U.S.-POLAND STRATEGIC DIALOGUE II - ENERGY SECURITY

C O N F I D E N T I A L SECTION 01 OF 03 WARSAW 000148

SIPDIS

STATE FOR EUR A/S FRIED, EUR/ERA, EUR/NCE, E, EB/ESC
EUR FOR DAS MPEKALA, EUR/NCE FOR DKOSTELANCIK AND MSESSUMS
EB/ESC FOR SGALLOGLY AND RGARVERICK
STATE PASS TDA
TDA FOR DSTEIN
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS
TREASURY FOR MGAERTNER
ENERGY FOR LEKIMOFF

E.O. 12958: DECL: 01/25/2016
TAGS: ENRG ECON PGOV PREL PL UP RS NO AJ TX
SUBJECT: U.S.-POLAND STRATEGIC DIALOGUE II - ENERGY SECURITY

REF: WARSAW 0079

Classified By: DCM Ken Hillas, Reasons 1.5 b and d


1. (C) Begin Summary. Septel reports on security and
defense issues discussed by EUR A/S Dan Fried and ASD/ISP
Peter Flory at the Third U.S.-Polish Strategic Dialogue (SD)
January 25 in Warsaw and provides a list of the principal
U.S. and Polish participants. This cable reports on the
Energy Security session of the SD. Energy Security was also
a dominant theme in meetings with senior GOP officials
outside of the SD. The negotiation of a new European treaty
on energy security with an Article V-like commitment to joint
energy security was explained by the Poles. They requested
U.S. assistance in finding a "coalition of the willing" to
join the treaty. EUR A/S Fried agreed to include energy
security as an important issue in the U.S.-Poland strategic
dialogue, but demurred on the "treaty" proposal. Poland
discussed plans to diversify energy sources including the
construction of a dedicated gas pipeline from Norway and an
LNG port on the Baltic. Poland would also like to join the
International Energy Agency but is finding establishment of
required stockpiles too costly. A/S Fried suggested that TDA
could assist Poland with feasability studies of an LNG port
and methane-to-markets project.
End Summary.

Polish Views on Energy Security
--------------

2. (C) Septel reports on security and defense issues
discussed by EUR A/S Dan Fried and ASD/ISP Peter Flory at the
Third U.S.-Polish Strategic Dialogue (SD) January 25 in
Warsaw and provides a list of the principal U.S. and Polish
participants. This cable will cover energy security issues.
Secretary of State in the Ministry of Economy Piotr Naimski

SIPDIS
told EUR A/S Fried and the U.S. delegation to the U.S.-Poland
Strategic Dialogue that Poland sees energy security in a wide
sense. Naimski added that the GOP started a project to
diversify its energy sources before Russia cut gas supplies
to Ukraine. That crisis showed the wider European population
that energy stability is a hot issue. The GOP is convinced
that Russia is not a reliable energy supplier because: Russia
reduced energy supplies to Ukraine for political reasons;
Russia diminished supply to Europe because of the bad weather
- apparently surprised by the winter; and gas pipelines were
blown up near Georgia. Poland is almost totally dependant on
Russian resources, explained Naimski, 97% of oil consumed by
Poland and 98% of imported gas (two-thirds of total gas
consumption) is from Russian and other Former Soviet Union
countries. Poland must diversify, which means finding other
sources than those existing as well as securing alternative
transportation routes. Poland understands that energy
security is a different issue in Warsaw and Budapest than in
Madrid, Berlin or Lisbon. For those countries, buying gas
from Gazprom is adding to diversification, while for Poland
and Hungary, buying additional gas from Gazprom is deepening
dependency on Russia. Poland would like solidarity and
compromise on the EU level.

Poland's Diversification Plans
--------------

3. (C) Last week, Naimski went to Oslo for discussions with
the Ministry of Energy and Oil. The Norwegians are willing
to discuss constructing a dedicated gas pipeline to Poland
and will have 120 BCM of gas available to sell in 2010 (an
increase of 40 BCM from the current 80 BCM). Poland is also
considering an LNG terminal on the Baltic coast.
Diversifying crude oil purchases is easier than gas because
technically Poland can receive supplies in its Baltic ports.
Poland would like access to new fields being developed by
Western (especially U.S.) companies. It would also like
cooperation between Polish refineries and U.S. commercial
players.

Poland's New Initiative on Energy Security
--------------

4. (C) The GOP made public on January 25 a new project for
cooperation in energy security. Poland would like to discuss
and negotiate an agreement for energy security that would be
open to all EU and NATO members. Naimski stated that the
specifics need to be discussed, but Poland would like to
include a commitment similar to NATO Article V that would
ensure each member's energy security. Poland knows this will
be difficult and will require technical discussions but it
must be discussed as a universal idea. Madrid and Lisbon
need to understand energy security as well as Budapest and
Washington, he said. For example, Portugal must understand
that energy security means more than buying additional supply
from North Africa, because such an agreement will help them
too.

Energy Security and Ukraine-Russia
--------------

5. (C) A/S Fried agreed to call energy security a major
issue in the U.S.-Poland bilateral and U.S.-European dialogue
and raise the issue at NATO and with the EU. He stated that
energy security is the most important issue that he and A/S
Flory discussed during their trip and that the U.S.
government is seized by the issue. The U.S. position on the
Russian shutoff of Ukrainian gas was best stated by Secretary
Rice. We regard the Russian decision to shut off gas as
political pressure on Ukraine. However, Ukraine should no
longer count on subsidized gas. The U.S. believes gas sold
in Ukraine should be sold at world prices after a transition
period and that a mixture of Russian and Turkmen gas is
acceptable. But, other provisions of the arrangement are
less comfortable. Most troubling is that the supply of all
gas to and through the Ukraine is now in the hands of
Rosukrenergo (RUE),a suspect trading group with ties to
organized crime, no assets, and no obvious value added. The
USG told the Ukraine that we sympathize with their reasons
for concluding an agreement quickly, but that we can not
support REU's role. A/S Fried stated that it's unclear what
the government of Ukraine will do. The framework was
supposed to be turned into an agreement today (January 25)
and he had no sense that they were prepared to reopen the
issue.


6. (C) The U.S. would like Ukraine to have more
transparency in its energy sector as lack of transparency is
an invitation to corruption. The U.S. told the Ukrainian
government that it is not alone in dealing with Russia, but
that the U.S. and European allies, will support them. Fried
noted that in a meeting with EU Political Directors in
Alpbach, he had expressed concern that Europe's energy
security is now in the hands of a company with criminal ties.
President Yuschenko told A/S Fried that he is interested in
nuclear capacity. Unfortunately, Yuschenko also stated that
he is interested in uranium enrichment, which the U.S. is not
enthusiastic about. However, the U.S. is willing to discuss
cooperation on nuclear issues with Ukraine.


7. (C) The U.S. believes all governments must look at gas
alternatives, emphasized A/S Fried. As a rule,
diversification of energy sources takes time. Russia will
and should be a major supplier to Europe. But, there is no
reason that all Central Asian gas should go through Gazprom,
be bought at below market prices, then sold at prices five
times higher. The U.S. began talking to Central Asian
countries at President Nazarbayev's inaguration, and
discussed general gas supply issues with Kazakhstan and later
Presiden Niyazov of Turkmenistan. The U.S. also encouraged
Azerbaijan to help Georgia. We are encouraging Russia to
behave responsibly. Gazprom is repairing the pipes that
supply Georgia, and is supplying gas to Georgia through
Azerbaijan. This appears to be an example of physical rather
than political problems with gas supply. Nevertheless,
Europe, especially Germany, has woken up to the problem of
dependency on Russia. We hope that the EU, and especially
Germany, drew a lesson from recent events and will work on a
strategy to avoid future occurences. The U.S. will continue
to discuss energy security in the EU and NATO. Tony Wayne
was in the Ukraine with A/S Fried and is now in Brussels
discussing the issue with EC energy experts.

Potential U.S. - Polish Cooperation
--------------

8. (C) Fried stated that a Baltic LNG port could have
advantages for Poland and the U.S. will consider a TDA
feasability study if Poland is interested. A/S Fried will
encourage TDA to work with Poland on such a study. The U.S.
would also welcome Poland becoming a member of the
International Energy Agency. In addition, the U.S. has
technology to use methane gas from coal mines that it can
share with Poland if it is interested. EB/ESC Garverick
summarized U.S. analysis of the international energy
situation. He noted that the IEA has a crucial role in talks
between the U.S. and EU and encouraged Poland to accelerate
its membership. It's important that Poland and other Central
European countries have a seat at the table during IEA
discussions. During the Russian Presidency of the G-8,
energy security will be discussed, including during a meeting
of Energy Ministers in March. The U.S. has a Coal-Bed
Methane project run by the EPA that Poland could participate
in that includes Russia and Ukraine. The USG would like
Poland to participate on the steering committee and in a
symposium in May. The U.S. believes LNG is a good
opportunity for Poland, but must be market based. USTDA
could assist Poland with feasability studies for an LNG port
and coal bed methane projects.

Storage Capacity a Barrier to IEA Membership
--------------

9. (C) Deputy Minister Naimski explained that Poland would
like to join the IEA as soon as possible but has difficulty
meeting the storage criteria and must amend some laws.
Changing the laws is easy; increasing storage capacity is
extremely costly. He asked if the IEA would consider
allowing Poland to join while working on its storage
capacity.

A Coalition of the Willing on Energy Security
--------------

10. (C) Naimski asked if the U.S. had other countries in
mind for a dialogue on energy security. Chancellor Merkel
indicated during her recent trip to the U.S. that she is
interested in approaching the issue in a new way. The United
Kingdom also understands that this is a strategic issue. A
core group of like minded countries would likely include the
U.S., Poland, Germany, The U.K., the Baltics, the Central
European countries, and the Scandinavians. If Norway is
interested, that would be good. The Dutch are interested in
energy security as an abstract concept, although unaffected
by recent events. Turkey is generally interested in energy
security, and especially pipelines that would cross Turkey
into Europe. The U.S. will stay in close contact with
Ukraine and will continue to press the government there to
open its energy sector to international investment.


11. (C) Naimski responded that the GOP is staying in touch
with German Minister of Energy Adamowicz. The GOP and German
governments started a consultation group. The GOP informed
the Germans that it does not need gas from the Northern
Baltic pipeline but deeper cooperation on broader energy
issues. MFA North America's Director Szlajfer requested that
energy security be raised at NATO. A/S Fried stated that he
would discuss the issue of NATO on January 31. DAS Pekala
thanked the Poles for their regional leadership on the issue.
Naimski added that he is traveling to Budapest Friday
January 27 for a meeting with the Visegrad 4, Austria (as
Austria, not as EU President),Slovenia, Romania, and
Croatia. He will instruct the Polish Ambassador to NATO to
discuss energy security with these and other friendly
countries.


12. (U) A/S Fried cleared this cable.
ASHE