SPECIAL ENVOY GRAY'S MEETINGS WITH EU OFFICIALS

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TAGS: ECON EPET EU
SUBJECT: SPECIAL ENVOY GRAY'S MEETINGS WITH EU OFFICIALS


1. (SBU) Summary. On September 23-24 Special Envoy for
Eurasian Energy C. Boyden Gray met with EU officials to
discuss the way forward on the EU's Southern Corridor
strategy. Energy Commissioner Piebalgs said that the Nabucco
project remains a high priority for the EU but that
negotiations with Turkey have not been encouraging. Piebalgs
realizes the importance to Turkey of opening the Energy
Chapter and plans to lobby Cyprus and the Council to this
end. Ambassador Edmund Duckwitz, German Permanent
Representative to the European Union, told SE Gray that
Germany still views Russia as a reliable partner and argued
that Germany needs all three pipelines -- Nord Stream, South
Stream, and Nabucco. Dr. Klaus Gretschmann, High
Representative Solana's Energy Advisor, gave a starkly
different view from Duckwitz saying that Russia fears a
public criticism over Gazprom's dominance. He also doubts
that Competition Commissioner Kroes will take any action
against Gazprom. Commission Director General for Enlargement
Michael Leigh (Please Protect) told SE Gray that while
opening the Energy Chapter with Turkey would not change much
in concrete terms, it would be symbolically important in
terms of demonstrating momentum in the EU-Turkey relationship
and timely in light of high level EU discussions on energy
security. End Summary.


2. (SBU) On September 23-24 Special Envoy for Eurasian
Energy C. Boyden Gray met with EU officials to discuss the
way forward on the EU's Southern Corridor strategy.

Energy Commissioner Piebalgs
--------------

3. (SBU) EU Energy Commissioner Andris Piebalgs told SE Gray
that the Nabucco pipeline will have a high priority in the
Commission's Strategic Energy Review, which is to be
completed this fall. Politically, Piebalgs is not giving up
on ambitions for Nabucco, but getting Turkey to back away
from their current lift-off demands for a transit deal is
critical. Piebalgs stressed that giving Turkey lift-off
rights for transit gas is a dead end with the Azeris.
Piebalgs said the Commission has no problem with Azerbaijan
and Turkey reaching a bilateral agreement for gas, but said
he could not accept Turkey "stealing" the gas through a
lift-off clause. Piebalgs feels that Turkey must agree to
some sort of a transit-tariff-plus arrangement. He also
believes that using the "Caspian Development Corporation"
idea would enable the EU and Turkey to go together to
Turkmenistan to get additional gas supplies.


4. (SBU) Piebalgs acknowledged the Turkish desire to open
the Energy Chapter and said he was going to work with Cyprus
and the Council to see if he can push this forward.
According to Piebalgs, lift-off rights are the red line for
the EU. The opening of the Energy Chapter is a priority
under the French presidency, but Cyprus remains the principal
impediment to this process. Piebalgs said he planned to work
on persuading the Cypriots. On Azerbaijan, Piebalgs said the
Russians are putting immense pressure on them to sell their
gas to Russia, but that Azerbaijan is not as vulnerable to
Russian pressure as it looks. Piebalgs emphasized that
Azerbaijan is key to any Caspian strategy and that "if we
loose in Azerbaijan, we can forget about Turkmenistan."


5. (SBU) Piebalgs said the Southern Corridor negotiations
are coming to a crisis point. If the Southern Corridor
concept is to move forward to reality he feels negotiations
must succeed this year. Piebalgs said the EU is willing to
do whatever it needs to help Turkey with its electricity
generation needs, but stressed that Turkey has a history of
announcing big plans for nuclear energy projects but then
fails to deliver. Piebalgs downplayed Turkish objections to
burning coal on environmental grounds. He said the Turks did
not join the Energy Charter treaty and aren't subject to EU
environmental constraints. He added that the EU and the U.S.
could use Turkey as a testing ground for carbon capture and
storage (CCS) technology for coal-fired power plants and
Turkey could always buy Clean Development Mechanisms (CDMs)
for the plants. In any scenario, Piebalgs feels gas will
always be more expensive than coal.


6. (SBU) The EU is willing to discuss alternatives on the
transit negotiations with Turkey, but so far there is nothing
new coming out of the Turkish side. Piebalgs had hoped that
the CDC idea would help win over the Turks and said that the
EU was willing to pursue it even though it would go against
the EU's competition laws.


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7. (SBU) Publicly Piebalgs is continuing to push the Nabucco
pipeline; privately he doesn't care if the solution ends up
as Nabucco, TGI, or TAP. To Piebalgs, the game is not about
volumes. The game is about the principal of moving Azeri gas
to Europe and the important thing is to get the gas flow
started. Piebalgs spoke briefly about the proposed White
Stream gas pipeline from the Caspian through Ukraine. The
Ukrainians are pushing for this pipeline, but realistically
Piebalgs doubts that Azerbaijan would ever agree to ship its
gas via Ukraine.


8. (SBU) Commenting on the EU's support for the
Trans-Saharan gas pipeline from Nigeria, Piebalgs said the
project is getting big headlines but faces immense
difficulties, and he does not believe it is realistic.
Piebalgs said his advice to companies and member states is to
forget about Iranian gas for now, because of the obvious
political problems. Likewise, Piebalgs believes that Iraqi
gas will not be available to Europe in the short term.
Piebalgs said that in the short term "all we really have is
Azerbaijan." Turkmenistan is not in a hurry and is watching
carefully what happens in Azerbaijan.

German Permanent Representative
--------------

9. (SBU) In a meeting with Ambassador Edmund Duckwitz,
German Permanent Representative to the European Union,
Duckwitz echoed the position that Germany (Europe) needs all
three pipelines -- Nord Stream, South Stream, and Nabucco.
Duckwitz said the EU needed to diversify its gas routes as
well as its gas sources and stressed Russian/European
codependence as gas supplier and consumer. According to
Duckwitz, Germany continues to view Russia as a reliable gas
supplier. He said he understood that some countries in
Eastern Europe have more concerns about the Russians, but
that this was not something that affected Germany.


10. (SBU) Duckwitz stressed that Germany is not overly
dependent on Russia, getting only 23 percent of oil and 21
percent of its gas from Russia. (Note: Eurostat, the
Commission's statistical arm, reports Russia's share of
German oil imports at about 30 percent and that of German gas
imports at about 42 percent. End Note.) Duckwitz views the
Russian actions in Georgia as a "complication," but hoped
this would be resolved with EU observers on the ground and
continued negotiations with Russia.

Klaus Gretschmann
--------------

11. (SBU) Dr. Klaus Gretschmann, High Representative
Solana's Energy Advisor, told SE Gray that the EU is sticking
to its Southern Corridor Strategy post Georgia. The Council
is concerned, however, about the potential for Russian
control over pipelines in Georgia. Whether or not Russia
targeted pipelines during the conflict is immaterial, the
important thing is the threat that they could have and could
do so in the future. Gretschmann has heard from several
member states who believe the attack on the BTC pipeline in
Turkey prior to the Georgia conflict was at the very least
encouraged by Russia, if not planned and executed by Russia.
The Council will be holding discussions on how to react to
this threat.


12. (SBU) Gretschmann said that the next European Council
will focus on security. Despite French Presidency desires to
move forward on the Climate and Energy Package few member
states want to discuss green house gases as they are
preoccupied with security. According to Gretschmann, "Nobody
gives a damn about CO2, they all want to have their energy
safe." As such, Gretschmann expects the October 14-15 Energy
Council to focus only on security of supply both in
geostrategic terms and in terms of energy solidarity.
According to Gretschmann, member state positions on these
issues are fluid at the moment. They could reach a general
agreement and move forward on the Third Energy Package, or it
could all fall apart.


13. (SBU) Queried about using EU competition policy against
Gazprom, Gretschmann confirmed the story that EU President
Barroso had raised the subject with then President Putin and
"had his head taken off." According to Gretschmann, the
Russians fear a public debate more than they fear any
potential action the EU might take. Gretschmann stressed
that the EU is not convinced of the value of using the
"hammer" approach in negotiations with Russia. Gretschmann
also candidly commented that EU Competition Commissioner

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Neelie Kroes is on her way out (not expected to be part of
the next Commission) and Gretschmann does not expect her to
be willing to take any bold action against Gazprom before she
leaves.

Opening the Energy Chapter with Turkey
--------------

14. (SBU) Special Envoy Gray also met with Commission
Director General for Enlargement Michael Leigh (Please
Protect) in Brussels September 24. Gray told Leigh the
Turkish Deputy Foreign Minister wanted the EU to open the
Energy Chapter of the acquis (chapter 15) for negotiations
with Turkey. Leigh responded that the Commission and the
French presidency would like to open the Energy Chapter. The
hold-up is the Cypriots, who have dug in their heels since
the EU began to discuss the possibility of opening the
chapter last Spring. Cypriot objections initially involved
licensing fees and other technicalities, but have become a
matter of principle ) essentially a political block on the
opening of the chapter. Leigh said that given the fact the
other 26 member states have no objection to opening the
chapter, perhaps concerted pressure on the Cypriots could
help.

15. (SBU) Gray asked whether the U.S. could help with this,
to which Leigh responded that quiet, behind-the-scenes
discussions with the French presidency and other member
states might be worthwhile. He noted in particular the
Greeks, who have the ability to lean on the Cypriots and who
stand to benefit from improved dialogue with Turkey on energy
issues. (Note: a UK contact (Please Protect) separately told
USEU that Greece might be reluctant to push Cyprus on opening
this chapter because of territorial sea concerns. However,
the contact noted rumors that French President Sarkozy might
be willing to lean on Cypriot President Christofias to open
the chapter, as France would like to improve its bilateral
relationship with Turkey, especially on energy. End Note.)
Leigh said that, while the opening of the energy chapter
would not change much in concrete terms, it would be
symbolically important in terms of demonstrating momentum in
the EU-Turkey relationship and timely in light of high level
EU discussions on energy security.


16. (SBU) Comment. The remarks by Duckwitz are
disappointing but not unexpected. The EU focus on energy
security laid out by Piebalgs and Gretschmann, on the other
hand, are encouraging. Piebalgs appears to have a hard task
ahead on trying to get the EU to open the Energy Chapter with
Turkey. And whether or not the EU can move forward on the
Third Energy package and on energy security in general will
depend on just how much control over energy supplies the
member states are willing to cede to Brussels. End Comment.

Silverberg
.