PORTUGAL SIGNS ENERGY AGREEMENTS WITH VENEZUELA,

C O N F I D E N T I A L SECTION 01 OF 02 LISBON 003193 SIPDIS SIPDIS STATE FOR EUR/WE KEVIN OPSTRUP; EEB/ESC/IEC/ENR DANIELLE MONOSSON; EEB/TPP/BTA/EWH JANET SHANNON E.O. 12958: DECL: 11/20/2017 TAGS: EPET ENRG ECON PO RU VE AG LY AO SUBJECT: PORTUGAL SIGNS ENERGY AGREEMENTS WITH VENEZUELA, ALGERIA AND LIBYA REF: A. LISBON 00791 ¶B. LISBON 02744 ¶C. LISBON 02730 Classified By: Pol/Econ Officer Tiffany McGriff, Reasons 1.4 (b),(d) ¶1. (C) SUMMARY: In an effort to diversify the country's energy supply, Portugal's national energy firms, Galp Energia and Energias de Portugal, recently signed several agreements for procurement and joint exploration projects with the national oil and gas companies of Venezuela, Libya and Algeria. In addition, Russia's Gazprom is moving forward with plans to acquire a minority stake in Galp Energia from Angola's Sonangol. END SUMMARY. PORTUGAL'S NEED FOR DIVERSIFICATION -------------- ¶2. (SBU) Portugal is heavily dependent on energy imports, with foreign sources providing between 80-90% of its primary energy needs. Seventy-five percent of crude oil and 100% of natural gas are imported. Efforts to alleviate this heavy dependence can be seen throughout Portugal's National Energy Policy, with its strong focus on supply diversification. Galp Energia, the formerly state-owned oil and gas company in which the state retains a 7% stake, dominates the oil and gas markets from domestic storage and transportation to distribution and retail sales. Energias de Portugal (EDP) dominates Portugal's electricity market from generation to distribution (ref A). STRENGTHENING PORTUGAL-VENEZUELA TIES -------------- ¶3. (C) On October 2, Galp Energia and Petroleos de Venezuela SA (PdVSA) signed a MOU during the Lisbon Energy Forum 2007, detailing Galp Energia's intent to acquire an 18% stake in Venezuela's "Magna Reserva" Orinoco Oil Belt project where there are ongoing studies to quantify and certify oil reserves. According to Galp Energia's Director of Investor Relations Tiago Villas-Boas, the MOU also explores strategic crude storage opportunities for PdVSA at Portugal's Sines petrochemical and natural gas storage facility (ref B). ¶4. (C) Further strengthening energy ties, on November 20, Galp Energia signed an agreement to participate in a joint venture with PdVSA to build and operate the first natural gas liquifaction plant in Sucre, Venezuela. The agreement also calls for Venezuela to provide 2 billion cubic meters (bcm) 
of liquified natural gas per year starting in 2013. According to the Economy Minister's Advisor Jose Carvalho Netto, although PM Socrates was most likely aware, the Economy Ministry did not have advance notice that Venezuelan President Hugo Chavez was going to join the PdVSA signing delegation during an unofficial stopover in Lisbon. Netto underscored that during the visit, PM Socrates expressed concerns to Chavez over the Venezuelan government's treatment of the country's large Portuguese community. Despite its concerns about the domestic political context in Venezuela, the Portuguese government considers this agreement, like others signed by Galp Energia, essential to helping the country reach its energy diversification goals and does not fear that the Chavez's nationalization of the oil industry will negatively affect investments. LOOKING TOWARDS LIBYA -------------- ¶5. (U) According to a prominent Portuguese economic daily, on December 10 Galp Energia and the Libya Africa Investment Portfolio (LAP) signed an MOU for joint exploration and production in oil and natural gas in Libya. The agreement also looks at future joint projects in Equatorial Guinea, Mauritania, the Ivory Coast and Togo. Post has reached out to Galp Energia and is awaiting comment. EXPANDING THE ALGERIAN PARTNERSHIP -------------- ¶6. (SBU) On October 31, EDP and Algeria's state-owned oil and gas company, Sonatrach, signed a deal that includes the supply of a maximum annual volume of 1.6 billion cubic meters (bcm) of natural gas to the Iberian Peninsula starting in ¶2008. For its part, Sonatrach will acquire a 25% stake in three of EDP's Combined Cycle Gas Turbine projects (two in Portugal, one in Spain) with a combined production capacity of 1305 megawatts according to an EDP press release. LISBON 00003193 002 OF 002 ¶7. (SBU) The partnership is pending each company's board approval. In addition, EDP announced the appointment of Mohamed Meziane, Sonatrach's Chairman of the Board of Directors, to its General and Supervisory Board. Sonatrach acquired a 2% stake in EDP in March 2007. EXPLORING THE RUSSIA OPTION -------------- ¶8. (C) In an October 1 interview, Manuel Vicente, President of Angola's national oil and gas company, Sonangol, confirmed reports of Russian negotiations to indirectly acquire a minority stake in Galp Energia from Sonangol. The Angolan company owns a 45% stake in Amorim Energia, which in turn owns 33% of Galp Energia. Netto and Bento de Morais Sarmento, the Economy Ministry's Deputy Director of the Division of Energy and Geology, both noted that the government is following the negotiations closely but is taking a hands-off approach. COMMENT -------------- ¶9. (C) Despite the European Union's concerns about Russia's gas policies and political developments in Venezuela, Portugal is keeping all avenues open. In a November conversation with outgoing Ambassador Hoffman, Foreign Minister Amado dismissed concerns that Galp Energia's cooperation with Gazprom would have a negative impact on Europe's energy security and was skeptical that the Galp-PdVSA MOU would result in much concrete collaboration. He added that the main reason GALP is exploring collaborative activities with Venezuela's national oil company is because Galp Energia's CEO lived and worked in Venezuela for many years (ref C). Stephenson