Identifier
Created
Classification
Origin
08BRUSSELS1685
2008-10-31 15:47:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
USEU Brussels
Cable title:  

DEPSEC KUPFER DISCUSSES EUROPEAN ENERGY SECURITY

Tags:  ECON EPET EUN 
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RR RUEHAG RUEHAST RUEHDF RUEHHM RUEHIK RUEHLN RUEHLZ RUEHMA RUEHPB
RUEHPOD RUEHROV RUEHTM
DE RUEHBS #1685/01 3051547
ZNR UUUUU ZZH
R 311547Z OCT 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHAH/AMEMBASSY ASHGABAT
RUEHTH/AMEMBASSY ATHENS
RUEHKB/AMEMBASSY BAKU
RUEHRO/AMEMBASSY ROME
UNCLAS SECTION 01 OF 06 BRUSSELS 001685 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EUN
SUBJECT: DEPSEC KUPFER DISCUSSES EUROPEAN ENERGY SECURITY

UNCLAS SECTION 01 OF 06 BRUSSELS 001685

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EUN
SUBJECT: DEPSEC KUPFER DISCUSSES EUROPEAN ENERGY SECURITY


1. (SBU) Summary. On October 6-7, 2008 Acting Deputy
Secretary of Energy Jeffrey Kupfer met with EU and industry
officials to discuss developments in European energy security
and also discussed a wide range of topics including climate
change and energy research. Research Commissioner Potocnik
provided an overview of the current state of U.S.-EU
Cooperation on energy research. UK Perm Rep Darroch,
provided the UK view on energy security, the EU internal
market, and climate change. Over lunch select Deputy Perm
Reps expressed diverse views on energy security, climate
change, and nuclear energy. German Perm Rep Duckwitz gave
the German view of energy security, with an emphasis on the
importance of good relations with Russia. Over dinner
representatives from Nabucco partners RWE and OMV provide the
industry view on how to move forward on transit negotiations
with Turkey and lining up gas supplies for the project. The
Georgian and Azeri Ambassadors discussed the impact of the
Russian invasion and Azerbaijan's desire to build a strategic
connection with Europe. Energy Commissioner Piebalgs
discussed relations with Russia and the status of the Third
Energy Package. End Summary.


2. (SBU) On October 6-7, 2008 Acting Deputy Secretary of
Energy Jeffrey Kupfer met with EU and industry officials to
discuss developments in European energy security.

Commissioner Potocnik
--------------

3. (SBU) On October 6, DepSec Kupfer's first meeting was
with Science and Research Commissioner Janez Potocnik
(Slovenia). Potocnik, whose desk is flanked by portraits of
John Lennon and Bob Marley, said U.S.-EU S&T cooperation is
going well, but added we have "no choice at the moment." He
said we must continue to deepen cooperation and increase
funding. Given the limited resources currently available, he
stressed the need to coordinate global funding. He noted
that on carbon capture and storage (CCS) research, the EU is
preparing to move forward. The Deputy Secretary said that
coordination is very important and agreed on the need to
streamline efforts. He said unlike the Commission, which
receives funding under seven-year plans, the U.S. does not
have such long-term initiatives. Nevertheless, he expects
funding will increase for R&D.

UK Perm Rep
--------------

4. (SBU) On October 6, DepSec Kupfer and Ambassador

Silverberg met (for almost two hours) with Ambassador Kim
Darroch, the UK Permanent Representative to the European
Union. Darroch spoke at length on his views on the internal
market, opening the Southern Corridor, and the EU's climate
change agenda. Speaking on the French Presidency Darroch
pointed out that most EU Presidencies have one or at most two
major crises to deal with. The French have had three: the
Irish "No" vote on the Lisbon Treaty, Russia's invasion of
Georgia, and the financial crisis. These crises have
derailed many of France's goals for its Presidency.


5. (SBU) On internal market reforms, Darroch said that the
UK was not keen on giving the Commission a vote on the
Gazprom clause as this is a matter of national sovereignty.
Darroch believed that this would set a bad precedent. The UK
favors the Commission being able to advise, but not to block.
Darroch said that the Commission can't just decide to extend
its powers into new areas; this would require the collective
decision of the 27 member states. It is a matter of
principle. Darroch characterized the Council version of the
3rd Energy Package as the 60 percent solution. Darroch
believes that in ten year's time the European market will be
unbundled one way or another.


6. (SBU) Darroch said that the Commission will present its
Strategic Energy Review (SER) during the fist week of
November. He thinks that this will include some calls for EU
money going into interconnections, especially building
north-south links. This will target the "energy islands"
especially in the Baltic States. The SER will also focus on
energy diversification and supply diversification. In this
vein it will address both the Caspian region and pipelines
from North Africa. Darroch believes there will be contention
amongst the big member states over the next Energy
Commissioner.


7. (SBU) Turning to the Southern Corridor, DepSec Kupfer and
Ambassador Silverberg stressed to Darroch that the EU needs

BRUSSELS 00001685 002 OF 006


to show a strong commitment toward Azerbaijan. Darroch was
open to the suggestion and noted that the first trip by the
UK's new Climate and Energy Minister Ed Milliband should be
to Azerbaijan. Darroch agreed that there needs to be
high-level engagement by the member states and that they
should not leave this up to the Commission. Darroch opined
that one problem the EU has is with the EU's Nabucco
Coordinator, Jozias Van Aartsen, whom Darroch said "hasn't
left Holland." Darroch hopes that one product of the SER
will be to raise the profile for the Southern Corridor
effort. Darroch believes that the events in Georgia have
transformed the debate on energy security.


8. (SBU) Darroch said that the Turks want all the gas and
the problem is to convince them of the benefits of being a
transit state. Darroch believes the EU needs to engage
Turkey along with the U.S.. The EU has some leverage with
Turkey over accession. The UK Minister will support Turkish
accession, but there is no consensus among the member
states. DepSec Kupfer queried about the possibility of
aiding Turkey with its domestic gas needs by providing other
alternatives such as nuclear and renewables. Darroch
responded that the EU was providing Turkey 2.5 billion euros
in pre-accession aid and opined that some of this could be
used for energy. On opening the Energy Chapter with Turkey,
Darroch said that the EU hopes to open at least two new
chapters with the Turks under the French Presidency. The UK
is in favor of one of these chapters being the Energy
Chapter, there is no reason not to do so despite opposition
from the Cypriots.


9. (SBU) Darroch believes the financial crisis has created
the worst possible back drop for doing the 2020 deal. At the
political level, EU governments are still saying they are
going to stick to the targets. If not for the financial
crisis, Darroch believes the big issue for the EU would be
energy security. Darroch believes a major tool for meeting
the 20 percent GHG reduction by 2020 goal will be auctioning
of carbon credits. Under this system industries will have to
buy permits to emit carbon and the power sector will be
covered 100 percent. Steel will not be covered and the
remaining sectors will be somewhere in the middle. Darroch
believes the power sector will be the main driver.


10. (SBU) On Carbon Leakage, Darroch said the EU will have
to find a way to deal with the industries most open to
international competition that would be rendered
uncompetitive under the EU's carbon trading system. Darroch
believes the answer is to give these industries either very
low priced or free carbon credits. Establishing the criteria
is the key and will determine where you draw the line.
Darroch believes that once the Germans set the principal for
a sector they will try to load everything into that sector.
He believes there will be exceptions for industries such as
steel, aluminum, and cement, but is uncertain how much
further the exemptions should go.

Lunch with Deputy Perm Reps
--------------

11. (SBU) On October 6, Ambassador Silverberg hosted a lunch
for DepSec Kupfer with selected Deputy Perm Reps from Austria
(Mr. Walter Grahammer),Bulgaria (Mr. Mario Milouchev),
Greece (Ambassador Leonidas Rokanas),Romania (Mr. Marius
Hirte),and The Netherlands (Mr. Peter Kok). DepSec Kupfer
emphasized the importance of diversifying energy supplies,
both in terms of suppliers and supply routes and encouraged
the EU to work to open the Southern Corridor. The events in
Georgia have brought this to the forefront. The Deputy Perm
Reps provided their views on energy security and Nabucco and
launched into a broad ranging discussion which also covered
climate change, renewables, and nuclear energy.


12. (SBU) Austrian Deputy Perm Rep Grahammer said the
starting point for European energy policy was the 2006
Ukraine-Russia crisis; since then energy has been a huge
issue for the EU. Romanian Deputy Perm Rep Hirte pointed out
that the Council planned a political debate to guide the
Commission in its Strategic Energy Review. The question in
Hirte's mind is how to determine which competencies the
Community has and which are reserved to member states.
Bulgarian Dep Perm Rep Milouchev said the Council is
discussing some financing options for energy security, but it
is still very vague. The focus from the Council standpoint
is on energy efficiency, emergency stocks, infrastructure,
and external relations with Russia and third countries.

BRUSSELS 00001685 003 OF 006


Greek Dep Perm Rep Amb Rokanas opined that the EU
relationship with Russia is complicated. The EU Deputy Perm
Reps have been engaged on the so called "Gazprom Clause" in
the CoRepPer. Russia is a strategic partner, but Russia
wants absolute control of its own gas and Russia has used
energy as a political weapon. Nonetheless, Russia needs EU
technology and investment. The question for the EU is how to
balance this dependence.


13. (SBU) On the question of how to move forward on Nabucco,
Austrian Deputy Perm Rep Grahammer pointed out that there is
a lot of division among member states about how to proceed.
Grahammer believes Turkey is not the biggest problem. The
biggest challenge is the need to engage with Azerbaijan, as
well as also Iran as potential sources. Greek Dep Perm Rep
Ambassador Rokanas said the biggest doubt over Nabucco is on
how to fill it. He said the picture is very complicated with
Iran, Iraq, and Azerbaijan as potential suppliers. Bulgarian
Dep Perm Rep Milouchev said that Nabucco can't be filled with
just Caspian gas and argued that they should source Iranian
gas as well. Bulgaria is very keen on Nabucco because it
diversifies both routes and sources. On opening the Energy
Chapter with Turkey as a step forward in negotiations on
Nabucco, Bulgarian Dep Perm Rep Milouchev said that it is
more important to bring Turkey into the Energy Community.
Ambassador Rokanas said that Greece wants Turkey in
Community. Austrian Deputy Perm Rep Grahammer opined that
the problem some member states have with opening the Energy
Chapter is that opening a chapter is the first step in
closing it.


14. (SBU) Speaking about the EU's climate change goals,
Dutch Deputy Perm Rep Kok said meeting these goals will
require huge investment. He believes pressure is mounting
for passage of the Climate and Energy Package, but the
package is very complicated. On the question of whether or
not the EU will change its renewable targets, Austrian Deputy
Perm Rep Grahammer responded that if you change the targets
you have to change everything. The general view is the
citizens want tough targets, the question is how to meet them
and how much will be met through the use of clean development
mechanisms (CDMs).


15. (SBU) Greek Dep Perm Rep Amb Rokanas pointed out that
energy security can also come from renewables, because this
translates into less dependence on imported gas. Rokanas
said there is a huge potential in Greece for wind power,
solar, and geothermal. Rokanas said that Greece is keeping
an open mind on carbon capture and storage (CCS),but the
technology is untested. In Rokanas's mind, CCS has huge
associated costs just to "sweep the problem under the rug"
and questioned whether it wouldn't be better to invest in
"real" renewables. He said Greece is ready to explore the
CCS option after they've seen the demonstration projects.
Greece is not against CCS, they just need to see more proof
that it will work. Rokanas emphasized that there can be no
global solution to climate change without the United States.


16. (SBU) The most lively discussion at the lunch centered
around nuclear power. Romanian Deputy Perm Rep Hirte said
nuclear is the best solution for energy diversity, as Hirte
sees it Romania has a choice between nuclear and greater
dependence on Russian gas. He also believes the EU's climate
goals will result in a strong push for nuclear power. Greek
Deputy Perm Rep Amb Rokanas opined that the problem with
nuclear addressing public opinion. Hirte countered that
people are mainly concerned over the cost of energy, not
whether or not it comes from nuclear. Hirte said that
Romania has been working with a Canadian firm and wants to
build two new nuclear units, but that the Canadians don't
seem too excited about the prospect.


17. (SBU) Bulgarian Dep Perm Rep Milouchev, also sees no
alternative to investing in nuclear power. Milouchev pointed
out that had to close one of its nuclear power plants under
the terms of EU accession and decided to build a replacement
plant. He lamented the fact the only bidders for this plant
were Russian and Czech (with Russian involvement). Milouchev
said Bulgaria is 100 percent dependent on Russian oil and 95
percent dependent on Russian gas. Bulgaria has a lot of
lignite coal, but this causes emissions problems. As such he
sees the only way out as nuclear, or perhaps Nabucco.


18. (SBU) Greek Dep Perm Rep Amb Rokanas emphasized that for
nuclear power is not an option for Greece. Rokanas

BRUSSELS 00001685 004 OF 006


recognizes this is not a rational reaction but is due to
perceived danger, emphasizing that nuclear power is a very
sensitive issue in Greece. Nonetheless, Rokanas acknowledged
that there is discussion even in Greece about nuclear.

German Perm Rep
--------------

19. (SBU) In a October 6 meeting, German Permanent
Representative Edmund Duckwitz told DepSec Kupfer that
Germany sees renewables as a very important aspect of energy
security. Duckwitz said Germany needs to diversify its
energy supply as much as possible. They are trying to find
as many sources and routes for gas and oil as possible.
Duckwitz said Germany is quite active even though his country
does not get that much sun. They are working on solar
projects in Algeria and other countries as well. Germany is
also pushing wind energy. Nuclear, Duckwitz said, is very
delicate in Germany and opined that perhaps the next German
government will have to reconsider this question.


20. (SBU) Turning to gas supply, Duckwitz said Germany is
very much in favor of promoting the different gas pipeline
projects: South Stream, Nabucco, and Nord Stream. In the
end, Duckwitz believes Germany will need them all. Duckwitz
said Nord Stream can offer better supply of gas to Germany,
the UK, and The Netherlands. Duckwitz understands the
concerns of Germany's eastern neighbors (Poland) and said
Germany had offered to give them a direct connection to the
pipeline. He said Nord Stream still has a long way to go
given the ongoing environmental discussions. Asked if Nord
Stream is a competitor to Nabucco, Duckwitz said he does not
see any competition between them, reiterating that "we will
need them all." He also said he believes that the resource
base (from Russia and the Caspian region) is large enough to
fill all the pipelines. Duckwitz emphasized that Germany is
a strong supporter of Nabucco and that Germany is hearing
from private investors that all three projects are
sustainable. He also emphasized that there are major German
companies involved in both Nord Stream (E.On) and Nabucco
(RWE).


21. (SBU) On relations with Russia, Duckwitz said the
financial crisis is having an influence on Russian behavior.
He pointed to the fact that Russia is allowing EU observers
in Georgia as a positive development. He said he now sees
more flexibility on the Russian side, because the financial
crisis has underlined to the Russians how dependent they are
on Europe. Duckwitz emphasized that Russia needs investment
and they are very interested in German technology. He sees
the relationship with Russia as one of interdependence.
Duckwitz acknowledged there was a certain reluctance about
investment in Russia after the events in Georgia, but
believes that problem has been overcome. He said that the
interest of German companies in investing in Russia has not
lessened. Germany is the most important partner of Russia,
and Duckwitz believes it will stay so.

Nabucco Dinner
--------------

22. (SBU) DepSec Kupfer hosted a dinner October 6 for
representatives from German RWE and Austrian OMV to seek
their views on the Nabucco gas pipeline project. Attending
from RWE was Jeremy Ellis, Head of Business Development RWE
Gas Midstream GmbH who drove in for the meeting from Germany.
Representing OMV at the dinner were Mr. Johann Gallistl,
Procurist of Nabucco Gas Pipeline Int'l GmbH and Managing
Director of the National Nabucco Company Austria who flew in
for the meeting and Mr. Stefan Pinter, OMV Director for EU
Relations based in Brussels.


23. (SBU) OMV's Gallistl started off by giving an overview
of current negotiations with Turkey. Gallistl said that
Turkey is now engaging and negotiating with the Nabucco
partners. Turkey continues to insist on a 15 percent
lift-off right, but the producers don't want this. Basically
Turkey wants gas at a discount. This will have to be settled
in a separate arrangement. They are negotiating on an
inter-governmental agreement (IGA),which will set the terms
and conditions for the entire pipeline. They are also
working on a Project Support Agreement (PA). The IGA and PA
will lock in all the transit countries. Nabucco is working
to come up with political and commercial solutions for
Turkey's security of supply concerns. RWE's Ellis said that
Turkey is coming to realize that without Nabucco they loose.
Nabucco would open up the door for further investment, create

BRUSSELS 00001685 005 OF 006


transparent pricing, and give greater liquidity to the gas
market. The question is how to divide up the Azeri volumes.
Turkey wants 8 bcm from Azerbaijan. Nabucco is arguing that
they can give Turkey a security of supply call on Nabucco
volumes allowing them to divert European bound gas to Turkey
in the event of an emergency. Ellis said that Turkey
realizes the threat from South Stream is real. This
realization along with the events in Georgia brought Turkey
to the negotiating table.


24. (SBU) Ellis emphasized that Nabucco needs a second gas
supply source beyond Azerbaijan. Gallistl pointed out
Nabucco needs 15 bcm for sanctioning. Azerbaijan can provide
at most 8 bcm. Ellis said that the 8 bcm from Azerbaijan
would be enough to start Nabucco in 2013 but they would need
additional volumes coming on-stream by 2017-2018. RWE is
very interested in Iraq as this potential second source, and
Ellis asked the U.S. to consider accelerating gas development
in Iraq by helping to provide some sort of umbrella for
delivery risk. On Turkmenistan, Ellis believes a
trans-Caspian gas solution is necessary for Turkmenistan
because it will keep all the buyers honest. There needs to
be heavy-weight consortium formed to push this idea forward,
probably something involving companies from Germany, the
U.S., OMV and Turkey. Ellis believes that if they get
Nabucco off the ground, the Russians will want to sell their
gas through Nabucco because it will be cheaper than building
South Stream.


25. (SBU) RWE is not concerned about funding for Nabucco.
Ellis said that when the supply is settled and the transport
contracts are in place, the funding will follow. Ellis
likened Nabucco to the movie "Field of Dreams" saying "If youQild it they will
come." Ellis said Nabucco does not need EU
or U.S funding. He urged both to put their money to work on
the supply issue. He downplayed suggestions to help Turkey
build nuclear power plants as a substitute for gas, pointing
to what he called Turkey's "nuclear bidding fiasco." Ellis
said what Turkey needs is gas, not alternatives. Ellis
downplayed the usefulness of conferences and summits saying
they take a lot of work, produce some nice conferences, and
some pretty words, but words are not enough.


26. (SBU) Ellis said support from the EU Commission up until
now has been worse than nothing, but opined that it is better
now that Nabucco Coordinator Jozias Van Aartsen is otherwise
occupied (as Mayor of The Hague). Asked what kind of help
the Nabucco partners would seek from Energy Commissioner
Piebalgs, Ellis said that Piebalgs should focus on the supply
picture. The EU has neglected the Caspian and the Caspian
producers are feeling isolated. Ellis said that Piebalgs
needs to go to Azerbaijan as soon as possible because
President Aliyev is very nervous. He also encouraged
Piebalgs to work on supply solutions with Iraq. On Turkey,
Ellis said they are urging the EU to keep the pressure up on
Turkey to deliver. Ellis said the EU needs to back off from
holding bilateral discussions on transit with Turkey (but
without the Nabucco partners). Ellis views this as a
commercial issue and believes the Commission needs to back
off. His advice to the EU would be to keep the pressure on
Turkey and wait for the call from the Nabucco partners once
they have worked out the commercial details.

Georgian and Azeri Ambassadors
--------------

27. (SBU) On October 7 Ambassador Silverberg hosted a
breakfast attended by Georgian Ambassador to the EU Salome
Samadashvili and Azeri Ambassador to the EU Arif Mamedov.
The American-educated Samadashvili said that Georgia has been
trying to play the role of intermediary between Europe and
Central Asia. She said the Russian invasion was a wake-up
call for Central Asian states, and she is not sure where they
stand at this point. Georgia wants to remain a transit
country, but she questioned whether Central Asia could
produce enough supplies to meet European demand. Ironically,
she said Russian gas flowed unhampered to Georgia throughout
the invasion. She believes Russian forces deliberately
targeted the Baku-Supsa pipeline, noting there were 50
craters around the pipeline and no other strategic assets in
the area. The Georgian government will now look to increase
the use of renewables, particularly hydropower, to lessen
dependency on Russia. She said 45% of Georgia's electricity
(and 100% of Abkhazia's) comes from hydropower. DepSec
Kupfer said the U.S. could help Georgia with renewables and
energy efficiency and thanked Georgia for its role in

BRUSSELS 00001685 006 OF 006


interdicting nuclear smugglers.


28. (SBU) Amb Mamedov said Azerbaijan is ready to play a role
in transmitting gas to Europe, but there are a lot of borders
to be crossed and prices need to be set between producer and
consumer countries. When asked about TGI, he said he was all
for "diversification," but indicated a preference for
Nabucco. Despite saying Nabucco was "too early or too late,"
he believes it is a good project, but it needs political
support. He said Shah Deniz II would have 11-13 BCM
available for sale, but Nabucco needs at least 20-25 BCM to
be commercially viable. He said the only practical gas
source for Nabucco is the Caspian Basin, but noted that the
Europeans have not demonstrated a political commitment:
"Europe talks about necessities and strategic importance, but
it is not pushing for a deal." He said senior EU officials
need to resolve the issues with Turkey and "go to
Turkmenistan as Putin has." The distance between Azeri and
Turkmen platforms in the Caspian Sea is only 60km. "You do
not need a pipeline" he said, "you can call this an
interconnector." Mamedov said Azerbaijan is in a delicate
situation; Russian President Medvedev has offered to buy all
available reserves. It wants to sell gas to Europe, but it
will not sacrifice its strategic relationship over transit
issues or prices. He added: "our neighbors are not Austria
and Switzerland."

Commissioner Piebalgs
--------------

29. (SBU) On October 7, Energy Commissioner Andris Piebalgs
(Latvia) told the Ambassador and Deputy Secretary that he
would be meeting with Russian officials in Paris on October 8
under the rubric of the Permanent Partnership Council. He
said he did not expect any concrete outcomes - Russia sees
the Commission as a nuisance and prefers to deal with member
states - but that it was important to maintain dialogues
following the invasion of Georgia. Amb Silverberg noted that
BP had recently made a big concession over TNK-BP and while
Piebalgs said the outcome was "good," he noted it was "clear
that the Russian government" was involved. On Third Country
clause, Piebalgs said he would have preferred to have
decision-making authority, but said the mandatory consult
with the Commission would be sufficient: "It would be
difficult for a member state to ignore the Commission's
opinion." He said EU efforts on renewables are progressing
but said the issue of sustainability criteria for biofuels is
still "messy." DepSec Kupfer noted that the EU's proposed
criteria have "gone too far" and encouraged a science-based
approach.


30. DepSec Kupfer was not able to clear on this cable.

Silverberg
.