SPECIAL ENVOY MORNINGSTAR'S MADRID ENERGY SECURITY

C O N F I D E N T I A L SECTION 01 OF 05 MADRID 001210 SIPDIS STATE FOR S/EEE, EUR/WE, EUR/ERA, EUR/RUS E.O. 12958: DECL: 12/21/2019 TAGS: EINV ENRG EU RU SP UK SUBJECT: SPECIAL ENVOY MORNINGSTAR'S MADRID ENERGY SECURITY MEETINGS, DEC. 16-18 MADRID 00001210 001.2 OF 005 Classified By: Charge d'Affaires, a.i., Arnold A. Chacon 1.(C) Summary: In his meetings with Spanish officials, Special Envoy for Eurasian Energy Morningstar emphasized the USG interest in a constructive dialogue with Russia on energy issues. The GOS will convey that message to the Russians and will propose that Spain host an informal US/EU/Russia energy meeting during its presidency. The Spaniards agreed that another Russia-Ukraine gas crisis was unlikely in January but that unless Ukraine addressed its problems, another crisis could come as early as the next few months. Ambassador Morningstar emphasized USG support for Nabucco and lack of opposition to the other Southern Corridor pipeline options or to the Nord Stream pipeline. He also noted that while the Southern Corridor was important, the EU's Third Energy Package, interconnections, storage, shale gas, LNG developments, and renewable energy were likely to be even more important in reducing Europe's energy dependency on Russia. He agreed with visiting Czech Ambassador Bartuska's view that developments in these areas could mean that Europe and others were not negotiating with Russia from a position of weakness, making it possible to accomplish more. He also discussed the US-EU Energy Council with his interlocutors; the GOS officials want energy to be a key part of the US-EU summit Spain expects to host. Repsol CEO Antonio Brufau said his company had been stalling for a long time on its Iran natural gas venture and was now seeking to reduce its involvement by selling a stake to either a Chinese or an Indian company. End Summary. Foreign Ministry SG for EU Navarro -------------- 2.(U) On December 16, Ambassador Morningstar discussed with Foreign Ministry Secretary General for the EU Miguel Angel Navarro how Spain would handle energy issues during its upcoming EU presidency. Navarro noted that energy was one of the main issues for the Trio of governments that would hold the next three presidencies, Spain, Belgium, and Hungary. 3.(SBU) Ambassador Morningstar explained that the USG was trying to have a constructive dialogue with Russia on energy issues, including through his meetings with Russian officials and the energy working group of the US-Russia binational commission. The USG was seeking a dialogue on efficiency, technology, and investment. Both the financial crisis and Russia's interest in investing in North America could improve the chances for progress on investment issues. In its dialogue, the USG would maintain its emphasis on diversification and market principles, and he said the GOR recognized U.S. efforts to depoliticize the pipeline issues. 4.(C) Navarro said that Spain,s lack of a vested interest (i.e., its lack of energy dependence on Russia) made it a reliable interlocutor on Russia-EU energy issues, and he noted that an EU-Russia summit would take place during Spain,s presidency. He agreed that a Russia-Ukraine gas crisis was unlikely in January but that if Ukraine did not take action to modernize its gas sector, it would eventually cause one. At a dinner that evening, Navarro said he was heading to Moscow later that week and would convey the USG,s interest in a dialogue. He said he would suggest that Spain host an informal US/EU/Russia energy meeting in Madrid during the Spanish presidency. 5.(SBU) Ambassador Morningstar described U.S. policies on the Southern Corridor pipelines, noting strong support for Nabucco, the belief that it does more for Eastern Europe than the other options, and lack of opposition to the other options. He said it was important for Eastern European countries to work as a block, both within the EU and in dealings with Russia. He added that while the Southern Corridor was important, issues such as the EU's Third Energy Package, interconnections, storage, and renewable energy were likely to be even more important in reducing Europe's energy dependency on Russia. Navarro agreed, noting that Spain had no more energy exchange capacity than it had 40 years ago under Franco. Wind power generation capacity had increased greatly in recent years, but Spain could not export its excess production. MADRID 00001210 002.2 OF 005 6.(C) On Iran, Navarro said Spain was following the EU position of exhausting diplomatic means, but if the time came, Spain agreed that it would be necessary to be tough., He said Spain was very disappointed with the discovery of the centrifuge and added that Spain was coming closer to the U.S. position. Ambassador Morningstar noted that the USG did not want to see Iran participate in Nabucco (at present) but that if it cleaned up its act, Nabucco could be an incentive. In response to a question from Navarro about Chinese and Indian companies, involvement in Iran, he noted that Total's president had in their meeting the previous day expressed the same concern. 7.(SBU) Navarro expressed Spain,s support for the US-EU Energy Council and its view that the Council should focus on deliverables. He hoped the Council could meet in May so that energy could be one of the pillars for the US-EU summit. Ambassador Morningstar said that the three working group chairs (of whom he is one) would seek in a December 21 video conference to finalize the workplan for the next 6 months and set three or four priorities. He hoped the Transatlantic Business Dialogue (TABD) could have an energy component, adding that it needed oil/gas operators as members. He hoped the TABD could concentrate on two or three issues. Czech Ambassador Bartuska -------------- 8.(SBU) In a December 17 meeting with visiting Czech Ambassador-at-Large for Energy Security Vaclav Bartuska, Ambassador Morningstar emphasized the importance of continued tough messages from the USG and the EU to the Ukraine about the need for energy sector reforms. Both expressed frustration with Ukraine's lack of action on longstanding issues such as energy reforms and addressing Chernobyl, as well as with its attempts to shift responsibility to others. On Southern Corridor options, Bartuska said he thought Nord Stream would happen but that South Stream was a bluff, as he thought Russia would not be able to supply it. He had little reaction to EDF's decision to sign on to South Stream but asked if ONV was leaving Nabucco. Ambassador Morningstar said the Austrians certainly had negative views on the project, but he noted that GDF was interested in Nabucco after it finished its Nord Stream purchase. Ambassador Morningstar reviewed the state of play with Azerbaijan and Turkey, noting that we tell both parties that if they don't reach an agreement, the Nabucco project might collapse. He emphasized the need for Eastern European countries to work as a block, both within the EU and in dealings with Russia. 9.(SBU) After a discussion of shale gas, increased LNG availability, and the importance of interconnections and increased LNG terminals, Ambassador Bartuska said that these developments would mean that the EU and others were not negotiating with Russia from a position of weakness. This might make it possible to accomplish more. Ambassador Morningstar agreed, noting that Russia had many issues, including Gazprom's difficulties, increased competition from LNG, weak demand, and its own need for foreign investment. 10.(SBU) Ambassador Bartuska said that the entry into force of the Lisbon Treaty would allow the creation of a European energy community core group,, perhaps consisting of France, Germany, and the Benelux countries. He said the Czech Republic was more like those countries than like its eastern neighbors on energy issues. Ambassador Morningstar noted the importance of getting Germany behind the idea of interconnections. In response to Bartuska's statements that the absence of a U.S. Ambassador was hurting Westinghouse's chances in a nuclear power project tender, Ambassador Morningstar said he would look into the status of the nominee. Secretary of State for Energy Marin -------------- 11.(SBU) Pedro Marin, the Secretary of State for Energy in the Ministry of Industry, Tourism, and Commerce, discussed on December 17 how EU handling of energy issues would be affected by the new Commission and by implementation of the MADRID 00001210 003.2 OF 005 Lisbon Treaty. He said it was likely that the Commission would be represented at the US-EU Energy Council by only the Energy Commissioner and not the Research Commissioner, as he thought the Energy Commissioner was assuming the energy research portfolio. Marin said his Energy secretariat would be responsible for the Energy Council's policy/regulation and energy security working groups and would share the technology/research group with the Innovation Ministry. He believed that Industry Minister Sebastian and Foreign Minister Moratinos would be Spain,s participants in a ministerial meeting during the Spanish presidency. 12.(SBU) Marin said that Spain would push during its presidency for more North African energy interconnections with Spain and Italy. It would also seek to increase intra-European connections. He emphasized the importance of the 2010-14 Energy Action Plan and a similar efficiency plan. The GOS would organize a meeting at which EU members would specify whether they expected to meet their 2020 renewable energy commitments. Spain would organize a meeting in Valencia on the Mediterranean Solar Plan (he did not say whether this was the Desertec project or a broader effort) and would seek to organize pilot projects. 13.(SBU) When asked if the cost of renewable energy was becoming a domestic political issue, Marin said that Spain,s wind subsidy, was not that high. While solar power was more expensive, there was less capacity installed, so the impact on overall prices was not that great. However, as capacity in renewables was growing, the GOS would need to be more careful. He noted that solar prices were dropping rapidly and thought that in three or four years new projects could be close to the cost of traditional technologies. He thought that by 2015-20, new wind, solar PV, and solar thermal electricity projects would be fully competitive if given the right incentives. Marin said Spain,s electricity prices were not higher than the average EU prices (though he did not mention that the GOS still regulates those prices, which do not cover the full costs to generating companies). He said he had more concern about biofuels, and he emphasized the importance of using renewable energy for transportation. He welcomed Ambassador Morningstar's suggestion that Spain discuss its experience in the Energy Council's policy/regulatory working group. Repsol CEO Brufau -------------- 14.(C) Repsol CEO Antonio Brufau hosted Ambassador Morningstar and Charge Chacon for a lunch with key company officials. Brufau described Repsol's interest in reducing its stake in a potential Iranian LNG project. He said the company had been stalling for a long time and that it was negotiating with Sinopec (Chinese) and Mittal (Indian) to reduce its stake. (Comment: Repsol officials have separately told us the company has a nondisclosure agreement at least with the Chinese company, so please treat the companies, names as confidential.) In response to a question as to whether the company should sell its stake to the other companies, Ambassador Morningstar indicated that, while he did not work on Iran issues, if it were his choice, he would continue stalling and lie low., Brufau asked rhetorically about what he saw as the lack of USG pressure on Chinese and Indian companies on investing in Iran. In response, Ambassador Morningstar explained the legislative state of play on Iran energy issues, including the October letter by 50 House members. 15.(SBU) In discussing more general energy issues, Brufau and other company officials emphasized the cost of renewable energy and its inability to solve all of Europe's energy security problems. Brufau said that Russia and Algeria would be the two most powerful countries on European energy issues for years to come, and he said they were currently fixing gas prices. The Repsol officials also discussed floating regasification terminals as the wave of the future. Repsol is in a venture with a U.S. company off the Argentine coast near Buenos Aires, and it plans its own terminal off the Brazilian coast. MADRID 00001210 004.2 OF 005 Foreign Ministry Economic/Energy DG Conde -------------- 16.(SBU) Foreign Ministry Director General for International Economic and Energy Issues Rafael Conde expressed appreciation for what he saw as the USG,s heightened sensitivity to the Mediterranean Ring and similar southern, energy issues. He said Spain, which was not dependent on Russian gas, still was interested in issues like Russia and Nabucco and thought that the rest of Europe should similarly be interested in southern energy issues. Ambassador Morningstar noted that while the USG was sensitive to southern energy issues, we had less ability to play a role than we did with Russia, Ukraine, or Turkey. Conde acknowledged that, but asked that when southern issues are raised, the USG listen with interest., 17.(C) Conde saw Russia as taking a slightly less aggressive approach towards energy issues. He agreed that Russia did not want another gas shutoff but that another one could come after January. He added that, regardless of whether or not Ukraine met its contractual responsibilities, the political responsibility for any shutoff would be Russia's. On South Stream, Ambassador Morningstar said it was unfortunate that EDF had signed on. He described the action as possibly a politically motivated stick in the eye, of Turkey and suggested that EDF might have done this because of other reasons it had for getting in Gazprom's good graces. 18.(U) Conde asked whether the USG was considering doing something with industry as part of the US-EU Energy Council. Ambassador Morningstar said that once the working group priorities had been set, we could work on dialogue with the companies through the TABD. Conde offered to set up a meeting with Spanish energy companies the next time Ambassador Morningstar visited Spain. Presidency Deputy NSA-Equivalent Hernando -------------- 19.(C) On December 18, Ambassador Morningstar and Charge Chacon met with Presidency International and Security Policy Director (deputy NSA-equivalent) Milagros Hernando and Presidency staffers. Hernando adviser Gabriel Cremades said Spain wanted to improve EU-Russia relations during its presidency, adding that the EU-Russia early warning agreement will help avoid another Ukraine gas crisis in the short term, though medium-term prospects depended on Ukraine's continued ability to pay Russia. Ambassador Morningstar said the USG was coordinating with Brussels its tough message to the Ukraine. He noted our desire to engage with Russia and welcomed Foreign Ministry Secretary General Navarro's idea that Spain could host an informal US-Russia-EU energy trilateral. Hernando said Russia was worried over the possibility of another conflict with Ukraine, and she feared the Ukrainians might find a conflict useful for electoral reasons. She emphasized that Spain did not want another Ukraine gas crisis at the start of its presidency. 20.(SBU) Hernando said that energy would be one of the main items in the US-EU summit. She noted Spain,s (comment: partial) dependence on Algerian, not Russian, gas, and she said energy would be one of the subjects of a summit with Algeria that would take place in the first week of January. Ambassador Morningstar said the USG wanted to work with the EU on energy security issues but that it could help with Southern Corridor countries much more than with Mediterranean Ring/Northern African ones. Hernando responded that it would be important to have USG complicity, in Europe's efforts with North Africa. In addition to the region's energy exporters, several North African countries were developing alternative energy projects. She described, without naming it, the Desertec solar project, saying we have to believe in its possibility., Ambassador Morningstar emphasized that the USG would follow the EU's lead and asked her to let the USG know where we could be helpful. 21.(C) Hernando expressed concern about Syrian president Assad's recent negative comments about the situation in Iraq MADRID 00001210 005.2 OF 005 and asked if Ambassador Morningstar shared this perception. Ambassador Morningstar stressed that he did not not work Iraq issues overall. S/EEE Senior Advisor Julia Nesheiwat said she thought, while the situation can be volatile and would take time, it would gradually improve. She noted progress on both security and governance issues. Hernando noted that the EU's atmosphere towards Turkish accession was growing colder by the day and doubted that more than one or two chapters of the acquis communautaire would be opened during Spain,s presidency. She said the Turks should present their regional role as a positive in its relations with the EU rather than as an alternative to the EU. Comment -------------- 22.(SBU) Ambassador Morningstar's Spanish interlocutors, both from the government and Repsol, welcomed the opportunity to discuss energy security issues with a senior official. Post was interested to see that Conde and Hernando each had readouts of Ambassador Morningstar's meeting with Navarro; such internal communication is not always a feature of the GOS, and it may be a good sign for communication during Spain's EU presidency. 23.(U) This message has been cleared by Ambassador Morningstar. CHACON