LITHUANIA'S REFINERY LOOKS TO VENEZUELA TO BALANCE

C O N F I D E N T I A L VILNIUS 000224

SIPDIS

E.O. 12958: DECL: 03/01/2016
TAGS: ENRG EPET PREL LH VE RS
SUBJECT: LITHUANIA'S REFINERY LOOKS TO VENEZUELA TO BALANCE
RUSSIAN SUPPLY PROBLEMS

REF: A. 05 VILNIUS 1224


B. 05 VILNIUS 1186

C. 05 VILNIUS 1007

D. 05 VILNIUS 781

E. 05 VILNIUS 380

F. 05 VILNIUS 326

Classified By: Economic Officer Scott Woodard for reaons 1.4 (b) and (d
)


1. (U) ACTION REQUEST: This cable contains an action
request; please see paragraph seven.


2. (C) SUMMARY: Nelson English, General Manager of the
Mazeikiu Nafta (MN) oil refinery in the Baltics, told the
Charge that his company is considering a supply deal with the
Venezuelan state-owned oil company PDVSA. English said that
the deal would solve a serious supply problem that MN has
faced since the demise of Yukos, which is MN's majority
owner. The GOL is apparently unaware of this possible deal.
English wants to solve his business problem, but does not
want to create political problems for the GOL by proceeding
with a deal that could complicate the GOL's close friendship
with the USG. We request instructions on how to advise
English. END SUMMARY.

A SUPPLY PROBLEM, AND A POSSIBLE SOLUTION
--------------


3. (C) Mazeikiu Nafta General Manager English, an American
citizen, called on the Charge March 2 to inform the USG that
he is negotiating a contract with PDVSA for regular supplies
of Venezuelan crude oil. (He said that one of his Venezuelan
interlocutors claims to be a cousin of Chavez's.) Under the
terms of the potential contract, Lithuania would import
approximately two million tons of crude per year. The annual
value of the contract would be about USD 840 million.
English said that interruptions of supplies of Russian oil
since the beginning of the Yukos breakup has left MN with
monthly shortfalls of approximately 150,000 tons. MN covers
this shortfall through various expensive and unreliable
Russian sources, and English said that he has spent a lot of
time looking for alternate sources of supply.


4. (C) English told the Charge that the Venezuelan option
offers several advantages for MN (and, by extension,
Lithuania). According to English, these advantages would
include:

-- filling the refinery's supply hole;
-- saving MN money (the Venezuelans are offering a good
price); and
-- diversifying supply, thereby reducing dependence on Russia.


5. (C) English added that the crude on offer would work well
in the MN refinery because it has many of the same
characteristics as the Ural crude that MN currently uses, and
would blend well with it. He stressed that the deal was
fully commercial and transparent; there are no unusual
strings attached.

FAR FROM A SURE THING
--------------


6. (C) English commented that he thinks the chances of this
deal happening are "less than 50-50." He noted that Russian
interests like Transneft are likely to be displeased by MN's
activism in securing alternate suppliers. He said he is
under no illusion that PDVSA under the Chavez regime is an
inherently more stable supplier than Russia. Finally, he
recognized that the GOL (MN's minority share-holder),despite
its eagerness to diversify energy supplies, will not want to
jeopardize its close friendship with the USG. English
stressed that the deal with Venezuela is an MN initiative,
not something that the GOL is complicit with or even aware of
yet.

COMMENT AND ACTION REQUEST
--------------


7. (C) English is a regular Embassy contact and wants to make
sure that his prospective commercial deal with PDVSA won't
land the GOL in trouble with us. We request guidance on how
to respond to this proposal.
KELLY