RESPONDING TO BULGARIAN CONCERNS ABOUT RUSSIAN

C O N F I D E N T I A L SECTION 01 OF 02 STATE 150552

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/26/2017
TAGS: BG ECON ENRG EU PGOV RS
SUBJECT: RESPONDING TO BULGARIAN CONCERNS ABOUT RUSSIAN
PRESSURE ON SOUTH STREAM PIPELINE

REF: SOFIA 1240

Classified by EUR DAS Matt Bryza for reasons 1.4 (b) and (d)


1. (C) As detailed in reftel, the Bulgarian government is
under pressure from Russia to come to a quick agreement and
sign various texts related to the Russian conglomerate
Gazprom,s proposed South Stream pipeline project under the
Black Sea. The GOB has requested USG assistance and talking
points in responding to the Russian pressure to sign what the
GOB and USG believe is a bad deal.


2. (SBU) Embassy should draw from the following points in
discussions with Bulgarian interlocutors regarding the South
Stream pipeline:

-- Our concerns about Gazprom, and by extension, South
Stream, result from our opposition to monopoly control over
energy, especially Gazprom,s control of both production of
natural gas and pipelines to deliver it. Our policy is
anti-monopoly, not anti-Russian.

-- South Stream would be part of the entire Gazprom
network, which is a company that is majority state-owned,
nontransparent, subject to every kind of political
manipulation, and does not make decisions based on market
principles.

-- South Stream reflects a Russian effort to strengthen
and maintain Gazprom,s monopoly control over delivery of
energy to the EU, by undercutting Nabucco and locking
Bulgaria and its European allies into a dangerous cycle of
dependence.

-- The longer Bulgaria remains (and deepens) its
dependence on Gazprom the harder it will be to re-establish
Bulgaria,s energy independence.

-- Our concerns over South Stream are twofold: (1) it aims
to limit Azerbaijan,s and Central Asia,s ability to export
gas directly to Europe; and (2) it could severely damage EU
and USG efforts to enhance European energy security through
diversification of sources and routes. As you know, the US
and the EU support both TGI and Nabucco as critical elements
in advancing each of these goals.

-- It remains important to increase the diversity of both
sources and supply of energy to Europe. Since Russia is
already the largest provider of imported natural gas to
Europe, and a substantial exporter of oil, additional
Russian-controlled pipelines carrying Russian gas do not
improve energy diversity for Europe.

-- Therefore, it is crucial that Bulgaria and its Nabucco
partners focus their efforts on realizing the Nabucco project
with Azerbaijani gas. Azerbaijan has clearly committed
itself to Nabucco and can supply both TGI and Nabucco,s
first phase.

-- Moreover, as it is unlikely that Russia can greatly
increase gas production for export to Europe, Russia probably
will only be able to divert supplies from existing transport
mechanisms. As a result, South Stream likely would only
serve to reduce the amount of gas available through other
pipelines.

-- Because it is designed to bypass Turkey, Ukraine,
Moldova, and Romania, South Stream leaves them more
vulnerable to Russian use of energy as a political tool.
Bulgaria should not be party to such a beggar-thy-neighbor
policy, which only degrades the energy security of Europe.

-- South Stream,s enormous technical and financial
challenges raise serious questions on whether it will be
built. Bulgaria should carefully consider whether this
project is likely to be completed, or whether it is simply
meant to undercut support for alternative pipelines to
Europe, such as Nabucco and TGI, which are not Russian

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controlled.

-- We believe South Stream is not commercially attractive.
Once Europe,s gas markets are liberalized, South Stream gas
could be the most expensive gas entering Europe, and thus may
remain empty.

-- The Bulgarians should contract an independent
consultant and/or lawyer immediately to ensure that
Bulgaria,s interests are being addressed in these
negotiations and to analyze the commercial feasibility study
that ENI is conducting on South Stream BEFORE it signs
anything.

-- The Bulgarians should demand that the source of the gas
for South Stream be identified, along with the timetable for
its development and the anticipated costs. (If the gas is
from Yamal, it likely will be more expensive when delivered
via South Stream. If it is from Central Asia, Bulgaria would
be better off dealing directly with Kazakhstan and
Turkmenistan and taking the gas by another route.)

-- We urge Bulgaria to give its fullest support for
Nabucco, as maintaining political alignment in support of the
project among its sponsors is critical to providing
confidence to investors in upstream production in Azerbaijan,
which in turn is critical to European efforts to diversify
sources of gas supply.
RICE