POSSIBLE PORTUGUESE-IRANIAN GAS AGREEMENT ON THE

C O N F I D E N T I A L SECTION 01 OF 02 LISBON 000492

SIPDIS

SIPDIS

STATE FOR EUR/WE KEVIN OPSTRUP

E.O. 12958: DECL: 02/05/2018
TAGS: EPET ENRG ECON TRGY PO IR RS AG
SUBJECT: POSSIBLE PORTUGUESE-IRANIAN GAS AGREEMENT ON THE
HORIZON

REF: A. LISBON 02744


B. LISBON 00238

LISBON 00000492 001.2 OF 002


Classified By: Pol/Econ Officer Tiffany McGriff, Reasons 1.4 (b),(d)

SUMMARY
--------------

1. (C) Foreign Minister Luis Amado confirmed during a January
23 press conference that Portugal's largest energy company,
Galp Energia, and Iran's National Oil Company, NIOC, are in
negotiations over a natural gas exploration and production
project in Iran. The Ministries of Foreign Affairs and
Economy both claim to know very little about the talks, and
Galp Energia, while acknowledging on-going talks with NIOC,
has been less than forthcoming with details. One advisor at
the Economy Ministry was willing to speculate that the talks
possibly involved the construction of a natural gas pipeline
and LNG station, but claimed to have no knowledge of the
actual deal. Energy diversification is a key component of
Portugal's national energy strategy and discussions with NIOC
follows months of negotiations between Galp Energia and other
energy-producing countries like Venezuela, Angola, Algeria,
Libya and Russia (Refs A and B).

BACKGROUND -- PUTTING DIVERSIFICATION FIRST
--------------

2. (SBU) Portugal, a country heavily dependent on energy
imports with foreign sources providing between 80-90% of its
primary energy needs, has made supply diversification a key
component of its national energy strategy. This, according to
Galp Energia's Director of Investor Relations Tiago
Villas-Boas, is one of the motivating factors behind Galp
Energia's recent talks with Iran, Venezuela, Angola, Algeria,
Libya, Brazil and Russia. Villas-Boas confirmed via telephone
that his company is in talks with the NIOC about a possible
natural gas exploration and production project in Iran, but
that no "material" agreement has been signed to date and that
discussions are still on-going.


3. (SBU) Galp Energia, the former state-owned oil and gas
company in which the state retains a 7% stake, recently
signed joint exploration and production agreements with
Petroleos de Venezuela S.A. (PdVSA) and Libya Africa
Investment Portfolio (LAP) in December 2007. In addition, a
deal is in the works for Russia's Gazprom to acquire
indirectly a minority stake in Galp Energia from Angola's
Sonangol which currently owns a 45% stake in Amorim Energia,
which in turn owns 33% of Galp Energia (Reftel A).

PORTUGAL'S FOREIGN MINISTER CONFIRMS TALKS
--------------

4. (C) On January 23, FM Luis Amado and Iranian FM Manoucher
Mottaki held a joint press conference following their meeting
in Lisbon, in which Amado confirmed that Galp Energia and
NIOC were in negotiations over a natural gas exploration and
production project in Iran, among other things. Shortly
afterwards, Pol/Econ Counselor questioned Amado's Diplomatic
Advisor Paulo Lourenco about the comments, as they seemed to
contradict Amado's statements to the Ambassador the previous
day that Portugal planned to turn-up the heat on Tehran.
Lourenco responded that Galp Energia was a private company
and that the MFA's role was to advise companies on political
matters rather than control their activities. Amado's
mentioning of the negotiations, he argued, was only a small
portion of the press conference, adding that the FM's office
had little to do with the agreement and had limited knowledge
about its details. Lourenco referred the situation to the
Ministry of Economy (Reftel B).

THE INFLUENCE OF EX-POLITICIANS??
--------------

5. (C) Pol/Econ Officer subsequently met with Jose Neto,
Energy Economist and Advisor to Economy Minister Manuel
Pinho, and received a similar response. He stated that
Minister Pinho had little to do with the discussion and was
unfamiliar with the details. He went on to speculate that
Fernando Manuel dos Santos Gomes, Galp Energia's Head of
Exploration and Director of Business Production, former
member of the European Parliament and former Minister of
Internal Affairs, was influencing the talks, and that the
MFA, contrary to Lourenco's comments, was more directly
involved. Regarding the actual agreement, Neto speculated
that it could involve the construction of a natural gas
pipeline and LNG station in either the Persian Gulf or Gulf

LISBON 00000492 002.2 OF 002


of Oman.


6. (SBU) BIO: Jose (Isidoro d'Oliveira Carvalho) Neto was
born on February 28, 1945, in Lisbon, and has a degree in
Engineering from the Technical University of Lisbon (1970).
He is a politically appointed Energy Economist in Economy
Minister Manuel Pinho's Cabinet and formerly worked for the
Department of Energy's Argonne National Laboratory (early
80s). He also worked for the Portuguese government in
Brussels (6 years) and Paris (8 years) (Exact activities
and dates unknown). He speaks Portuguese, English, and French
fluently; and has working knowledge of Spanish, German and
Russian.

COMMENT
--------------

7. (C) Post has expressed strong concern to both the MFA and
the Ministry of Economy regarding a possible deal with Iran,
but has been unable to learn much about the deal beyond what
is published in the press. FM Amado is a strong proponent of
tougher sanctions against Iran and is definitely aware of the
political sensitivities, if not the ramifications, such a
deal could provoke. It is unclear why the Ministries are
playing the cards so close to the vest. On the other hand,
Post's relations with Galp Energia have been weakened since
former Ambassador Hoffman publicly criticized the company in
November 2007 for signing natural gas and crude exploration
and production agreements with Venezuela's PdVSA. Post is
working to rebuild its Galp Energia relationship and hopes to
have more information soon.


Stephenson