08ASTANA494, KAZAKHSTAN’S GAS EXPORTS: NOT YET ABUNDANT, BUT

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Reference ID Created Released Classification Origin
08ASTANA494 2008-03-12 11:13 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXRO2589
PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHTA #0494 0721113
ZNY CCCCC ZZH
P 121113Z MAR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1970
INFO RUCNCIS/CIS COLLECTIVE 0435
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L ASTANA 000494 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
DOE FOR EKIMOFF 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 03/12/2018 
TAGS: PGOV PRL EPET KZ
SUBJECT: KAZAKHSTAN'S GAS EXPORTS:  NOT YET ABUNDANT, BUT 
PRICIER 
 
REF: A. ASTANA 480 B. ASTANA 206 C. ANKARA 358 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4(B) AND (D) 
 
1. (C) Summary:  Kazakhstan, along with Uzbekistan and 
Turkmenistan, plans to sell its gas exports at "European 
prices" in 2009.  KazMunayGas President Uzakbay Karabalin 
announced Kazakhstan's intent at a meeting in Moscow between 
Gazprom and energy officials from Kazakhstan, Turkmenistan, 
and Uzbekistan.  On March 12, Prime Minister Masimov 
confirmed to the Ambassador that Kazakhstan will raise its 
gas prices.  Nevertheless, oil, not gas, remains the biggest 
money-maker in Kazakhstan and gas will continue to be 
re-injected at Tenghiz (and at Kashagan in the future), 
limiting the volumes available for export. End Summary. 
 
Russia Encourages Kazakhstan to Raise Gas Prices 
--------------------------------------------- --- 
 
2. (C) On March 11 in Moscow, KazMunayGas President Uzakbay 
Karabalin joined energy officials from Uzbekistan and 
Turkmenistan in announcing the intent of all three countries 
to sell gas exports at "European prices." In a conversation 
with the Ambassador on March 12, Prime Minister Masimov 
confirmed Kazakhstan's plans. According to Masimov, Russia 
proposed the idea, under which Caspian gas will be sold at 
"European" market prices. The new pricing policy will apply 
to all countries downstream of Russia, including Ukraine, 
Belarus, and Georgia. Masimov said that Kazakhstan realizes 
that its decision will be extremely unpopular with those 
countries.  Kazakhstan's announcement comes not long after 
Minister of Energy and Natural Resources Sauat Mynbayev told 
the Ambassador that a Trans-Caspian gas pipeline makes little 
economic sense for Kazakhstan because of the small netback in 
comparison with other options. (Reftel A). 
 
At $100 a Barrel, Kazakhstan Remains an Oil Country 
--------------------------------------------- ------ 
 
4. (C) Kazakhstani officials are optimistic about future gas 
production.  Musabek Isayev, KazMunaiGas Managing Director 
for Gas Projects, told Poloff that Kazakhstan projects that 
volumes of commodity gas will increase from 13 billion cubic 
meters in 2007 to 30 billion cubic meters by 2020. 
 
5. (C) For the major international energy companies, however, 
oil remains the focus, for now. At Tenghiz, most gas is being 
reinjected into the reservoir to promote crude production - 
which is more profitable.  TenghizChevroil's current gas 
production is only 4 bcm, and is expected to rise to only 7 
bcm with the second generation expansion which will come on 
line later this year.  Gas is also expected to be reinjected 
at Kashagan when it begins production (Reftel B).  (Note: In 
reftel C, EU Nabucco Coordinator Van Aartsen incorrectly 
stated that companies are reinjecting in Kazakhstan "for lack 
of other commercial opportunities" and that Chevron and 
ExxonMobil have not been approached by the USG to make gas 
available for Nabucco.  In fact, USG officials have discussed 
the availability of Kazakhstani gas for the European market 
with the companies on a number of occasions.  For the IOCs, 
however, reinjection -- which promotes crude production -- is 
a commercial decision motivated by the high price of oil and 
the uncertainty of Trans-Caspian gas transport options. The 
IOCs also have concerns with reservoir management, and they 
believe that proper stewardship of the reservoir requires 
reinjection). 
 
6. (C) Comment: Kazakhstan's oil and gas strategies differ. 
With oil production booming, and set to increase, Kazakhstan 
needs diversified transportation routes and multiple 
partnerships.  The GOK does not exhibit the same flexibility 
in the gas sector, where it is most interested in maximizing 
its netbacks in realization that it does not have enough gas 
to support multiple pipelines.  Until gas production ramps up 
and more attractive deals are offered, Kazakhstan is 
increasingly comfortable in selling gas to Russia, 
particularly with Russia now pushing a more profitable 
pricing plan. End Comment. 
ORDWAY

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