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