U.S.-NORWAY ENERGY TALKS FOCUS ON HIGH NORTH,

C O N F I D E N T I A L SECTION 01 OF 04 OSLO 001524

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E.O. 12958: DECL: 12/18/2016
TAGS: EPET ENRG PREL SENV PINR RS NO
SUBJECT: U.S.-NORWAY ENERGY TALKS FOCUS ON HIGH NORTH,
EUROPEAN ENERGY SECURITY, AND RUSSIA

Classified By: Ambassador Benson K. Whitney for reasons 1.4 (b),(d).

Summary
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1. (C) A delegation of USG energy analysts headed by
Department of Energy Intelligence Chief Rolf Mowatt-Larssen
visited Oslo December 7 for an energy symposium with
Norwegian officials from the Ministries of Foreign Affairs,
Petroleum and Energy, and other government agencies. The
talks included a small breakfast meeting with MFA State
Secretary (Deputy Minister) Liv Monica Stubholt, plenary

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discussions at MFA and the Petroleum Ministry, and a briefing
by Chevron. Key discussion topics included:

-- The global energy picture and rising competition for
resources;
-- Developing High North/Barents energy resources;
-- European energy demand and security, including NATO's role
in energy security;
-- Russian energy policies;
-- Gazprom's "go it alone" decision on the Shtokman project;
-- Balancing petroleum exploration and environmental
considerations in the fragile Arctic; and
-- CO2 capture and storage technologies.

The discussions were the latest in a series of meetings that
reflect a mutual desire to intensify the bilateral energy
dialogue with cooperation in the High North. The Norwegians
were extremely appreciative of the visit and looked forward
to conducting a fuller energy dialogue between the United
States and Norway. End summary.

Breakfast with MFA's Stubholt Kicks Off Dialogue
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2. (C) In a small policy level working breakfast, State
Secretary Liv Monica Stubholt shared her thoughts on energy

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with the Ambassador, Rolf Mowatt-Larssen, William Rapp and
P/E Couns. Both sides agreed on the growing importance of
energy and its link to the environment and development. They
noted the important roles of China and Russia in this issue,
and discussed the possibility of getting China to focus on
the matter not just internally but also as it explores energy
linkages in Africa and elsewhere. Stubholt suggested that
Russia is redirecting its energy focus from the EU to China,
which may cause real competition between China and the EU
over future energy supplies.


3. (C) Turning to the EU, Stubholt said that the EU is very
focused on obtaining a diversity of sources and developing
good overall community policy. However, the reluctance by
member states to cede sovereignty in this area is limiting
the EU's ability to act. Given these constraints, she felt
it was critical to focus on diversity of suppliers. Norway
could help by:
--increasing production, and
--strengthening infrastructure of supply (citing the planned
new electricity cable to the Netherlands).


4. (C) Stubholt reviewed other key links to energy including
its impact on the NATO agenda and environmental policy. In
NATO, strong political commitment to security of supply and
protection of physical infrastructure is important. Norway
is considering playing a role in taking Russian oil and gas
into Northeast Norway and reloading it onto larger ships.
Norwegian intelligence agencies however noted that this would
create an attractive target for international terrorists.
The same would be true if pipelines are created from Russia
to Norway. Therefore, it will be critical to have very
robust and redundant infrastructure and plans to protect
them.


5. (C) Turning to the environment, she suggested that
environmental technology will be key to the future, and this
is a critical part of the GON's High North strategy. With
LNG options emerging in the High North, gas will become
fungible like oil with appropriate spot markets developing.
Commenting on the recently released High North strategy paper
(Oslo 1498),Stubholt explained Norway wants to deepen its
relationship to Russia (but in an interest based, non-nave
manner) and promote clean, sustainable development of the

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Barents sea.


6. (C) Discussing the Shtokman decision, Stubholt
characterized the ownership decision as "disappointing."
But, she quickly pointed out that ownership is not the only
thing. The decision made clear that the Russians are
concentrating for now on easier efforts and so are focused on
gas located on land, rather than the deep-sea ventures.
Norwegian companies nonetheless remain in a good position and
the GOR has been positive about their role in bilateral
talks. Putin told the PM in a recent meeting that Norwegian
technology is "relevant" and that the Norwegian companies are
"natural partners."


7. (C) Stubholt acknowledged that it is difficult to deal
with Russia, but said that Norway has had positive
experiences managing Barents fishing with the Russians.
Citing the problems Norway has had with exporting fish to
Russia, Stubholt said that Norway has chosen to pretend the
Russian concerns about quality assurance are bona fide and
has had some success with that approach, although it is slow.
On the disputed border zone in the Barents, she explained
that there is more movement on the attorney-to-attorney
level. Both sides are reviewing possible texts, but she does
not expect results anytime soon. The issue was raised at the
Putin/PM bilateral, which she described as "friendly and
cordial" although not warm. In response to a question on
Russian corruption, Stubholt answered cautiously that
centralization of power creates opportunities for corruption,
but it is unclear how broadly it has spread.


8. (C) Special Coordinator for USA/Canada Jorg Willy
Bronebakk, who joined at the breakfast, noted that when a
Russian DPM looks at the market price of companies for
personal interest every morning, indications are that
corruption is widespread. He also noted that Russians tend
to look for control of access and views matters as a zero sum
game. This makes the political dimension of energy security
critical. He concluded that we must deal with Russia as it
exists and find constructive ways to engage them.


9. (C) Commenting on Russia, Mowatt-Larssen pointed out that
there has been a radical shift in perceptions of their role.
We should focus on our common core values in addressing
Russia. Stubholt noted that everyone is looking for
diversity of supply so as to be prepared for possible Russian
changes.


10. (C) Concluding, Mowatt-Larssen suggested that major
issues of concern that we could jointly address through
continuing dialogue are:
--the role of Russia
--energy requirements
--defining environmental security
--defining energy security, and
--renewables.
The GON side welcomed the meetings as a step to fuller energy
dialogue between the US and Norway and looked forward to
continuing.

Dialogue with MFA: Russia, European Gas, High North
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11. (C) The rest of the U.S. delegation, which included the
DOE's James Lawler and Christopher Day, State EB energy
officer Robert Garverick, and energy analysts Edward Boucher,
Lawrence Kaufman and James Lecky, and Embassy
representatives, joined for energy discussions at the
Ministry of Foreign Affairs. The MFA team, lead by
Bronebakk, included: Global Security Section Deputy Director
General Robert Kvile; Deputy Director for Northern Areas Jon
Elvedal Fredriksen; Senior Advisor for Northern Areas Energy
Marius Dirdal; Ministry of Petroleum Deputy Director General
Gunnar Hognestad, and security services representatives
Torfinn Stenseth, Cecilie Lille, and Oddvar Kvernmo.
Discussions at the MFA focused on Russia's energy policies,
European gas demand, and High North energy resources.


12. (C) On Russia, the U.S. delegation addressed Russian
priorities, including restoring geopolitical influence in
Europe and the world, generating resources to fund domestic
development, controlling its natural resources, preventing

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competition in the European market, and developing new
markets in Asia. The Norwegian delegation questioned whether
Russia was capable of differentiating between political and
commercial behavior, particularly since Gazprom acted as an
arm of the government. Both sides agreed on the need to deal
with Russia pragmatically, though Mowatt-Larssen stressed
that a key unresolved question was where to engage the
Russians constructively and where to confront them.


13. (C) Turning to European gas demand, the U.S. delegation
presented forecasts for rising OECD Europe gas demand coupled
with declining domestic production, leaving Europe
increasingly dependent on outside suppliers. Russia would
continue to be the dominant supplier, though it needed to act
quickly in making the investments necessary to boost
production to meet European demand. Norway and Algeria would
be the leading alternatives to Russian gas on the continent,
with Central Asian suppliers and LNG also playing a role in
the longer term.


14. (C) Both delegations agreed on the importance of High
North energy. The U.S. side forecast that petroleum
production in the Barents could exceed 265,000 barrels/day of
oil equivalent by 2015, though resource estimates were
uncertain at best. Key unresolved questions included
Russia's plans for developing the Shtokman gas field,
settlement of the Norway-Russia maritime border, what
resources further exploration of the region might uncover,
and the ability of the region to compete for investment
dollars.


15. (C) The Norwegian delegation stressed that developing the
Barents required balancing among competing interests --
petroleum, fisheries, and environmental protection.
Negotiations with Russia on a border settlement were moving
slowly in the right direction, but in the end a political
decision at the highest levels would be needed to strike the
final deal. The Norwegians believed the disputed zone
contained significant petroleum resources, but they could not
place a number on the potential reserves. In the final
analysis, developing the full potential of the Barents would
depend less on technology than on the political dynamics
among key players -- Norway, Russia, the U.S., and commercial
companies.

MOP: Develop Barents, Protect the Environment
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16. (C) The U.S. delegation moved to the Ministry of
Petroleum and Energy for briefings on the Norwegian petroleum
sector and the Ministry's key priorities. Secretary General
Elisabeth Berge headed the Norwegian side, joined by Director
General Villa Kulid and Deputy Directors General William
Christensen, Gro Anundskaas, Gunnar Hognestad, and Assistant
Directors General Maryann Locka and Torgeir Knutsen. The
discussion focused mainly on Barents energy, CO2 capture and
storage, and Russia.


17. (C) Berge stressed that the Barents region was very high
on Norway's political agenda. The government had recently
adopted an Integrated Management Plan for the Barents that
balanced developing its petroleum resources with protecting
vital fisheries and the environment. Among the key measures
in the plan were: moving international shipping lanes from 12
nautical miles to 35 nautical miles offshore to minimize the
impact of any oil spills (in response to increasing oil
tanker traffic from Russia); placing the Lofoten area, which
is believed to contain significant oil resources but is also
home to Norway's richest fishing grounds, off limits to
petroleum exploration until at least October 2009; barring
all new drilling activity up to 50 kilometers offshore; and
limiting oil drilling during bird migration season.


18. (C) Berge briefed on the government's policy to reduce
CO2 emissions by encouraging carbon capture and storage in
the energy sector. A number of projects were either underway
or on the drawing board, including CO2 storage at a number of
offshore petroleum fields, using CO2 for enhanced oil
recovery, and capturing CO2 emissions at two planned gas
power plants, the first such plants to be constructed in
Norway. The government had allocated over USD 100 million in
next year's budget to support CO2 projects in hopes that the

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high level of activity would lead to cost reductions that
would make CO2 capture and storage more affordable for
developing countries.


19. (C) Turning to Russia, Mowatt-Larssen said DOE was
frustrated by a change for the worse in the tone and quality
of interaction with the Russians. Berge noted Norway's
disappointment with Gazprom's recent decision to exclude
foreign partners from the Shtokman project. She speculated
that Gazprom might have chosen to prioritize investments in
Siberian gas fields instead, as Gazprom will come under
future pressure to satisfy rising gas demand in Western
Europe and Russia's domestic needs. She thought that
Gazprom's reliability as a gas supplier to Europe had been
demonstrated over many years, notwithstanding its brief
cutoff of supplies to Ukraine. The Russians badly
miscalculated Western reaction in the Ukraine case, concluded
Berge.

Chevron: Hopeful on Norway, Disappointed by Russia
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20. (C) The delegation next visited Chevron's Norwegian
headquarters for a briefing by Managing Director Trond
Unneland and Business Development Manager Anders Hannevik.
Unneland said Chevron was concentrating on acquiring acreage
in the Norwegian and Barents Seas, where natural gas was
abundant. Chevron foresaw a gap developing between European
gas demand and supply that Norway would have a major role
filling. Chevron was evaluating seismic date from a Barents
Sea bloc that it won, with Statoil, in Norway's 19th
licensing round in March. If the right policies were adopted
in the Barents -- e.g., making more acreage available in
Norwegian waters, settling the maritime boundary, developing
Shtokman -- the region had the potential to become a leading
global supplier of energy.


21. (C) Unneland said Chevron, one of five Western companies
on the Shtokman short list, was disappointed in Gazprom's
decision to go it alone. He thought Shtokman would "come
back on the agenda," though, as Gazprom lacked the project
management skills to pull the project off by itself.
Chevron, he added, had no interest in involvement in Shtokman
as a contractor. "In our view, it is equity or nothing,"
concluded Unneland.

Comment: Continuing the Energy Dialgue -- Next Steps
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22. (C) Norwegian officials enthusiastically welcomed the
initiative to organize the energy symposium with USG
counterparts in Oslo and hope to hold follow-up discussions
under the "High North dialogue" umbrella as soon as
practicable. Post notes that formation of an Energy Working
Group was proposed at the bilateral High North discussions in
Washington in June. With Norway poised to play a more
critical role in U.S. energy security when the Snoehvit LNG
project comes on line next year, as well as in European
energy security as its natural gas production increases, Post
believes that comprehensive energy consultations with Norway
are fully warranted and supports calling a bilateral High
North Energy Working Group session at the soonest possible
time.


23. (U) Rolf Mowatt-Larssen has not had an opportunity to
clear this cable.




Whitney