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 SIPDIS SIPDIS 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 -------------- ¶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 SIPDIS 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 -------------- --- ¶2. (C) In a small policy level working breakfast, State Secretary Liv Monica Stubholt shared her thoughts on energy SIPDIS 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 OSLO 00001524 002 OF 004 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 -------------- -------------- ¶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 OSLO 00001524 003 OF 004 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 -------------- - ¶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 OSLO 00001524 004 OF 004 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 -------------- -------------- ¶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 -------------- -------------- ¶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