POTENTIAL AREAS OF ENERGY SECURITY COOPERATION

C O N F I D E N T I A L SECTION 01 OF 04 WARSAW 000525 SIPDIS STATE FOR P, EUR, E, EUR/NCE, EUR/ERA, EUR/RPM, EB/ESC EUR FOR A/S DFRIED, DAS MBRYZA, DAS MPEKALA EUR/NCE FOR DKOSTELANCIK AND MSESSUMS EB/ESC FOR SGALLOGLY, RGARVERICK, JLEWANDOWSKI DOE FOR LEKIMOFF USDOC FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MWILSON STATE PASS TDA TDA FOR NCABOT PARIS PASS TO US MISSION OECD AND IEA E.O. 12958: DECL: 03/14/2016 TAGS: ENRG EPET PL PREL SUBJECT: POTENTIAL AREAS OF ENERGY SECURITY COOPERATION WITH POLAND REF: A. WARSAW 380 ¶B. WARSAW 312 ¶C. WARSAW 148 Classified By: DCM Ken Hillas, for reasons 1.4 (b) and (d) -------------- Summary -------------- ¶1. (C) The Government of Poland continues to consider energy security a top priority. Deputy Minister of Economy Naimski plans to travel to the U.S. in mid-April to discuss energy topics with USG officials. Naimski told us that the GOP is flexible with regard to the content, form and scope of its proposed European Energy Security Treaty and recognized that including the U.S. is difficult. Poland continues discussions with Norway on a dedicated gas pipeline, but technical problems in the Swedish straits could hinder construction. Naimski and the GOP are interested in further cooperation with the U.S. on energy security and there are a number of areas in which the U.S. may wish to consider providing Poland information and technology to help it achieve its goal of long-term energy security. These options include: assisting Poland in developing a comprehensive energy security strategy, developing strategic oil and gas reserves, enlisting Poland's participation in the EPA's Methane to Markets initiative, examining nuclear and alternative energy sources, and arranging a study trip to the U.S. for energy decision-makers. End Summary -------------- Update on Poland's Proposed Treaty -------------- ¶2. (C) DCM and Econoff met with Deputy Minister of Economy Piotr Naimski and his Counselor Pawel Konzal on March 17 to discuss energy security. Naimski told the DCM that Poland will be flexible on the content, form and scope of the proposed European Energy Security Treaty. He stated that most European countries want to do something and they now recognize that they can not ignore the issue. Almost all European countries are now discussing solidarity. For example, the Green Paper was agreed to by all Member States although Naimski noted that it contains no proposed solutions. The Council "took note" of Poland's proposed Treaty, which is what the GOP expected. Poland wants to keep the initiative on the table in order to keep discussion going, but does not expect the Treaty to be discussed at the EU Summit as Poland purposely addressed the Treaty to EU and Nato members, but not the organizations. He would like to discuss the proposed treaty with colleagues at State, but recognizes that not including the U.S. makes the proposal easier for other countries to swallow. ¶3. (C) Naimski explained that he spoke to NATO Secretary General Jaap de Hoop Scheffer after the NAC-R on March 16 and was told that de Hoof plans to pursue further work on energy security, but has to proceed carefully given French and German positions on the proposal. Naimski characterized the NATO discussion of the topic as more open and clear than the EU discussion, noting that despite French opposition, other countries supported Poland's proposal during the exchange of views. ¶4. (C) Naimski took his time responding to DCM's question about how the Treaty would prevent free-riders from taking advantage of other countries' investments in infrastructure. He responded that no other country had asked the question, and then stated that it would probably be necessary to have minimum standards for interconnections and reserve capacity. While it would be easy to apply IEA standards for oil reserves, gas reserves would be more problematic, he said, but there is ongoing discussion of gas reserves in the EU. -------------- - Sweden a Potential Problem for Gas from Norway -------------- - ¶5. (C) Discussions with Norway for a gas pipeline to Poland have hit a road-block in regards to crossing Sweden. Naimski explained that the GOP failed to convince Sweden six years ago to permit construction of a line from Norway to Poland through its territory and is encountering similar problems now. The straits between Sweden and Denmark are already crowded with technical infrastructure. Poland may turn to Denmark to see if a pipeline across the Danish isthmus is possible. Naimski said the Norwegians have confirmed that they will have gas to sell to Poland. ¶6. (C) Noting that he had met with his counterpart in Berlin last week, Naimski said Germany's perception of energy security is different than that of Brussels. Germany does not see a future unified EU energy market, but rather a Northern European market supplied by Russia and Norway and a Southern European market supplied by Africa. Naimski commented that the Germans don't seem to want to be involved in the Southern European market, but Poland is trying to argue that even if a North-South divide exists, it will be helpful to have interconnections between the two. -------------- Naimski in the U.S. - First, Tough Love -------------- ¶7. (C) Poland's proposed European Energy Security Treaty was the GOP's most ambitious (and many would say unrealistic) attempt to ensure future energy supply. Feedback from its initial consultations with its European partners has been polite, but not very supportive. Naimski pointed to considerable resistance from France, for example, to holding the discussion in the NATO rather than EU context. Poland's past unwillingness to spend the money to fill its existing gas storage capacity, which would go some way to providing a security buffer. Despite the general lack of enthusiasm for a treaty, there may nonetheless be other more practical areas in which the U.S. and Poland could cooperate in the energy sector, which would help Poland achieve its energy goals. Post submits the following for Washington's consideration in connection with Deputy Minister of Economy Piotr Naimski's planned trip to the U.S. ¶8. (C) First and foremost, Minister Naimski should continue to hear that the U.S. understands Poland's position on energy security, but that the proposed treaty maybe too complicated and difficult a mechanism to achieve its purposes. Other existing structures (the IEA, the Energy Community Treaty, and the European Energy Charter Treaty for example) are designed to accomplish the same goals. Naimski, and the GOP need to better appreciate that competitive market forces are Poland's best option for meeting its future energy needs. This is the message the UK has been sending and we believe it is a sound one. The Poles also need to hear from us that comprehensive European energy security -- if it is to be based on market principles -- can not exclude Russia. Poland's energy future will require some Russian energy supply given its geographic location and Russia's abundant and relatively inexpensive resources. Naimski would also benefit from a detailed briefing on the energy resources of Russia and the Caspian region. Finally, Naimski does not seem to realize fully that achieving energy independence will be costly, and that using Russian energy will be less expensive than any of the options that Poland might otherwise consider. Without reallocating financial resources from other critical needs (e.g.'s, social welfare payments, infrastructure rehabilitation),Poland will not be able to meet its goal of achieving energy independence from Russia. Substituting costly energy for less expensive Russian oil and gas will also reduce Poland's competitive advantage in an increasingly global marketplace. -------------- -------------- Then, Areas where the U.S. and Poland could cooperate -------------- -------------- ¶9. (C) That said, there are many areas in which the U.S. might be able to cooperate with and provide technical expertise to the GOP in order to increase its energy security. Post has developed a list of areas that Washington might explore with the GOP based on our discussions with the government and industry. While not exhaustive, it is a starting point for discussion of an issue that is a central Polish concern. Naimski indicated an interest in discussing these issues during his Washington visit. -------------- A Comprehensive Energy Security Strategy -------------- ¶10. (C) As in previous changes of government, this one has inherited an energy plan from its predecessor (in this case the Belka government). However, the nature of Polish politics is such that the incoming government prefers to draw up its own plans. Since the time horizon for major energy projects exceeds the typical term of a Polish administration, there is often no follow through. Plans are made and dropped, but few large investments are made. Major projects simply require a longer time horizon than the term of any post-Communist Polish government. As a result, a GOP plan that really achieves its goals will require a buy-in from the public and political opposition. Naimski told DCM that he thought that achieving broad bipartisan support for an energy plan would be possible in Poland. -------------- Developing a Strategic Reserve -------------- ¶11. (C) Poland needs to develop a strategic oil and gas reserve in order to minimize energy disruptions. A 90-day oil reserve is a requirement for IEA membership and for all EU-10 Member States by December 31, 2009. Poland should be encouraged to pursue the establishment of the oil reserve more quickly than required so that it can become a full member of the IEA. While the GOP admits it must increase its reserves, it complains the goal is too costly. Poland has gas storage capacity that is woefully underutilized and which could have mitigated the Russian supply disruption in early January. Advice from the U.S. on developing and maintaining such reserves, based on our successful experience in the field, would be very helpful to the GOP. -------------- TDA Studies -------------- ¶12. (C) TDA studies could be a critical source of needed outside expertise and lead to future U.S. commercial projects in Poland. One project central to the GOP's thinking is an LNG terminal (possibly in Gdansk) which was discussed with Assistant Secretary Fried during the Strategic Dialogue in January (ref C). Post understands that the GOP recently tendered another feasibility study for the terminal - the third in the last 6 years. A better use of TDA resources might be to provide a consultant who could develop a strategic plan for achieving Polish energy independence. The study could look at Poland specifically or be expanded to include other countries experiencing similar difficulties - i.e. Hungary, the Czech Republic, Ukraine. If such a study is not possible, another area TDA might consider is evaluating Poland's existing gas storage capabilities and determining whether they need to be rehabilitated or augmented to minimize future supply disruptions. Naimski told DCM he is interested in discussing projects with TDA. -------------- EPA's Methane to Markets project -------------- ¶13. (C) Minister Naimski would benefit from a detailed discussion with EPA officials involved in the Methane to Markets program. Given Poland's abundant coal resources, this initiative could assist Poland in meeting its energy needs while reducing gas emissions and providing employment in an otherwise declining sector. Naimski expressed an interest in coal-gas technology, but citing costs, said Poland could only afford a pilot project. -------------- Nuclear Energy -------------- ¶14. (C) Nuclear energy is not in Poland's current energy mix, although the previous government envisioned constructing a nuclear plant for use in the 2025 time-frame. Nuclear energy usage is not being actively considered or discussed by the GOP and could face opposition from a public that still remembers the Chernobyl accident in neighboring Ukraine. Given nuclear's cost and emission profile, it should be more seriously considered by the GOP in its decision process for meeting its longer-term energy needs. Therefore, Minister Naimski would benefit from a briefing on nuclear energy including the President's new Advanced Energy Initiative. -------------- Alternative Energy Sources -------------- ¶15. (C) Naimski told DCM that Poland is interested in alternative energy resources but does not have a development program in the area. He would like to have Poland active in new technology and a few small demonstration plants built in the 10-15 year time frame. Responding to DCM's questioning of the long time frame, Naimski complained that new technology is too expensive, and had no reply to DCM's assertion that small plants are more expensive than larger scale production facilities. He also emphasized that Poland intends to continue using coal. Thus, a briefing on current U.S. research and applications of alternative energy sources, especially clean coal technology would be particularly helpful for Minister Naimski. -------------- U.S. Trip for Energy Decision-Makers -------------- ¶16. (C) A critical element of assisting Poland in meeting its energy security needs is giving the Poles a better understanding of how the U.S. energy market functions and the crucial role of private business in the development of energy infrastructure. To date, the current GOP's solutions to the energy security issue have been to propose increased state control of the state-owned energy sector, rather than to open the sector to competition which would lead to investment. A future study trip to the U.S. for Minister Naimski and a small group of decision-makers would be beneficial in broadening their understanding of the U.S. approach to developing a competitive energy market. The trip could also visit an LNG terminal, nuclear plant, and alternative energy plants to provide the participants with first-hand knowledge of such facilities. -------------- Comment -------------- ¶17. (C) Poland's search for energy security is a key goal of the current government. The GOP needs to develop a long-term energy strategy that will be continued by future governments, rather than focusing on a formal treaty. Efforts to have the EU develop a common approach to energy security will have to be flexible and continue beyond the April EU summit. We understand that Austrian President Schussel informed PM Marcinkiewicz on March 15 that energy security would be on the summit agenda. U.S. information on alternative energy sources, nuclear energy, the EPA's Methane to Markets Program, on developing and implementing a strategic oil and gas reserve, and potential TDA studies in the energy sector could focus the GOP on backing real investments that would benefit Poland's citizens and industry. ASHE