C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 000833
SIPDIS
E.O. 12958: DECL: 06/02/2018
TAGS: ECON, ENRG, EPET, EUN, EINV
SUBJECT: SUBJECT: EU STRATEGIC ENERGY ISSUES: LOOKING
EAST, BUT WHERE?
Classified By: EST CHIEF THOMAS SMITHAM FOR REASONS 1.4 (b) AND (d)
1. (C) Summary. In meetings with visiting EEB Deputy
Assistant Secretary Douglas Hengel, EU officials said that
they were committed to diversifying their sources and routes
for gas into the EU but agreed that the EU,s professed aim
to speak with one voice on external policy had not yet been a
success. A representative of the EU,s Nabucco coordinator
outlined an ambitious proposal to engage Turkmenistan more
concretely in providing gas for the EU. He also noted that
the EU needs to get serious about alternative Southern
routes: Nabucco, he said, is not the only option and may be
unworkable, and officials in the EU are increasingly thinking
about how gas routes to Europe could avoid Turkey. The
French EU Presidency is apparently planning to invite the
leaders of at least Azerbaijan and Turkmenistan Paris for an
energy-focused meeting in November; Hengel pushed for more EU
attention to Azerbaijan. In response to probes, Hengel
reiterated strong US opposition to any Iranian gas in new
pipelines to Europe. Commission and Council officials
endorsed bringing China and India closer to and eventually
into the IEA. On internal energy policy, Commission officials
said that they expected EU agreement in June on a slightly
watered-down Third Energy Package, designed to unbundle
network energy operators from producers and to prevent
Gazprom from owning assets in the EU. End summary.
2. (C) DAS Douglas Hengel met with Matthias Reute, DG at DG
TREN (transport and energy), Steven Everts, counselor to
European Council High Representative Javier Solana; Brendan
Devlin, aide to the EU,s Nabucco coordinator Jozias van
Aaartsen; Marjeta Jager, the new Director for External and
Institutional energy and transport issues at DG TREN; and
Matthew Baldwin, energy adviser to European Commission
President Barroso.
Solana,s aide on Nabucco
------------------------
3. (C) In an overview of EU energy and climate policy, Everts
from Solana,s office said he thought the EU had made good
progress on climate issues, decent progress on internal
energy policy, and poor progress on developing its external
energy policy. (In a separate meeting, Baldwin called it the
EU,s &headless chicken8 problem.) But, he said, Solana
took developing an external energy policy seriously. He
noted that Solana viewed Nabucco as the &flagship project
for the EU8. Everts outlined the two problems he saw on
realizing Nabucco: Turkey and gas transit, and supplies. On
Turkey, Everts thought that there was ¶lysis8 at the
moment in Turkey, preventing Trkey from making decisions. He
also noted that for Turkey, membership in the EU is
inextricably linked to its role in gas transit to the EU.
Though Solana,s relationship with Turkish fficials is good,
Everts said, he did not think the time was right to press
Turkey on gas transit.
4. (C) On gas supply, Everts said that Solana believed the
leaders of Turkmenistan and Azerbaijan were being cautious
while they tried to figure out how Russia would respond to
their attempts to diversify their sales of gas. Hengel made
the point that President Aliyev did not believe he was
getting the attention he deserves from the EU if the EU is
serious about getting Azeri gas. (Note: President Aliyev
made this point to Special Envoy Gray and DAS Matthew Bryza
in Kyiv on May 23.) Everts said he would pass this message
to Solana. Hengel made the same point with the staffs of DG
TREN and President Barroso. Hengel noted Solana,s call for
the IEA to consider expanding to include China and India,
which the US supports. Everts indicated Solana would
continue to raise this issue.
Ambitious plans
--------------
5. (C) In a separate meeting, EU Nabucco coordinator Van
Aartsen,s aide Brendan Devlin said that Van Aartsen was
moving beyond a focus on Nabucco. Devlin outlined an
ambitious plan to develop a "big option" for Caspian gas for
Europe. This would involve the EU courting Turkmenistan and
offering a package of financing and guarantees so that
Turkmenistan would commit a large amount of gas ) around 50
bcm ) to Europe. The option that Devlin said is looking
increasingly attractive is a route that avoids Turkey and
travels under the Black Sea. These plans are not fully
developed but would involve loan guarantees from the European
Investment Bank and decisions about how to place the gas in
the EU market.
6. (C) Devlin works for Van Aartsen in a role that allows
both of them plausible deniability ) i.e., neither actually
works for the Commission but they are closely aligned with
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it. Thus, it is not easy to pin down whether they are
floating EU positions or merely developing schemes they hope
others will eventually sign on to. In any case, it was
telling that Devlin said that Van Aartsen ) the EU,s
Nabucco coordinator -- thought Nabucco as it is currently
conceived is unrealistic. There could be as many as 71
players (countries and companies) involved from the
origination of the gas through to delivery, with gas
potentially cobbled together from a number of different
sources. However, Devlin thought a Nabucco model with one
or two sources - Shah-Deniz phase II and Turkmenistan might
be workable. Devlin also probed about gas from Iran (as did
Baldwin from Barroso,s office), which Hengel indicated the
US would strongly oppose.
7. (C) Devlin said that Van Aartsen is increasingly concerned
that Turkey is the potential roadblock to the EU's plans to
get gas from the Caspian region. Devlin said that Turkey had
used energy policy for political purposes in rejecting Gaz de
France from the Nabucco consortium, and that this had sent a
bad signal to EU countries and companies. Turkey,s response
to the proposed intergovernmental agreement among Nabucco
partners, which Devlin had just seen, confirmed these views.
Devlin described Turkey,s input as &we will take all the
gas we need, then charge fees we think are appropriate.8
Avoiding Turkey is something that Devlin said needs to be
contemplated and planned for. Devlin said a meeting among
Nabucco partners is being planned for June. Special Envoy
Gray will be invited to participate if the meeting occurs.
8. (C) According to a Commission-funded study by a group
called Inogate, a pipeline through Turkey is not currently
the cheapest way to get gas from the Caspian region to the
EU. The Inogate study identifies the cheapest route &with
current policy8 (i.e., Turkish policy) as a 50 bcm pipeline
under the Black Sea. The study prices this option at $9.4
billion from Kazakhstan/Turkmenistan and $7.7 billion from
Azerbaijan. The second cheapest option, according to the
Inogate paper, is for a 50 bcm pipeline through Turkey. The
study prices this option at $10 billion from
Kazakhstan/Turkmenistan and $8.3 billion from Azerbaijan.
The &Nabucco8 option is estimated to be about 15% higher
still. (Devlin provided only one page of the study but we
have requested the full report.) Comment: "energy company
representatives we spoke to subsequently were dismissive of
Devlin's grandiose vision".
9. (C) Thus, Devlin urged a focus on a broader set of options
than just Nabucco. He urged U.S. to support a "Southern
Europe" route(s) rather than say we support Nabucco.
(Comment: Again, this is not necessarily the view of the
Commission, but Devlin indicated that it was gaining
acceptance.) He indicated that OMV would be happy if Nabucco
stopped in Bulgaria and connected to South Stream.
10. (C) Devlin said that the French Presidency, which plans
to make energy and climate change a key feature of its
six-month turn at the head of the EU, plans to host the
leaders of Azerbaijan and Turkmenistan in November in order
to promote possible options for gas supply to Europe. Devlin
was unsure whether the French planned to include Turkey in
this meeting.
Internal Energy issues
----------------------
11. (C) Meetings with DG TREN,s Matthias Ruete and with
Barroso,s aide Matthew Baldwin focused more on internal EU
energy policy ) though there is a clear relationship to
external policy.
12. (C) Baldwin was confident that the Commission,s proposed
package of reforms for the internal gas and electricity
market, announced last September, (REFTEL Brussels 2948)
would be adopted by June. Ruete was similarly optimistic.
However, both acknowledged that the final legislation would
not mandate immediate ownership unbundling in the energy
sector (that is, separation of production and distribution).
A compromise was in the works which could entail more
regulatory oversight, backed up by competition policy, with
ownership unbundling to come later. Baldwin said the French
wanted this completed before it assumed EU Presidency. In
discussing the necessity to compromise, Ruete asked
rhetorically &who would have thought two years ago that the
EU would be this far in terms of an EU energy policy?8 Both
Ruete and Baldwin argued that the internal reforms were
critical to enhancing European energy security.
13. (C) The second controversial feature of the EU,s energy
legislation concerns the so-called "Gazprom clause" which
would prohibit any foreign control of the EU,s gas and
electricity transmission systems unless an ) unspecified )
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agreement is in place between the investor,s country and the
EU. This clause was largely targeted at Gazprom in order,
ostensibly, to apply the same type of requirements on it as
the Commission proposed applying to the EU,s own integrated
energy companies, although the impact would be broader.
While the Germans are not too keen on the clause, according
to Baldwin, the Eastern European members of the EU have told
Barroso that they need some "protection" from Russia. Ruete
said that the key thing for the Commission was to force more
transparency into Gazprom,s dealings with EU energy
companies. With more transparency, competition and other
internal market levers could help assure that Gazprom did not
develop into a vertically integrated energy monopolist in
Europe.
MURRAY
.