection to the Baku-Tbilisi-Ceyhan pipeline and to other 
post-Baku routes.  Rose noted that ExxonMobil and Kazakhstan 
should be natural allies in developing this strategy - both 
have stakes in CPC but not in BTC. 
 
5. (C) Rose said that ExxonMobil believes that Kazakhstan's 
concession law allows them to help build and finance the 
pipeline while Kazakhstan maintains its ownership stake. 
Priority access to the KCTS pipeline would belong first to 
the Kashagan consortium and to Tenghizchevroil, then to 
equity crude from owners, and then to third parties as 
determined by Kazakhstan.  In other words, said Rose, "let us 
move our crude and then if there is excess, move it in." 
 
6. (C) The Ambassador asked Rose if Kazakhstan could build 
the Eskene-Kurik pipeline itself.  Rose responded that 
Kazakhstan has the technical ability to build it.  The 
question, however, is whether they have the financing.  Rose 
noted that ExxonMobil is paying $1.2 billion a year at 
Kashagan, and KMG is likely accruing similar costs.  If 
Kazakhstan does build the pipeline, Rose again emphasized, 
ExxonMobil would require guarantees of stable tariffs, 
capacity, and rational rate increases. 
 
7.(C) In a meeting with the Ambassador on February 28, 
 
Minister of Energy and Natural Resources Sauat Mynbayev 
stated that Kazakhstan intends to build the Eskene-Kurik 
pipeline on its own.  Financing will not be a problem, he 
said.  If need be, Kazakhstan will dip in to its National 
Fund.  Mynbayev also told the Ambassador that Kazakhstan 
realizes it will need to offer stable tariffs and other 
guarantees with the pipeline.  (Comment:  Mynbayev's 
statement may help to explain why KMG has been "quiet on the 
pipeline front" with ExxonMobil, according to Rose.  However, 
Mynbayev's comments may not represent the final word on the 
Eskene - Kurik pipeline, as Kazakhstan's leadership has 
delivered a mixed message on
its pipeline strategy. Chevron 
has also proffered a plan calling for a 25% share of the 
pipeline (reftel C), although Chevron's Eurasia Strategic 
Business Unit Managing Director James Johnson recently told 
the Ambassador that Chevron will be comfortable with 
Kazakhstan building the pipeline as long as it establishes 
the necessary guarantees.) 
 
Mynbayev on Trans-Caspian Gas, New Production 
--------------------------------------------- 
 
8. (C) Minister Mynbayev told the Ambassador that a 
Trans-Caspian gas pipeline makes little economic sense for 
Kazakhstan because the netback will be too small.  Mynbayev 
also noted an advantage of the Pri-Kaspiskiy gas pipeline. 
Kazakhstan is building an internal gas pipeline to lessen its 
dependence on Uzbekistan for gas.  With Kazakhstan's gas 
shortages in its south but its gas in its north, the 
Pri-Kaspiskiy makes added sense because it will allow 
Kazakhstan to swap Turkmen gas and avoid moving its own gas 
from north to south. 
 
9. (C) Mynbayev told the Ambassador that ExxonMobil will soon 
get an answer, and counterproposal, from Kazakhstan on 
ExxonMobil's attempt to establish an AMI (area of mutual 
interest) in an on-shore area from north of Atyrau to the 
Russian border.  ExxonMobil hopes to perform a study of the 
area after the establishment of the AMI in order to determine 
its potential. 
 
Comment 
------- 
 
10. (C) Rose's presentation, and Mynbayev's comments to the 
Ambassador, indicate that Kazakhstan and its commercial 
partners have not yet reached a consensus on key details of 
KCTS.  All sides seem to understand, however, the increased 
urgency of moving forward with KCTS to ensure that it is 
functioning when Kazakhstani oil production ramps up 
significantly in the next decade. 
 
ORDWAY

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