US-EU OFFICIALS CONVENE ENERGY COUNCIL'S SECURITY

UNCLAS SECTION 01 OF 02 BRUSSELS 001647

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET PREL ECON TU IZ NI UP RU ZJ ZK XR
SUBJECT: US-EU OFFICIALS CONVENE ENERGY COUNCIL'S SECURITY
WORKING GROUP

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1. (U) Summary: U.S. Special Envoy for Eurasian Energy
Richard Morningstar and RELEX North America Director Alan
Seatter co-chaired the first meeting of the U.S.-EU Energy
Council,s security and markets working group in Brussels on
November 18, 2009. The meeting established when and how the
working group will meet and set forth the immediate
priorities to be addressed. The group also held informal
discussions on Ukraine, the Southern Corridor, Iraq, and
Nigeria. End summary.

UKRAINE


2. (SBU) Faouzi Bensarsa, RELEX Energy Counselor, said there
was good news and bad news to report on Ukraine. (Note:
Although Seatter was designated the EU's "co-chair," the
substantive discussion was led by Bensarsa. End note.) The
Commission has established a technical coordination unit for
rehabilitation of Ukraine's transit infrastructure, and
Ukraine officials have been more transparent in this process.
Ukraine has also taken strides towards Energy Community
membership and could be eligible for &political accession8
by the end of the year. Full membership would be dependent
on a series of reforms, including a new gas law and the
restructuring of Naftohaz. As for the bad news, Bensarsa
said there has been little progress on &core reforms.8 He
said Ukrainian officials continue to deny access to
information and domestic institutional barriers inhibit the
development of an integrated energy policy.


3. (SBU) Ambassador Morningstar said Ukraine needs to improve
its energy efficiency and investment climate. The lack of
FDI is a fundamental problem. Bensarsa said the Commission
plans to coordinate with major donors next year on developing
an energy efficiency action plan. The Commission is also
working with the IFIs on a package in 2010, but stressed
Ukraine must comply with the conditionalities set forth by
the IFIs in July 2009. Both sides agreed that pressure must
be brought to bear on Ukraine to reform its energy sector
after the elections. In the meantime, Bensarsa asked the
U.S. officials to support liberal access by Ukraine to its
IMF SDR during December.

SOUTHERN CORRIDOR


4. (SBU) Ambassador Morningstar said securing a bilateral
agreement between Turkey and Azerbaijan on gas price and
transit is one of the most important issues for the U.S. and
EU. He also recommended serious consideration be given to
Southern Corridor alternatives such as Black Sea CNG and LNG
and the White Stream pipeline project through Ukraine in
order to put pressure on Turkey. He said the U.S. was
prepared to conduct a feasibility studies on these projects
if needed. Bensarsa said the EU had already commissioned two
feasibility studies, one on White Stream and the other on
Black Sea alternative. He said a pipeline through Turkey is
the preferred option, but CNG is being considered.
Ambassador Morningstar suggested the Commission look into
Excelerate's vessel-based gasification technology. He also
mentioned that Uzbekistan is interested in supplying gas to
Nabucco, and this could advance prospects for a Trans-Caspian
pipeline. He said the Uzbeks are considering a $10 billion
project to supply gas to China, but could be swayed to ship
its gas west if it could link to Nabucco for a lower price.

IRAQ, NIGERIA


5. (U) Bensarsa said there is a heightened interest in Iraqi
gas now that the Nabucco IGA has been signed. He said the
Commission would support a commercial deal with the Kurds and
that such deals should go forward even without GoI consent.
Ambassador Morningstar agreed that getting Iraqi gas to EU
markets is a mutual objective and stressed the need for a
coordinated approach. On Nigeria, the Commission recently
launched a 700 million euro development package. A major
objective of the package is to promote peace and security in
the Niger Delta. Commission officials expressed concern
about pending investment legislation. They said there are
three different petroleum bills in circulation and are trying

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to determine which one is receiving the most serious
consideration. European oil companies are concerned about
the inconsistent signals.

NEXT STEPS


6. (U) Seatter agreed to draft a work plan outlining the
working group's objectives for 2010. Ambassador Morningstar
said the most pressing concern is Ukraine, followed by
Russia, and the Southern Corridor. He also suggested Iraq
and Nigeria be taken up. Bensarsa concurred and asked that
international governance, a &natural gas OPEC8 and
Venezuela and Brazil also be included. Seatter noted that
discussions on Ukraine are sensitive for the Europeans and
should be held "informally." Both Ambassador Morningstar
and Seatter agreed that the working group should remain
flexible and "meet when necessary," including by video
conference. They agreed that the co-chairs from all three
working groups should meet via video conference by early
January at the latest to assess progress on the Energy
Council.

Kennard
.