Identifier
Created
Classification
Origin
07ROME1511
2007-07-11 15:38:00
CONFIDENTIAL
Embassy Rome
Cable title:  

GOI SHARES ITS THOUGHTS ON ENI-GAZPROM "SOUTH

Tags:  ENRG EPET IT 
pdf how-to read a cable
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P 111538Z JUL 07
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RUEHKB/AMEMBASSY BAKU PRIORITY 0094
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RUEHNP/AMCONSUL NAPLES PRIORITY 2668
RUEHMIL/AMCONSUL MILAN PRIORITY 8800
RUEHFL/AMCONSUL FLORENCE PRIORITY 2517
RUEHBS/USEU BRUSSELS PRIORITY 4540
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 ROME 001511 

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/06/2017
TAGS: ENRG EPET IT
SUBJECT: GOI SHARES ITS THOUGHTS ON ENI-GAZPROM "SOUTH
STREAM" PIPELINE ANNOUNCEMENT AND REAFFIRMS COMMITMENT TO
TGI

REF: A. ATHENS 1398

B. WHITING JULY 9 E-MAILS TO ATHENS ANKARA AND EUR

C. ATHENS 1299

ROME 00001511 001.2 OF 002


Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 (
b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001511

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/06/2017
TAGS: ENRG EPET IT
SUBJECT: GOI SHARES ITS THOUGHTS ON ENI-GAZPROM "SOUTH
STREAM" PIPELINE ANNOUNCEMENT AND REAFFIRMS COMMITMENT TO
TGI

REF: A. ATHENS 1398

B. WHITING JULY 9 E-MAILS TO ATHENS ANKARA AND EUR

C. ATHENS 1299

ROME 00001511 001.2 OF 002


Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 (
b) and (d)


1. (C) Summary. In meetings with Econoff to discuss the
agreement between Eni and Gazprom to build the "South Stream"
natural gas pipeline connecting Russia and Bulgaria, GOI
officials emphasized their continued commitment to the
Turkey-Greece-Italy pipeline, which will carry Azeri natural
gas to the European market. GOI officials expressed concern
about the effect upcoming Turkish elections will have on
finalization of a natural gas transit agreement between
Turkey, Greece, and Italy, pointing to July 12 as the date by
which a transit agreement must be signed. End summary.

The South Stream Pipeline
--------------


2. (U) Eni, the oil and gas parastatal 30 percent owned by
the GOI, and Gazprom agreed June 23 to begin feasibility
studies for the construction of a 900 kilometer underwater
natural gas pipeline running from Russia's Black Sea coast to
Bulgaria. The "South Stream" pipeline will be used to export
Russian natural gas to Western Europe through two branches:
a southern branch running through Bulgaria into Greece and
Italy (following the routes of the planned
Burgas-Alexandropoulis and TGI/Poseidon pipelines),and a
northern branch traversing Bulgaria, Romania, Hungary, into
Austria and Western Europe (following the planned route of
the Nabucco pipeline). As currently envisioned, the South
Stream pipeline will have a capacity of 30 billion cubic
meters (bcm) and will cost an estimated 15 billion euros to
build.


3. (U) In a June 26 meeting with Econoff, Gilberto Dialuce,
Ministry of Economic Development Deputy Director General for
Energy and Mining, and Elisabetta Muscolo, of the Diplomatic
Advisor's staff, said South Stream will be filled with
Russian gas currently exported using pipelines running
through Ukraine and Belarussia. Both Dialuce and Muscolo
downplayed the potential impact of South Stream on other
pipelines and downstream competitors to Gazprom, noting that

South Stream will not introduce new gas into the European
market and will not be eligible for exemption from the EU's
third party access requirements. They also pointed out that
Italian antitrust law caps Eni's share of the Italian natural
gas market, and that Eni will have to resell natural gas
imported into the Italian market to other natural gas
companies or ship it through Italy to other European markets.
According to Muscolo and Dialuce, South Stream enhances
Italy's energy security by diversifying the routes through
which gas is delivered to Italy.

GOI Still Strongly Committed to TGI . . .
--------------


4. (U) Responding to questions about the relationship
between the Turkey-Greece-Italy natural gas pipeline (the
"TGI pipeline") and South Stream, Muscolo and Dialuce
stressed that the GOI views TGI and South Stream as
complimentary. According to the two, "TGI remains a priority
project which we want to see on-line as soon as possible,"
and is needed to help meet Europe's growing demand for
natural gas, which they expect to reach 700 billion cubic
meters a year (bcm/year) by 2020. Muscolo said Economic
Development Minister Bersani sent a letter to Greek Energy
Minister Sioufas and Turkish Energy Minister Guler making
this point and assuring them of the GOI's continued support
of TGI.

. . . But Concerned by Lack of Progress in Transit Agreement
--------------


5. (C) Dialuce, who has been involved in the negotiation of
a transit agreement for Azeri natural gas exported to Europe
using TGI, expressed concern over the lack of progress in the
negotiations. Dialuce said an agreement was almost signed in
mid-June, but that talks stalled when the Greek government
and DEPA (the Greek national natural gas company) backed out

ROME 00001511 002.2 OF 002


at the last minute over a disagreement about the basis for
the net-back pricing of natural gas which will be set aside
for the Turkish market. (Note: Under a net-back pricing
system, the price of the gas set aside for the Turkish market
will be based on the retail price, in Greece or Turkey, of
natural gas exported using TGI, less transit and distribution
charges. The parties disagree on whether the price of the
Turkish gas will be calculated using the Italian or Greek
retail price of TGI gas. End note.) In a subsequent
meeting, Vincenzo De Luca, Minister Bersani's Diplomatic
Advisor, said negotiations stalled because of a disagreement
over the scope of the transit agreement. According to De
Luca, the GOT and BOTAS (the Turkish natural gas company)
want to make the transit agreement binding on future natural
gas projects that will ship gas using the Turkish national
grid. De Luca shared a letter from Minister Bersani to his
Turkish and Greek counterparts in which he argued that the
trilateral agreement can apply only to the TGI project
because, under international law, "intergovernmental
agreements are binding only for the contracting parties."


6. (C) GOI concerns over the lack of progress in finalizing
a transit agreement are heightened by the upcoming Turkish
elections. All of our interlocutors said that an agreement
has to be signed by July 12 in order to avoid a prohibition
on entering into a new agreement within ten days of
elections. In a July 9 conversation, reported ref B, De Luca
said the GOT rejected compromise language proposed by the GOI
in an attempt to reach an agreement on the basis of net-back
pricing calculations and the scope of the transit agreement.
De Luca saw two ways forward: (i) a conference call between
the Ministers to iron out differences and finalize an
agreement or, (ii) a "cooling off" period (coinciding with
the August holidays) followed by renewed negotiations in the
fall. When Econoff asked if there was anything the USG could
do to bridge the gap between the three parties' different
positions, De Luca said that he doubted there was much that
could be done.


7. (C) Comment. GOI support of Eni's agreement to join
Gazprom in studying the feasibility of the South Stream
pipeline is consistent with previous GOI statements that they
will support "any project that will bring natural gas to
Italy," and their stated lack of concern over the
increasingly close relationship between Eni and Gazprom. In
fact, as we have reported previously, the GOI views Gazprom
as a reliable supplier of natural gas, in no small part
because Gazprom shipped "extra" gas to Italy in January 2006,
during Russia's natural gas dispute with Ukraine, and ensured
that Italy received the full amount of gas stipulated in the
Eni-Gazprom contract. We have no reason to doubt the GOI's
commitment to the TGI pipeline, a project which it has been
actively supporting for over a year. We will continue to
reach out to De Luca and his colleagues at the Ministry of
Economic Development to track the status of the transit
agreement negotiations and to determine if there is a way the
USG can play a role in moving the negotiations closer to
completion. End comment.
BORG