Identifier
Created
Classification
Origin
08BRUSSELS1440
2008-09-17 14:29:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
USEU Brussels
Cable title:  

SENATOR LUGAR DISCUSSES ENERGY SECURITY WITH EU

Tags:  ECON ENRG EPET EU 
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ZNR UUUUU ZZH
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FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHKB/AMEMBASSY BAKU
UNCLAS SECTION 01 OF 03 BRUSSELS 001440 

SENSITIVE
SIPDIS

H FOR CODEL LUGAR

E.O. 12958: N/A
TAGS: ECON ENRG EPET EU
SUBJECT: SENATOR LUGAR DISCUSSES ENERGY SECURITY WITH EU
OFFICIALS

UNCLAS SECTION 01 OF 03 BRUSSELS 001440

SENSITIVE
SIPDIS

H FOR CODEL LUGAR

E.O. 12958: N/A
TAGS: ECON ENRG EPET EU
SUBJECT: SENATOR LUGAR DISCUSSES ENERGY SECURITY WITH EU
OFFICIALS


1. (SBU) Summary. Senator Lugar met separately this week
with EU Competition Commissioner Nellie Kroes and EU Energy
Commissioner Andris Piebalgs. The meeting with Commissioner
Kroes focused on the EU's efforts to liberalize the internal
market for natural gas and electricity. Kroes provided the
Senator with an overview of her efforts to bring competition
to the European energy market and stressed the need to move
away from national vertically integrated firms and towards a
true common European market for energy. The meeting with
Commissioner Piebalgs focused on the external energy market,
and the challenge of bringing energy security to Europe.
While acknowledging the importance of seeking alternate
supplies for gas, Piebalgs downplayed the threat posed by
Russia's dominance of gas supply to Central Europe.
Uncharacteristically, he seemed to backpedal on meeting
European climate goals by suggesting that Central Europeans
could gain energy security by building new coal-fired power
plants to be offset by trading in Clean Development Mechanism
(CDMs). End Summary.

--------------
Discussions with Commissioner Kroes
--------------

2. (SBU) The meeting with Commissioner Kroes focused on the
EU's efforts to liberalize the internal market for natural
gas and electricity. Kroes provided the Senator with an
overview of her efforts to bring competition to the European
energy market and stressed the need to move away from
national vertically integrated firms and towards a true
common European market for energy. She said that she is
convinced of the ned to unbundle energy supply and energy
transmission as a way to enhance completion in the energy
market. Kroes sees globalization as her biggest challenge at
the moment, but believes globalization is a good thing. She
stressed the need to look forward and not pull back because
of the financial crisis. She praised U.S. policy on
globalization and said and that the EU is learning from the
U.S. model.


3. (SBU) Regarding the EU's attempt to build a common market
for gas and electricity, Kroes said the biggest challenge is
protectionism in member states. She said the EU needs to
communicate the benefits of a common market to the people of
the EU to overcome member states' tendencies to protect

national champions. On the Third Country, or so called
"Gazprom" clause, Kroes said this is something the EU had to
tackle and that the Commission couldn't be naive and believe
that the Russians wouldn't try to take advantage of the
situation and snap-up unbundled transmission networks. She
said unbundling is not something that can be applied only to
EU companies, it has to apply to all companies doing business
in the EU. She views Gazprpom as tough, very confident, and
also very political.


4. (SBU) On the Nabucco pipeline project, Kroes said that
unless the EU can reach a transit agreement with Turkey,
there will be no Nabucco. She appealed for U.S. support with
Turkey to encourage them to look beyond their own domestic
needs for natural gas. Kroes believes the situation in
Georgia may spur some in the EU to push harder for Nabucco
and other options for diversifying gas supply. Nonetheless,
Kroes was not confident about finding a solution to enable
Nabucco, stating "time is not on our side."

--------------
Discussions with Commissioner Piebalgs
--------------

5. (SBU) The meeting with Commissioner Piebalgs focused on
the external energy market, and the challenge of bringing
energy security to Europe. Piebalgs stressed the importance
of the unbundling provisions in the Commission's proposed
Third Energy Package. He explained that one of the things
that makes Europe vulnerable to supply disruptions is the
fact that the gas and electricity grids in member states are
not interconnected. According to Piebalgs, vertically
integrated energy companies have no incentive to invest in
building cross-border interconnections when doing so would
erode their ability to set prices within their captive
markets. He cited the example of the lack of interconnection
between Spain and France, a subject of fruitless negotiations
for the past 20 years. Piebalgs believes that unbundling the
transmission networks will spur the construction of
cross-border interconnections bringing more completion to the
market, increasing Europe's energy security, and ultimately
resulting in lower prices for consumers.


BRUSSELS 00001440 002 OF 003



6. (SBU) While acknowledging the importance of seeking
alternate supplies for gas, Piebalgs downplayed the threat
posed by Russia's dominance of gas supply to Central Europe.
Piebalgs said the EU is continuing to look for alternative
gas supplies from a variety of sources including the Caspian
Sea region, Iraq, Nigeria (via the proposed Trans-Saharan
pipeline),and increased supplies from Norway. Piebalgs
argued that the European market is currently well supplied
with gas and there is no immediate need to seek new gas
supplies, adding that he is receiving no industry pressure
asking for new supplies. He stated he was confident in
Gazprom's ability to supply European needs going forward. In
fact, Piebalgs stated he is confident that the EU will be
able to reduce its gas needs going forward through
improvements in energy efficiency, conservation measures, and
increasing the use of renewable energy. He also views
nuclear as a part of the mix for those member states who
favor it. Even if Russian gas production does decline,
Piebalgs believes that Russia would cut back supplies to its
own people before they would cut off gas supplies to paying
customers in the West. Uncharacteristically, Piebalgs seemed
to backpedal on meeting European climate coals by suggesting
that Central Europeans could gain energy security by building
new coal-fired power plants to be offset by trading in Clean
Development Mechanism (CDMs).


7. (SBU) On Nabucco, Piebalgs sees two major difficulties:
transit through Turkey and securing sufficient gas supplies.
He views Turkey as the biggest obstacle, with Turkey
uncertain whether to demand all the gas for its own use,
purchase all the gas and then resell it to Europe, or operate
merely as a transit state. Turkey is worried that the Azeris
will apply higher prices to all the gas entering the
pipeline, regardless of its destination. Piebalgs said that
Turkey needs to understand that there are alternatives, such
as White Stream, available for transit. On gas supply for
Nabucco, Piebalgs sees the first challenge as convincing
Azerbaijan to go ahead with development of its gas reserves.
The second challenge is to find a way to reach an
accommodation between Azerbaijan and Turkmenistan so that gas
from Turkmenistan can flow west.


8. (SBU) One of the challenges Piebalgs sees going forward
is that more and more of the world's oil and gas supply is
becoming nationalized. He is unsure whether the EU can
continue to rely on commercial actors to work the market to
obtain sufficient energy supplies or if there will come a
time when the EU will have to start looking at
inter-governmental negotiations for energy supplies. Citing
Russia, he asked "can we expect the market to change Russia?"
Piebalgs is not willing to give up on the market economy,
but realizes there will be a lot of pressure by Russia
against any competition. Piebalgs indicated that he believes
oil and oil prices are bigger problems for the EU's energy
security than is natural gas. Even with increased use of
renewables for transit, the transit sector will remain
dependent on oil supplies. Gas can be substituted.

--------------
Tri-Mission Dinner
--------------

9. (SBU) At a Tri-Mission dinner attended by representatives
from the EU, NATO, and Government of Belgium, Senator Lugar
stressed the importance of energy security and encouraged the
EU to develop its energy policy. External Affairs
Commissioner Benita Ferrero-Waldner agreed on the importance
of energy security and stressed the need to bring the Nabucco
pipeline project forward. Robert Cooper, Council Director
General for External Affairs, also noted the importance of
Nabucco but added that the EU should also focus on other
efforts to diversify supply and other opportunities to
enhance energy security through changes in EU energy policy.
The EU's Nabucco Coordinator, Jozias Van Aartsen, agreed on
the need to liberalize the European energy market. On
Georgia, Van Aartsen indicated that the EU could consider
inviting Georgia into the Energy Community as a first step in
the road towards EU membership. Van Aartsen added that
post-Georgia private companies are more skeptical about
investing in Russia.


10. (SBU) Comment. In general EU officials were receptive
and supportive of U.S. initiatives to improve the EU's energy
security. Commissioner Piebalgs statements downplaying
Europe's needs for natural gas and touting the reliability of
Russia as a supplier were unexpected and out of character
with previous statements from him. The comment about using

BRUSSELS 00001440 003 OF 003


CDM's to let member states buy their way out of any gas
supply shortfalls is especially troubling. End Comment.

Silverberg
.