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### Viewing cable 05ALMATY1434, CHINESE DEMAND CASPIAN OFFSHORE BLOC FOR GAS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05ALMATY1434 | 2005-04-12 11:59 | 2011-04-18 10:00 | CONFIDENTIAL | US Office Almaty
Appears in these articles: http://kaztag.kz/ru/news/50584

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    C O N F I D E N T I A L  ALMATY 001434

    SIPDIS

    DEPT FOR EB/ESC (JONES), EUR/SNEC, EUR/CACEN (MUDGE)

    E.O. 12958: DECL: 04/06/2010
    TAGS: ENRG CH KZ ECONOMIC
    SUBJECT: CHINESE DEMAND CASPIAN OFFSHORE BLOC FOR GAS
    PIPELINE

    REF: A. ALMATY 1121

         ¶B. STATE 61018

    Classified By: Ambassador John Ordway for reasons 1.4 (b) and (d).

    ¶1. (C) Summary: The Director of the Kazakhstani Institute of
    Oil and Gas (KIOG), Serik Burkitbayev, reported that China is
    demanding an offshore Caspian bloc as quid-pro-quo for
    support of a natural gas pipeline to China. That pipeline, to
    be built in stages, will initially transport Turkmen and
    Uzbek gas, then Western Kazakhstani. KIOG is seeking the
    services of a U.S. consulting company to develop the project.
     Burkitbayev also voiced growing Kazakhstani displeasure with
    China over the Atasu-Alanshankou oil pipeline.  End Summary.

    ¶2. (C) Serik Burkitbayev, director of the Kazakhstani
    Institute of Oil and Gas (KIOG), accompanied former National
    Security Adviser Robert McFarlane, chairman of Energy and
    Communications Solutions LLC, in an April 5 meeting with
    Ambassador Ordway (See Paragraph 9 for Burkitbayev
    Backgrounder).  KIOG is part of Kazmunaigas (KMG), the
    integrated state producer.

    ¶3. (C) McFarlane sought the meeting to discuss providing
    consulting services to KIOG.  He said he had been acquainted
    with Burkitbayev for over ten years.  McFarlane left the
    meeting for Astana to meet with KMG Vice-President and
    presidential son-in-law, Timur Kulibayev, among others. He
    planned no meetings with officials from the Ministry of
    Energy, to which KMG is subordinated. According to
    Burkitbayev, "Kulibayev can handle everything."

    -----------------------
    Quid pro Off-shore Bloc
    -----------------------

    ¶4. (C) Burkitbayev announced that China is demanding an
    offshore Caspian bloc in exchange for supporting a
    Kazakhstani proposal to build a natural gas pipeline to
    China. He bluntly warned that, "No bloc, no gas pipeline." He
    added that both sides want to announce the deal when the
    Chinese president visits Astana in July on the occasion of
    Nazarbayev's 65th birthday.

    ¶5. (C) Burkitbayev sketched out an initial route and a
    disputed second stage. Initially, the Kazakhstanis will lay
    500 km of pipe to link Almaty with the Chinese border town of
    Khorgaz. That connection will provide about 5-7 bcm of Uzbek
    and Turkmen gas through an already existing network. A
    follow-on stage will bring Western Kazakhstani gas, either
    north along side the Atasu-Alashankou oil pipe (Chinese plan)
    or south via Shymkent (Kazakhstani preference).He stressed
    the need to reduce energy dependence on Uzbekistan and
    Turkmenistan by bringing Kazakhstani gas to energy hungry
    southern Kazakhstan, where 50% of the population resides.
    Pending resolution of political uncertainties in Bishkek,
    about 70 km of pipe will be diverted out of Kyrgyzstan.
    Ultimate capacity could reach 30 bcm by 2020, with 8-10 bcm
    hoped for by 2008. The entire project could cost $3-4bn.

    ¶6. (C) Burkitbayev was optimistic, though unclear, where
    volumes would be found. He said that that the Uzbeks and the
    Turkmen were against supplying gas to China, though some
    Lukoil fields in Uzbekistan may contribute. Major Kazakhstani
    production has still not come on line; much of that, anyway,
    such as Kashagan, will be reinjected. He ventured that many
    offshore blocs in the Central Caspian were gas fields and
    would serve as a possible source.  (Comment: If straight gas,
    they will not be developed without a pipeline. End Comment).

    -----------------------------------------
    Chinese-Kazakhstani Hydrocarbon Friction?
    -----------------------------------------

    ¶7. (C) Burkitbayev griped that it was "difficult" to work
    with the Chinese. Referring to the Atasu-Alashankou oil
    pipeline, he added that, "the government is not happy, the
    oil companies are not happy." He hinted that the GOK lost a
    large degree of control when it agreed to let the Chinese
    finance and fill the pipeline. He also said that other export
    routes-CPC, BTC, and even the Russian pipeline system--might
    have been better options financially: "It (Chinese oil
    pipeline) is not a good deal for us."

    ¶8. (C) Comment: China has been on a hydrocarbon buying spree
    in Kazakhstan.  Nevertheless, it has only managed to acquire
    small and medium size assets. It desperately wants a big oil
    project after being thwarted in a 2003 bid to acquire 16.67%
    of the mammoth Kashagan project.  After coming up dry on
    Kashagan, the Chinese will, most likely, not relent on their
    quid-pro-quo demand for an off-shore bloc. Given Kazakhstani
    preferences to work big off-shore blocs with a Western major,
    that may result in delays for the gas pipeline. End Comment.

    ------------------------
    Burkitbayev Backgrounder
    ------------------------

    ¶9. (C) Backgrounder: Burkitbayev is currently embroiled in a
    commercial dispute with U.S. firm Byelocorp Scientific Inc.
    (BSI) over control of defense conversion success-story
    Byelkamit JV, JSC in Almaty (reftels).  After agreeing to pay
    BSI $5.5 million for their 65.5% stake in Byelkamit, which
    was converted from a weapons manufacturer to a supplier of
    high-end equipment for the oil and gas industry, the three
    firms, acting on Burkitbayev's behalf, managed to gain
    control of the shares without paying BSI the agreed price.
    The Ambassador took the opportunity after the meeting to
    alert McFarlane, in a private pull-aside, to the fact that
    his prospective business partner was involved in a matter
    that had the potential to become public soon, and negatively
    reflect on Burkitbayev and KIOG.

     ORDWAY

`