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07ROME2071 2007-09-25 16:16:00 CONFIDENTIAL Embassy Rome
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1. (C) Summary. Econoff delivered to Edison Italia Ref A
demarche regarding Swiss firm EGL's plans to purchase Iranian
natural gas for export to Switzerland using the
Turkey-Greece-Italy (TGI) natural gas pipeline. Edison's
Director for Institutional and Regulatory Affairs, Giampaolo
Russo, denied any involvement by Edison in EGL's plans to
import Iranian natural gas, pointing out that as described in
Ref A, the Iranian natural gas will not pass through
pipelines controlled by Edison. Russo also said the TGI
pipeline does not have the capacity to accommodate additional
natural gas, Iranian or otherwise. Turning to the question
of Edison's possible investment in Iran's South Pars natural
gas field, Russo said an investment is in the very early
stages of development, and that Edison does not plan to use
the TGI pipeline to import Iranian natural gas if Azeri
natural gas production comes on-line as scheduled. Finally,
Russo said Edison is interested in investing in natural gas
production in northern Iraq, but did not elaborate on when or
how Edison might start business in Iraq. End summary.

2. (C) Econoff delivered Ref A points September 19 to
Giampaolo Russo, Edison's Director for Institutional and
Regulatory Affairs. (Note. Edison is based in Milan. Russo
is the highest-ranking Edison official in Rome. End note.)
Responding to Ref A points, Russo said Edison only controls
the final portion of the TGI pipeline and that, if the export
goes forward as described, the Iranian natural gas will not
pass through Edison-controlled pipelines. He elaborated that
Edison is a 50/50 partner with DEPA, the Greek national
natural gas company, in the Poseidon pipeline, which will
connect Greece and Italy. Poseidon will receive natural gas
from the Greek national gas pipeline system, which will
receive Azeri natural gas imported via Turkey. Russo said
that DEPA may opt to build a pipeline from the TGI north into
Albania to facilitate the sale of Azeri gas to Albania or
other Balkan natural gas customers. While it may eventually
be possible to transfer natural gas from the TGI to EGL's
Trans Adriatic Pipeline (TAP), Edison will not have a role in
these transfers because the natural gas will not transit
through the Poseidon pipeline, the only part of the TGI
project in which Edison is investing.

3. (C) Setting aside the issue of whether or not the
natural gas shipment described in Ref A will pass through
pipelines controlled by Edison, Russo pointed out that the
TGI pipeline does not have the capacity to accommodate the
shipment of an additional 5.5 billion cubic meters a year
(bcm/year) of natural gas. As reported Ref C, the capacity
of the TGI at the Turkey/Greece border will be 10-11 bcm. Of
this, 2-3 bcm will be used by DEPA in Greece or will be
re-exported by DEPA to Albania. The remaining 8 bcm will
belong to Edison, and will be shipped to Italy using the
Poseidon pipeline, which has a capacity of 8 bcm. Edison
plans to use this 8 bcm of gas to generate power in Italy.
Russo acknowledged that Edison and DEPA plan to increase
Poseidon's capacity to 9 bcm by adding an additional
compression station, but pointed out that the remaining one
bcm will be insufficient to accommodate the 5.5 bcm of
Iranian gas EGL needs to ship to Switzerland.

4. (C) Responding to a question for Econoff, Russo said
Edison has no plans to put Iranian gas into Poseidon, "if
there is Azeri gas available, we will not use Iranian gas."
If it appears that Azeri gas will not be available, Edison is
preparing to look at other sources of gas, including northern
Iraq and Iran. Russo said that as a medium-sized energy
company, Edison is forced to do business in countries that
the majors avoid, and that Edison recently signed an MOU with
the Iranian National Oil Company (NIOC) for a feasibility
study for the development of natural gas production at NIOC's
South Pars natural gas field, but stressed that talks were at
a very early stage. Our understanding from Russo is that
Edison plans for investments in northern Iraq are at an even
earlier stage. Econoff delivered Ref B points on the Iran
Sanctions Act (ISA) noting the 20 million dollar threshold
for ISA applicability and Congressional interest in foreign
companies' investments in Iran. Russo said he understood
that Edison's activities in Iran might fall within the
activities covered by ISA, but indicated that it will be
several years before Edison actually has activities on the
ground in Iran. He asked how ISA applied to the investments
by Eni and ENEL (the Italian oil/gas and electricity
parastatals) in the Iranian energy sector. Econoff replied
that although the language of the legislation appears to
allow for prosecution of a foreign company for ISA
violations, this hasn't happened yet. That said, there is
increasing pressure for ISA to be applied, and Edison should
avoid putting itself in a position where it could be
prosecuted for violations of ISA.

5. (C) Comment. Russo's description of the pipelines that
could be used to ship Iranian gas to Switzerland and their
capacity makes a fairly compelling case for his assertion
that Edison will not be involved in the gas shipment
described in Ref A. That said, it is clear that Edison is
positioning itself for an eventual entry into the Iranian
energy sector. End comment.