VENEZUELA, COLOMBIA AND PANAMA INAUGURATE

C O N F I D E N T I A L CARACAS 002065

SIPDIS

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
NSC FOR DTOMLINSON

E.O. 12958: DECL: 07/10/2016
TAGS: EPET ENRG EINV VE
SUBJECT: VENEZUELA, COLOMBIA AND PANAMA INAUGURATE
TRANSCARIBBEAN NATURAL GAS PIPELINE

REF: A. 2005 CARACAS 03594

B. CARACAS 01709

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (U) On July 8, 2006, Presidents Alvaro Uribe of Colombia
and Martin Torrijos of Panama joined President Chavez to
inaugurate the "Trans-Caribbean" Natural Gas Pipeline. To be
constructed by Petroleos de Venezuela (PDVSA) and Ecopetrol,
Colombia's state oil firm, with private-sector supervision,
the pipeline carries an estimated construction cost of USD
335 million and will stretch approximately 225 kilometers
from Maracaibo, in western Venezuela, to Punta Ballena, in
northern Colombia (Reftel A). PDVSA has announced that it
alone will finance the project's construction. Beyond
celebrating the start of the pipeline's construction, the
three leaders signed a memorandum of understanding to explore
its extension to Panama; the agreement provides that the
first meeting to discuss the extension will take place within
seven days of signing. In addition, Chavez reiterated his
desire that PDVSA construct a petroleum refinery in Panama, a
desire which dovetails with Panama's stated wish to become a
regional refining and energy distribution center.


2. (U) The parties hope that the pipeline's first phase of
operation, during which it will carry 150 million cubic feet
of gas per day (MCFD) from Colombia to Venezuela, will begin
in March 2007 and save Venezuela some USD 40 million per
month in energy costs. Western Venezuela presently suffers
from a significant natural gas deficit, compelling it to burn
costlier, dirtier diesel fuel in several western power
plants. During the project's second phase of operation --
foreseen to begin in 2011, once Venezuela has further
developed its own natural gas fields and infrastructure --
the flow of gas will reverse, and PDVSA hopes to export 250
MCFD to Colombia and, later, perhaps as much as 1,000 MCFD to
Colombia and Panama combined. In addition to natural gas
delivery, the daily El Universal reported on July 10, 2006,
that the parties intend to run a fiber optic cable along the
pipeline's route to augment regional telecommunications
infrastructure.


3. (C) Chavez and Energy and Petroleum Minister Rafael
Ramirez used the occasion to trumpet the BRV's revolutionary
commitment to regional integration, social welfare, and
"endogenous development", emphasizing that PDVSA will direct
10 percent of the project's USD 335 million price tag toward
health, education, housing and employment projects along the
pipeline's route, 88.5 kilometers of which will lie within
Colombia. Further highlighting the integrationist theme,
Presidents Chavez and Uribe affirmed their desire to explore
joint projects by PDVSA and Ecopetrol in Venezuela and
Colombia, as well as in third countries. The back-slapping
and glad-handing among the leaders masked some tensions at
the operational level of the pipeline, however: a private
sector source associated with the project has informed our
Petroleum Attache that Ecopetrol employees have found PDVSA
arrogance and heavy-handedness off-putting (Reftel B).


4. (C) COMMENT: Whatever tensions may exist among PDVSA and
Ecopetrol employees, we believe that the pipeline project is
commercially viable and will be completed. In fact, the
connection to Chavez and the BRV may provide the Colombian
leg of the pipeline some protection from the explosive
attentions of the FARC and ELN.
BROWNFIELD