POLAND: UPDATE ON ENERGY SECURITY

C O N F I D E N T I A L SECTION 01 OF 03 WARSAW 001167

SIPDIS

STATE FOR EUR, E, EUR/NCE, EUR/ERA, EB/ESC
EUR FOR A/S DFRIED, DAS MPEKALA, DAS MBRYZA
EUR/NCE FOR DKOSTELANCIK AND MSESSUMS
EB/ESC FOR SGALLOGLY, RGARVERICK, JLEWANDOWSKI
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PARIS PASS TO US MISSION OECD AND IEA
STATE PASS TDA
TDA FOR NCABOT

E.O. 12958: DECL: 06/11/2016
TAGS: ENRG EPET GG PO PREL RS SA SL UR AJ EZ
SUBJECT: POLAND: UPDATE ON ENERGY SECURITY

REF: A. WARSAW 980


B. WARSAW 791

C. WARSAW 525

Classified By: Charge d'Affaires Ken Hillas for reasons 1.4 b and d

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Summary
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1. (C) The Government of Poland continues to pursue its
goal of diversifying energy resources. On May 31, the
Cabinet of Ministers approved a resolution prioritizing
construction of a gas pipeline from Norway, liquified natural
gas (LNG) terminal, and extension of the Odessa-Brody oil
pipeline. Ministry of Economy officials have approached
Kazakhstan, Azerbaijan, and soon Georgia to negotiate an
intergovernmental agreement (IGA) for Odessa-Brody. They are
also trying to meet U.S. companies with oil reserves in the
Caspian to interest them in the project. Pern, the national
oil pipeline operator, is negotiating to purchase the
Slovakian company Transpetrol, from Yukos. Deputy Minister
of Economy Naimski will be in the U.S. June 14 to 16 and then
in Norway the week of June 19. End Summary.


2. (C) Econoff met recently with Pawel Konzal, Advisor to
Deputy Minister of Economy Naimski, Krzysztof Rogala,
Director of the Ministry of Economy's Office for
Diversification of Oil and Gas Supply, and Marcin
Jastrzebski, Member of the Board of Pern, the Polish oil
pipeline operator, as well as Kristin Hansen of the Norwegian
Embassy to discuss Polish energy diversification plans.

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Ministers Approve Energy Security Resolution
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3. (SBU) On May 31, the Polish Cabinet of Ministers
approved a resolution on actions to be taken to increase the
energy security of the Republic of Poland. The resolution
prioritizes construction of a gas pipeline from Norway to
Poland, construction of a liquified natural gas (LNG)
terminal in Poland, and extending the Odessa-Brody oil
pipeline to Plock in cooperation with the governments of
Ukraine, Kazakhstan, Georgia, and Azerbaijan. The document
concludes by stating that Poland is not interested in
investing in or receiving gas from the Northern European gas
pipeline from Russia to Germany and that the government will
not support construction of the line in any financial
institution (i.e. European Investment Bank) in which Poland
owns shares.

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Ministry of Economy - Wants an IGA for Odessa-Brody
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4. (C) Konzal and Rogala reiterated that Poland's Ministry
of Economy continues to focus on energy diversification.
Poland will first work on diversification of supply, then
work on market liberalization. Deputy Minister of Economy
Naimski emphasized this point during his visit to Luxembourg
last week for EU discussions on the internal energy market.
On gas supply, Poland is pursuing a pipeline deal with Norway
and an LNG port facility. On oil supply, Poland would like
to negotiate an IGA with the governments of Ukraine,
Kazakhstan, Azerbaijan, and Georgia. Econoff explained the
complexity of negotiating the Baku-Tbilisi-Ceyhan IGA with
just three countries, and asked why Poland didn't concentrate
on negotiating an IGA with Ukraine and commercial deals with
oil companies. Konzal and Rogala countered that they were
also pursuing that option, but felt that the larger IGA would
be necessary to convince oil companies to join the pipeline
consortium.

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Norwegian Gas Supply - Small and Large Pipelines
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5. (C) Rogala confirmed recent press reports that the
Ministry of Economy had extended its "small Norwegian
contract" for the supply of approximately .5 BCM of gas from
Norway through Germany, which was due to expire in September.
Hansen of the Norwegian Embassy cautioned that the new
agreement is merely a shell that will allow gas supply to
continue. Exact quantities and prices have not yet been
agreed. Polish officials are also reportedly unhappy that
the gas they receive is actually Russian gas that has been
swapped with Norwegian supply.

6. (C) In addition, the Ministry of Economy continues to
discuss a larger gas supply deal with Norway for
approximately 4 BCM for Polish domestic usage in the 2010
time frame Rogala noted that there are companies in Poland
that would use the additional gas now if it were available.
The GOP believes that this pipeline is essential to increase
North-South deliveries of gas in Europe and reduce Polish
dependency on Russian gas. According to the Poles, they are
working on two agreements with the Norwegians: one to
develop a consortium of approximately 18 companies and
municipalities in Norway and Sweden to build a pipeline from
Norway through Sweden to Poland, the second a long-term
delivery contract with Statoil.


7. (C) The Norwegian Embassy also cautioned us that the
Poles are overly optimistic about this deal. Currently, the
Norwegian government is considering building a gas pipeline
from Western Norway to Eastern Norway and perhaps on to
Sweden and eventually Poland. However, no decision has been
made by the Norwegian government to build the internal
pipeline, and the Norwegians believe that including the Poles
in the consortium at this time will further complicate an
already difficult negotiation. The 2010 time frame is also
unrealistic given the lead time necessary to negotiate and
conclude all the necessary agreements. The government of
Norway is happy to sell gas to Poland or any other qualified
purchaser, but will look for the best commercial deal.

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LNG
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8. (C) PriceWaterhouseCoopers is conducting a feasibility
study for an LNG terminal on the North Baltic seacoast of
Poland which should be completed in October. The Ministry of
Economy also sent signals to unnamed Middle Eastern countries
with gas and financial resources that it would be interested
in cooperating with them on constructing the port.

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Odessa-Brody-Plock (OBP)
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9. (C) The draft feasibility study for the pipeline
reorientation and extension commissioned by the European
Union will be completed in July. Jastrzebski explained that
Poland believes that the study is biased toward Ukraine as
the consultants were located there, too technical, and not
suitable for drafting a business plan or attracting
investors. Rogala noted that the authors were not entitled
to negotiate with sellers or purchasers, but that Poland
doesn't want "an empty pipe". Deputy Minister Naimski will
meet with the Odessa-Brody Development Group formed by Baker
Donaldson on June 14 to discuss its potential participation
in developing the pipeline. The Ministry of Economy will
also meet soon with its counterparts in Ukraine to discuss
next steps on the project.

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Transpetrol
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10. (C) Rogala and Jastrzebski have been negotiating the
purchase of Transpetrol, based in Slovakia, from Yukos. They
explained that Yukos originally had a deal with Rosneft for
the sale of the assets. However, the government of Slovakia
did not approve Rosneft as a purchaser. The contract for
Rosneft's purchase has lapsed, and the GOP believes it has a
small window in which to purchase the company. All of the
officials emphasized that this is a strategic deal for Orlen
and the GOP to keep the assets out of Russian hands. The
purchase will complement Orlen's recent acquisitions in
Lithuania and give Polish Oil company PKN Orlen access to
Orlen refineries in the Czech Republic through an oil
pipeline that is part of the deal. There will also be only a
30 mile distance from the pipeline to Slovakia-Austria border
and thus easier access to Austrian refineries.

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Azerbaijan
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11. (C) Rogala and Jastrzebski were in Baku last week and
met with the President and Board members of Socar
(Azerbaijani State Oil Company) with their Ukrainian
counterparts to discuss potential Azeri oil supplies for OBP.
Separately, they met with Azerbaijani Minister of Economy
Natik Aliyev, to discuss the IGA. Aliyev reportedly told
them that the Azeris are bored of the Ukrainians' years of
talking with nothing happening. The government of Azerbaijan
no longer takes the Ukrainians seriously, believing that even
if the government of Ukraine wants to implement a project it
is unable to follow through. Rogala commented that it
appeared that the Polish officials were taken seriously by
the Azeris.

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Georgia
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12. (C) The Ministry of Economy believes that even if it
can negotiate an IGA with Kazakhstan and/or Azerbaijan for
oil supply, including Georgia in the deal will be critical.
However, the GOP is concerned that the central government
still does not control Abkhazia, that it may have lost
control of its ports in the recent privatization, and that it
no longer controls the energy sector. Minister of Economy
Wozniak will be going to Georgia June 19 to 21 to discuss
energy issues with the Georgian government. Deputy Minister
Naimski would appreciate any information the USG can share
about the current state of play in Georgia.

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Comment
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13. (C) While the GOP continues to pursue its goal of
achieving energy security, post believes it would benefit
greatly from a reiteration of the message that comprehensive
energy security must be based on market principles. Because
the GOP still owns and operates its energy companies, it
incorrectly assumes all countries and companies operate that
way. Thus, the current GOP is focusing its efforts on
negotiating deals with other governments, believing the
commercial details will follow. For example, the Ministry of
Economy believes that pursuing an Odessa-Brody IGA with up to
five countries (Poland, Ukraine, Kazakhstan, Azerbaijan, and
Georgia) is the way to make the pipeline feasible.
Therefore, Deputy Minister Naimski would greatly benefit from
an explanation of how the U.S. assisted Turkey, Azerbaijan,
and Georgia to negotiate the Baku-Tbilisi-Ceyhan pipeline
deal, from initial IGA to financial close to actual
construction, including the participation of BP and other
Azerbaijani-based oil companies.


14. (C) While Poland should be congratulated on its
decision to speed up IEA membership (ref b),post continues
to believe that Naimski would benefit from discussions on how
the U.S. and Poland can cooperate on energy security as
detailed ref c. Specifically, Poland should develop and
implement a comprehensive energy security strategy, TDA could
be a source of outside expertise for projects in the energy
sector, Poland would benefit from EPA's Methane to Markets
project, and Poland should consider nuclear energy and
alternative energy sources in examining its resource options.
Naimski would also benefit from a detailed briefing on
energy resources in Russia and the Caspian.

HILLAS