NO TO IRAN DEAL FOR NOW; BUT WHAT NEXT ON ENERGY

C O N F I D E N T I A L SECTION 01 OF 02 WARSAW 001086

SIPDIS

EB FOR DOUG HENGEL; EUR FOR MATT BRYZA

E.O. 12958: DECL: 09/14/2013
TAGS: ENRG ECON EPET ETTC IR PREL PL
SUBJECT: NO TO IRAN DEAL FOR NOW; BUT WHAT NEXT ON ENERGY
SECURITY?

REF: A. SECSTATE 95257

B. WARSAW 806

C. WARSAW 845

Classified By: Classified by DCM Quanrud for reasons 1.4 (b) and (d).


1. (SBU) EEB DAS Doug Hengel met the week of September 8 with
government officials and leadership of the state-controlled
oil and gas company (PGNiG) and was assured that no energy
deal with Iran was imminent. All agreed on the importance of
ensuring that Iran did not develop nuclear weapons and
reassured DAS Hengel that Poland would continue to support
P5 1 efforts. DAS Hengel also discussed energy security and
diversification, including increased integration of European
markets and political engagement with upstream Caspian
producers. DAS Hengel was in Warsaw to participate in a GoP
sponsored conference on energy security and climate change.
End Summary.

On Potential Investments in Iran
--------------


2. (SBU) Background: Polish and Iranian press first reported
in June that PGNiG was in talks with the Iranians regarding
an investment in the Lavan field worth as much as USD 2
billion (REF B). Follow-on conversations with company and
government officials confirmed that discussions had taken
place, with mixed messages regarding officials' support for
Iran sanctions. In those conversations, Poland's energy czar
Zajaczkowski, PGNiG management and some mid-level GoP
officials argued that Poland would expect compensation if it
were to abandon potential investment in Iran (REF C).
Zajaczkowski has since left the Prime Minister's Office and
is now Ambassador to Romania.


3. (SBU) GoP Assures Us There is No Deal: Polish Treasury
officials, who exercise government control of PGNiG, assured
DAS Hengel September 9 that the Polish government supported
sanctions and that there was no commitment by PGNiG to invest
in Iran. Discussions had taken place, but no deals were
signed and none would be while the current sanctions regime
was in place. This message reinforces previous discussions
between Deputy Prime Minister Pawlak and Embassy officials
confirming the GoP's support for pressure on Iran after
initially mixed messages on potential investments in Iran's
Lavan field. Treasury officials assured us they had
instructed PGNiG not to commit to anything in Iran after
receiving Ambassador Ashe's May 2008 letter warning against
investing there. They committed to follow up with PGNiG
officials to ensure that company policy remained in line with
the government's support for sanctions and that discussions
had not crossed the line from information gathering.

On Energy Security/Diversification
--------------


4. (C) But What About Polish Diversification Needs?: MFA
representatives, PGNiG officials, and to a lesser extent
Ministry of Economy officials did mildly push back. They
agreed with their Treasury colleagues that there was no
imminent deal and supported the US efforts to isolate Iran,
but they complained that they lacked good options for
diversifying gas supplies. They added that if Iran was off
the table for now, they believed that the US should help find
alternative sources, in particular facilitating contacts in
the Middle East. DAS Hengel presented Polish officials a
view on energy security that did not involve relying on
actors such as Iran and Russia.


5. (C) Private and public sector officials were generally
receptive to DAS Hengel's messages on energy security.
Throughout these meetings Hengel stressed the need for Poland
and its EU colleagues to:

-- complete liberalization of EU energy markets, including
to link their electricity and gas grids, thereby creating a
single integrated market to better withstand any outside
pressure. Hengel noted that today Russia faces 27 separate
EU energy markets; if Russia faced one united market the
dynamics would change dramatically.

-- explore domestic alternatives, including the possibility
for unconventional gas, cleaner coal technologies and

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renewables.

-- encourage EU leadership to reach out to upstream Caspian
producers, to underline their strategic importance to Europe.

-- use EU competition tools to thwart any predatory
activities by Gazprom.

The greatest resistance to Hengel's message was the idea of
plugging into German gas supplies as a means of diversifying.
Polish officials continued to express concern that it would
be Russian gas in the pipes, even if the gas was not directly
controlled by Russian suppliers and therefore Poland would be
better off with an LNG facility and a pipeline connection to
Norwegian gas through Denmark. Hengel supported those
efforts, but urged linking up to the German grid to provide
an additional measure of diversity and security, including in
the case of accidents. Conversely, officials seemed
genuinely interested in using EU competitiveness tools
against Gazprom. They strongly supported greater EU
engagement in the Caucasus and a unified EU energy security
policy.


6. (C) Comment: The Poles remain anxious regarding their
reliance on Russian gas and they clearly see the threat of
Russian pressure more vividly than the potential for a
nuclear-armed Iran. However, they have unified their
official position supporting Iran sanctions and any deal to
develop Iranian energy resources seems very unlikely in the
near-term. They have also backed away from the view that
withholding Iran investments calls for a quid pro quo deal
arranged with USG help. Poland is a strong potential ally in
focusing EU attention on the need for a unified energy
policy, a stronger regulatory approach, and more active
engagement in the Caucasus and Caspian.


7. (U) This cable has been cleared by DAS Hengel.
ASHE