RESULTS OF SOFIA REGIONAL ENERGY OFFICERS TRAINING

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001364

SIPDIS

SIPDIS

EUR FOR DAS BRYZA, EUR/ERA, EUR/NCE; SCA FOR PDAS MANN; EEB

E.O. 12958: DECL: 12/09/2017
TAGS: ENRG EPET BU
SUBJECT: RESULTS OF SOFIA REGIONAL ENERGY OFFICERS TRAINING
SESSION DECEMBER 6-7

REF: A. A) SOFIA 1239

B. B) ANKARA 2419

Classified By: AMBASSADOR JOHN BEYRLE FOR REASONS 1.4 (B) and (D).


1. (SBU) Summary: On December 6-7, 37 USG energy officers
from more than 30 posts and agencies gathered in Sofia for a
training session on midstream economics and pipeline
projects. On December 6 outside speakers from industry,
thank tanks and the European Commission briefed on pipeline
project structure, financing, and EU energy policy, as well
as on the status of major proposed pipelines in Europe and
Eurasia. On December 7, SCA PDAS Steven Mann and EUR DAS
Bryza presented a Washington perspective of USG efforts to
promote energy security in the region. The officers also
discussed ways to improve Washington-field coordination on
energy issues and made recommendations to improve USG energy
officer training programs, which will be reported septel.
This conference was a direct outcome of the Regional COM
Energy Conference held September 21 in Istanbul. Detailed
conference notes and speaker presentations will be sent to
all participants via email. End Summary.


2. (SBU) Day one of the two-day event was devoted to
training officers on midstream economics and projects. The
program began with Mark Lewis, a Washington-based partner at
the law firm of Paul Hastings, Janofsky and Walker. Lewis, a
pipeline attorney who worked on the Baku-Tbilisi-Ceyhan
pipeline and who is currently legal counsel to the Bulgarian
participants in the Burgas-Alexandropolous pipeline,
presented a detailed analysis of pipeline project legal and
tariff structure, financing, and implementation. Kitti
Nyitrai, Officer for Energy Policy and Supply Security at the
European Commission discussed EU energy policy, especially as
it relates to supply and route diversity. She said EU
energy security is heavily influenced by growing demand, the
fact that current pipelines are not interconnected, and the
lack of coordination among member states on cross-border
pipeline projects. She said that while the EU supports
additional pipelines from Russia (Nordstream, South Stream),
it is concerned about Russia's future upstream capacity.



3. (SBU) Industry presenters offered four case studies on
oil and gas pipelines. Hugh McDowell, President of BP
Georgia, presented case studies of the Baku-Tbilisi-Ceyhan
and Trans-Caucasus pipelines. Emphasizing lessons learned,
McDowell said if the parties were structuring BTC today, they
would not take on debt financing, but would rather finance
the project themselves, in order to avoid the tremendous NGO
and financial institutional scrutiny to which BTC is
currently subject. McDowell stressed the positive role the
USG played in bringing Azerbaijan, Georgia and Turkey into
alignment on the need for BTC. Next, Johann Gallistl, Vice
President of Nabucco Gas Pipeline International and Director
of International Pipelines at OMV, gave a highly optimistic
picture of Nabucco's future. He explained that Nabucco will
hold an "open season" in the first quarter of 2008 for 50
percent of its 30 bcm capacity. Probable sources now
include, he said, Caspian and Russian gas. He said Nabucco
should also look at Iran and Iraq as sources in the mid- to
long term. He said Nabucco's pro rata principles will allow
even small gas traders access to the pipeline.


4. (SBU) Alf D'Souza, Vice President of Shell International
in Moscow presented an overview of LNG and a case study on
Shell's experience in the Sakhalin II LNG project. D'Souza
played down the possibility that LNG will significantly
alleviate Europe's energy security concerns given the lack of
LNG suppliers, costs, and time needed for project execution.
Scott Bowen, Commercial Manager of Chevron Neftegaz in
Russia, presented case studies on the Caspian Pipeline
Consortium (CPC) and the Burgas-Alexandropolous pipeline
(BAP). Bowen detailed the differences between CPC, a private
pipeline, and more traditional pipelines, and stressed the
challenges inherent in managing an 11-party consortium.


5. (SBU) Ed Chow, Senior Fellow at the Center for Strategic
and International Studies, closed day one by presenting a
framework for evaluating the prospects of all proposed
pipelines. Chow said the answers to three key questions will
determine whether any pipeline has a good chance for success:
a) Who is the Commercial Champion? b) Who is going to take

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the risk? and c) Do the answers to the first two questions
make sense? With this framework, officers analyzed the
prospects of several pipelines, including Nabucco, CPC, BTC,
Odessa-Brody and Eastern-Siberia-Pacific Ocean.


6. (C) On December 7, in addition to participant
presentations on Russia and China, SCA PDAS Steven Mann and
EUR DAS Matt Bryza presented Washington perspectives on U.S.
policy on energy issues in Europe and Eurasia. From these
presentations and the discussions that followed, the
participants made the following conclusions:

-- USG energy policy in the region should not be
anti-Russian or designed to damage or displace Gazprom.
Rather, we want to see Gazprom make more rational, and
market-based investments.

-- We should continue to stress the need for a coordinated
EU energy policy.

-- Timing on pipeline projects is key. A race of
perceptions is on between Nabucco and South Stream. If
alignment of Nabucco countries is wobbly, this will have a
profound impact on upstream interest, and investment, in
Nabucco. If we know Azerbaijan has enough gas for Nabucco,
the companies and countries involved must present a
wide-ranging public release strategy in order to quiet
Nabucco skeptics.

-- We must conduct a different kind of energy diplomacy in
the new Europe and Central Asia. We cannot assume there is a
sophisticated policy establishment in these countries that
will easily digest and assimilate our policy. We must repeat
our messages over and over. We must stress "quantity time
over quality time," and invest ourselves in establishing deep
personal relationships with our interlocutors. We must
deliver our demarches and nonpapers in local languages.

-- We must pay more attention to East European allies who
are almost entirely dependent on Russia for their energy
needs and who, therefore, are more susceptible to Russian
pressure;

-- In Central Asia we must focus on laying the groundwork
for the establishment of U.S., or at least western,
commercial champions. With commercial champions for
USG-supported projects in place, we can be confident that the
projects we support make the most commercial sense.

-- As was stated in Istanbul (ref B),we must create a cadre
of USG energy specialists who will be capable of taking over
the formulation and implementation of USG energy policy
toward Europe and Eurasia in coming years. In support of
this goal, the energy officers discussed recommendations to
improve USG energy training offerings. These recommendations
will be sent via septel.


7. (SBU) Comment: The Sofia energy officers training
session gave energy officers the chance to get training on
midstream economics and projects, receive updates on
Washington policy and thinking, and interact with one
another. The format of training by outside experts combined
with traditional conference discussion was highly effective
and we recommend it be kept in future energy officer
conferences, even after changes in official USG energy
officer training programs are implemented. Embassy Sofia
would like to thank PDAS Mann, DAS Bryza, EEB, EUR/ERA, and
Geoff Lyon of Embassy Moscow for their support of the Sofia
Energy Officers Training Session.


Beyrle