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09BRUSSELS670 2009-05-12 07:39:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY USEU Brussels
Cable title:  

SPECIAL ENVOY MORNINGSTAR DISCUSSES EU ENERGY

Tags:   ECON EPET EUN 
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					  UNCLAS SECTION 01 OF 06 BRUSSELS 000670 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EUN
SUBJECT: SPECIAL ENVOY MORNINGSTAR DISCUSSES EU ENERGY
SECURITY

Sensitive but Unclassified - not for Internet distribution.



1. (SBU) Summary. On April 22-23 Special Envoy for Eurasian
Energy Richard Morningstar met with EU and industry officials
to discuss U.S.-EU cooperation on energy security. In these
meetings, Ambassador Morningstar gave his European
counterparts an overview of the Administration's Eurasian
energy policy, and emphasized the need for the U.S. and the
EU to work closely to ensure Europe's energy security. His
visit was warmly welcomed by EU officials who also called for
closer coordination with Washington on energy policy. The
discussions were wide ranging covering all aspects of
Europe's energy security including liberalizing Europe's
internal market for electricity and gas as well as external
relations with producer and transit states. A common theme
in these meetings was the EU's desire for the U.S. to
encourage Turkey to move forward on gas transit negotiations.
Joao de Vale Almeida, EU President Barroso's Chef de
Cabinet, and Ambassador Morningstar discussed the possibility
of establishing some form of meaningful high-level U.S.-EU
dialog on climate and energy and agreed to talk more in the
future to further pursue these ideas. End Summary.



2. (SBU) On April 22-23 Special Envoy for Eurasian Energy
Richard Morningstar met with EU and industry officials to
discuss U.S.-EU cooperation on energy security. In these
sessions, Ambassador Morningstar told the Europeans that the
U.S. is in the process of relooking at our policies on energy
security. He stressed that the new Administration believes
the U.S. should take a balanced approach on energy security.
He made the case that the various gas pipeline projects are
very important parts of a jig saw puzzle -- Nabucco is part
of the puzzle and is important, but not the Holy Grail. He
argued it is also important to look at interconnecting the
EU's internal market, building new European LNG facilities,
and promoting the use of Nuclear energy for some countries.
Ambassador Morningstar also underlined that the U.S. sees a
direct relationship between energy and climate change.



3. (SBU) On Russia, Ambassador Morningstar stressed that the
U.S. is not looking to have an openly confrontational
policy. He told EU officials that it is important to stand
up to Russia when they use strong-arm tactics, but that we
also need to engage with them when possible. He argued the
U.S. and the EU should look at the possibilities for
"win-win" energy security projects where we can work with
Russia as partners -- where Russia can be part of the
solution rather than the problem.

EXTERNAL RELATIONS COMMISSIONER FERRERO-WALNDER


4. (SBU) On April 22, Ambassador Morningstar met with Benita
Ferrero-Waldner, EU Commissioner for External Relations.
Commissioner Ferrero-Waldner began the meeting by noting that
the Southern Corridor is a common issue of great importance
to the U.S. and the EU. She said it is important for the
U.S. and EU to work together to identify where the most
important problems lie. In her view Azerbaijan,
Turkmenistan, and the EU are ready to commit to the Southern
Corridor, but Turkey is not ready. Ferrero-Waldner stressed
that "We have a problem on Turkey." She said the greatest
help the U.S. could give to the EU on this subject would be
getting Turkey to agree on gas transit. She argued that
Turkey has to see the realities and that Turkey is in danger
of playing its cards too strongly. She said that Turkey has
a great opportunity at the Prague Summit to show it can be
part of the solution by signing the Nabucco intergovernmental
agreement (IGA). That, she said, would open up a lot of
things and make it easier for EU Member States to reciprocate
on accession issues.



5. (SBU) Ambassador Morningstar pointed out that we've seen
this vicious circle for some time. Turkey doesn't believe
the EU is serious so they do something provocative; the EU
sees this and says "why do we bother?" Ferrero-Waldner said
that it will take time, but that she is optimistic Turkey
will eventually be part of the EU. She argued that Turkey
will get a huge benefit out of a gas transit solution, but
that "this is the moment when they have to show their
commitment." She said Turkey has to understand that there is
a real alternative to take gas directly across the Black Sea
and bypass Turkey. She argued that Turkey's interests are

BRUSSELS 00000670 002 OF 006


more inline with the EU than with other regional players and
that it is important to show Turkey that their own interests
lie with Europe.



6. (SBU) Commissioner Ferrero-Waldner characterized Russia's
recent actions in the Caspian region as very good for EU
interests. She argued Russia's actions in the region are
just pushing the Caspian countries towards Europe. She said
the award of an offshore Turkmenistan exploration block to
Germany's RWE is a very positive sign. She also said that
despite opposition from Russia, the Prague Summit is going
forward and EU Member States have confirmed the EU is willing
to build the trans-Caspian link so that they can buy gas at
the Turkmenistan border. In closing, Ferrero-Waldner thanked
the U.S. for supporting EU efforts on energy security and
called for greater U.S.-EU cooperation and information
sharing going forward.

HIGH REPRESENTATIVE SOLANA'S CABINET


7. (SBU) Ambassador Morningstar met on April 22 with Steven
Everts, Energy Advisor to High Representative Javier Solana.
Everts began the session by noting that the U.S. and the EU
have already been working well together on energy security
and that Solana would like to work as closely as possible
with the U.S. on this issue. Everts noted that energy
security is rising to the top of the EU agenda. He said the
EU is doing a lot of good things on the internal market such
as: getting agreement on the third energy package, and
getting agreement on using recovery funds for gas and
electricity interconnections. These things are very
important for the EU's energy security. He pointed out that
energy security is becoming a more prominent element in the
EU's external relations and it is becoming part of the high
level political dialog, with Ministers discussing
diversification. He added that interconnecting the internal
market is also very important because that is where the rate
of return is greatest.



8. (SBU) On Ukraine, Everts said the EU has proposed to
upgrade and modernize their gas transit system if Ukraine
will carry out reforms in return. He noted, however, that it
is not easy to negotiate with Ukraine because of the
extensive infighting in the government which he characterized
as "very regrettable for their country." Everts emphasized
that the EU has no alternative, but to engage with Ukraine.
To do so, however, the EU needs to hear the same message from
both Prime Minister Timoshenko and President Yushenko. On
ways the U.S. and EU could work together on Ukraine, Everts
cautioned "Don't make it heavy." Everts said the U.S. and EU
should work to informally exchange information and make sure
we choreograph our messages to Ukraine so that they are
similar.



9. (SBU) On Turkey, Everts emphasized that EU-Turkey
relations have to be put in the broader context. He noted
that the EU accession issue is very complicated and the EU
has difficulty opening certain chapters, notably the Energy
Chapter. He continued that inside Turkey things are also not
so easy because of EU-NATO questions, Erodghan-Gul questions,
and a number of other issues. On top of this, he said, we
have the Turkey-Armenia aspect and Azerbaijan is very upset
over this. Everts said the Turks have interpreted President
Ilham Aliyev's trip to Moscow as a bluff. Everts, however,
believes something is really happening on the
Russia-Azerbaijan front. He noted that the EU strongly
supports Turkey-Armenia rapprochement and efforts to find a
settlement on Nagorno-Karabakh issues.



10. (SBU) Everts believes there is a limited window to move
forward on opening accession chapters with Turkey before the
end of the year, or things could get much more difficult. At
the same time, he argued, Turkey has to realize that it's
difficult to be an energy hub if there is no gas to flow
through. He characterized the situation as "pretty serious
but not irretrievable." He said that it is important for the
EU and the U.S. to convince the Turks that Azerbaijan is not
bluffing. Everts confided that the Commission thinks the
Turks are serious about signing an intergovernmental
agreement (IGA) on Nabucco by June, but that an IGA alone
will not get the pipeline built. There also has to be an
agreement between Turkey and Azerbaijan on transit. We need

BRUSSELS 00000670 003 OF 006


a constant drip of positive news to move forward. Time is
not neutral here, and unfortunately Turkey appears to take
Azerbaijan for granted.



11. (SBU) On energy relations with Russia, Everts noted that
engagement is good, more discussions are good, and that the
EU should be willing to discuss their energy security ideas,
but Russia has to realize the EU is quite attached to the
principles in the Energy Charter Treaty. The EU is reluctant
to just throw that agreement out the window. He acknowledged
that Russia feels the existing document does not fit them.
He said, however, the EU has to work from where it is now.
The EU can move beyond the Energy Charter and is ready to
talk principles, but he argued that the principles in the
Energy Charter treaty should be used as the starting point.
Everts emphasized that principles are good, but they must be
monitored and implemented. "Principles, dialogs,
cooperation, monitoring, these are all tools to promote
trust." When Ambassador Morningstar queried about the
possibility of bringing the Russians in to a test project,
not to control, but to contribute, Everts agreed and said the
best test case would be Ukraine. He argued the Russians have
to be involved in Ukraine. He said Russia has to play a role
there, not a controlling role, but a role.

PRESIDENT BAROSSO'S CABINET


12. (SBU) In a one-on-one meeting with Joao de Vale Almeida,
Barroso's Chef de Cabinet, Ambassador Morningstar discussed
the idea of looking for ways the U.S. and the EU can work
together on energy. They discussed the possibility of
establishing some form of meaningful high-level U.S.-EU
dialog on climate and energy and agreed to talk more in the
future and further pursue these ideas.



13. (SBU) The meeting with Vale Almeida was followed by one
with Matthew Baldwin, Barroso's energy advisor. Also present
were Fernando Andresen from Barroso's Cabinet, Emma Udwin
from Commissioner Ferrero-Waldner's Cabinet, and Roland
Kobia, from Energy Commissioner Piebalgs' Cabinet. Baldwin
began by acknowledging that when it comes to energy security
the interest of the EU and the U.S. are not identical. He
said that this is not a bad thing, just something we have to
recognize. Energy security means different things to the
U.S. and the EU. For the EU it is "Keep the bloody gas
flowing!" He noted that there is no clear cut competence for
the EU on external energy policy, but during the
Russia-Ukraine crisis none of the Member States objected to
the Commission playing an active role to resolve the crisis,
and even the Germans agreed to stick to the EU line: "You
are both at fault, reconnect the gas!" The U.S., Baldwin
said, views energy security on a much wider basis.



14. (SBU) Baldwin said that the U.S. and the EU need to keep
each other closely informed. He noted that there is a lot
more scope for cooperation at the government to government
and company to company levels. He emphasized that it is very
useful for the EU to hear what other countries tell the U.S.
about EU relations. He cited as very useful and very
important the message the U.S. passed to the EU that
Azerbaijan really wanted to hear from the EU and that they
did not feel like they were getting the attention they
deserved. He added that the U.S. and the EU also have to
look at our policies on climate change and how they support
each other.



15. (SBU) On Ukraine, Emma Udwin pointed out that "when we
talk about Ukraine there are broader issues," noting that the
Eastern Partnership has a strong energy component. She
argued that energy relations with Ukraine cannot be seen in
isolation. She said that the EU and the U.S. need to deliver
the same messages on Ukraine's quality of governance and lack
of transparency.



16. (SBU) Baldwin noted that the May 8 Prague Summit could
be very significant. He said that unlike most declarations
that start out strong and get watered down, the Prague
declaration draft start out relatively weak and got stronger.
If it is signed in its current form, Baldwin believes it
would be very significant. Baldwin said that the EU is
concerned over the way Turkey has interpreted President
Obama's visit. He said the Turks read the President's

BRUSSELS 00000670 004 OF 006


message as "we are much stronger now with the U.S. and at the
end of the day the U.S. will fix our EU accession problems."
Baldwin said it would be helpful if the U.S. disabused Turkey
of this notion. Baldwin said he really thinks "this is the
moment" for Turkey. He cautioned that he sees increasing
concerns from producer countries that are getting extremely
impatient with Turkey.



17. (SBU) Roland Kobia characterized Turkey's position as
"unclear and moving." For example, he noted that at one
moment Turkey's 15 percent off-take demand will be off the
table and then in the next moment it is back on the table.
Fernando Andresen added that Turkey sees transit negotiations
as intricately linked with EU accession. He argued that the
EU and U.S. need to convince Turkey that this is not the
case. He noted "We have an accession process underway.
Let's not kill the process." Emma Udwin opined that the U.S.
and the EU have a sense of urgency on the Southern Corridor,
but Turkey does not. She noted Turkey does not believe the
EU has other options. She said what Turkey needs to
understand is that the EU is serious about the Black Sea
option to bypass Turkey for gas transit. They also need to
understand that Azerbaijan is not bluffing about selling gas
to Russia or just leaving it in the ground. Ambassador
Morningstar pointed out that we need Turkey to see Turkey's
own interests. Turkey has an important self interest in
seeing gas from Azerbaijan, Turkmenistan, and Iraq flowing
west through Turkey. Ambassador Morningstar noted that the
important question for Turkey is: "Does Turkey really want
to make itself more dependent on Russia?"



18. (SBU) Moving to the question of relations with Russia,
Baldwin cautioned that it is a great mistake to see Russia as
monolithic. Baldwin characterized Putin's actions during the
gas crisis as "unspeakable." At the same time, he
acknowledged that Gazprom's desire to deliver gas as close to
the customer as possible (Nord Stream) is a sound commercial
approach. He said it makes sense for Gazprom to want to
avoid Ukraine. Baldwin said that the task for the EU and the
U.S. is to identify who in Russia is trying to do business
and who are the bad guys.

DG-ENLARGEMENT


19. (SBU) In an April 22 meeting with Michael Leigh,
Director General DG-Enlargement, Ambassador Morningstar noted
that in terms of enlargement ramifications one issue that
keeps coming up in discussions on energy is Turkey. Leigh
noted that his DG is not directly involved in pipeline issues
but is interested and actively involved with Turkey. On
opening the Energy Chapter Leigh said the formal vie is
there is no link between the Energy Chapter and getting a
deal on gas transit. As such, Leigh said the EU is in an
embarrassing position. The EU should be ready to open the
Energy Chapter based on Turkey's actions, impact assessments,
etc.; there is no reason not to. But, Leigh said, "we have a
problem with a certain Member State (Cyprus)." Leigh said
the EU is actively looking for a way out of this impasse, and
the message they consistently deliver to the Turks is that
the EU does not accept the linkage between accession and gas
transit. He said the EU is looking for a formula that meets
Cyprus's concerns.



20. (SBU) Leigh acknowledged that Turkey has valid reasons
to be concerned about opening the Energy Chapter, but
believes their concerns are totally out of proportion. While
doubtful the EU will succeed, he said the EU is making every
effort to get a solution by June. Leigh characterized the
situation as highly politicized. He said the Cypriots have
outraged the Turks over boundary issues. The Turks see this
as a border dispute and consider themselves wronged. Turkey
takes this very seriously. Leigh said it would be helpful if
the U.S. would urge Turkey to be as flexible as possible. He
said he is hoping for an accession conference in June at
which the Energy Chapter could be on the agenda.



21. (SBU) Leigh noted that Turkey believes the EU is not
really engaged, and the Turks portray themselves as playing
an "alternative role", providing an alternative vision, which
plays well internally. Leigh cautioned that the areas for
negotiation have narrowed. "There is a real risk we could
get to the next accession conference and have no chapters to

BRUSSELS 00000670 005 OF 006


move forward on." On the energy chapter, Leigh admitted the
EU is at fault, but on the other two chapters under
discussion he said the fault lies with Turkey. He noted that
Turkey has not fully carried out its obligations, especially
regarding Cyprus.

ENERGY ROUNDTABLE


22. (SBU) On the morning of April 23, Charge Murray hosted
an Energy Roundtable with representatives from Brussels-based
think tanks and EU Commission officials. The debated
centered on an exchange of views on energy security and
European needs/policy, especially regarding Central Asia, the
Middle East, Russia, and Iran. Once again, a large part of
the discussion focused on Turkey's role and the associated
problems with European integration. Participants called for
the U.S. help to persuade Turkey to be more flexible on gas
transit.

EDISON CEO QUADRINO


23. (SBU) On April 23 Ambassador Morningstar met with
Umberto Quadrino, CEO of Italian Edison. Quadrino noted that
despite the current economic slump, Europe does not have
enough gas supply. Europe cannot reduce its dependence on
Russia with current alternate suppliers such as North Africa.
As such Europe needs the Southern Corridor along with more
LNG import facilities.



24. (SBU) Quadrino characterized gas from Iran as a huge
question mark. He said that getting gas from Iran would
require huge infrastructure investments, noting that you
would need a very high gas price to justify building a 3000
kilometer pipeline. He noted there is a lot of gas available
on the other side of the Caspian, but you first have to solve
the issues of Caspian delimitation and even then gas wouldn't
be available until the 2015 to 2020 timeframe. Quadrino
argued that only TGI (sponsored by Edison) and first phase
Nabucco would work in the short term. He noted that with
TGI, Bulgaria could be linked-in easily through Greece. The
Greece-Italy and Greece-Bulgaria connections could be built
first. Later you could connect Romania and Bulgaria. Once
the gas is in Italy, you could also swap with other countries
in Europe. Quadrino argued that TGI would add to overall
European supply.



25. (SBU) Quadrino said that the problem with Turkey is that
they want an above normal benefit from gas transit. He said
Azerbaijan views the current gas price deal with Turkey as an
insult. Azerbaijan will not negotiate with Edison on the
pipeline until the transit fee for gas is fixed. Turkey
wants transit first, price later and will not budge.
Quadrino argued that Turkey is trying to get too much and
trying to play the same game as Ukraine. Turkey can't decide
whether it wants to be in or out of Europe.

DG-TREN


26. (SBU) In a April 23 meeting Matthias Ruete, Director
General for DG-TREN, told Ambassador Morningstar that
European energy policy and integration still has a long way
to go. Europe still does not speak with one voice on
external energy policy. Ruete noted that this changed
somewhat with the Russia-Ukraine gas crisis when EU gas
companies came to Commissioner Piebalgs and Ruete for
solutions, not to their national governments. Internally,
Ruete noted that the EU is still working on developing a
common market for gas and electricity, but is getting there.



27. (SBU) Ruete noted that the way Russia treats different
Member States creates different attitudes toward Russia
within EU. He said the challenge is how to develop a decent,
meaningful relationship with Russia, particularly on energy.
With Russia, Ruete noted that everything hinges on energy.
The EU is extremely dependent on Russia for energy: oil,
gas, and electricity. Many new Member States also depend on
Russian for nuclear fuel supplies. Ruete opined that if
Europe could turn elsewhere Russia would go under, but Europe
is too dependent to be able to turn away.



28. (SBU) On the Southern Corridor Ruete said that the
question of gas transit through Turkey needs to be sorted
out. He said there are a lot of issues to be worked out with
Turkey and noted "Turkey plays a good game." Ruete argued

BRUSSELS 00000670 006 OF 006


that Turkey has to decide whether it wants to tie itself to
Europe or to Russia and/or Iran. Turkish relations with
Azerbaijan will also play a central role.



29. (SBU) On the question of how to intensify transatlantic
cooperation on the energy and climate change nexus, Ruete
said he would like to see a more serious element in
discussions with concrete results. Ruete said that there are
so many levels and fora for cooperation (IEA, nuclear,
biofuels strategy, etc.) with a huge agenda that makes our
discussions thin rather than deep.



30. (SBU) Ambassador Morningstar cleared this cable.

Murray
.