DOE DEPUTY SECRETARY PONEMAN'S MEETING WITH

C O N F I D E N T I A L MOSCOW 001609

SIPDIS

DEPARTMENT ALSO FOR EUR, T, EUR/RUS, AND EUR/PRA
DOE FOR S-1:SCHU
DOE FOR S-2:DPONEMAN/ACOHN
DOE FOR PI: DSANDALOW/JELKIN/AHEGBURG/LEKIMOFF
DOE FOR RE
DOE FOR EE
DOE FOR NE
DOE FOR NA-20: KBAKER/SBLACK/HLOONEY

E.O. 12958: DECL: 06/10/2019
TAGS: ENRG KNNP PREL PTER RS
SUBJECT: DOE DEPUTY SECRETARY PONEMAN'S MEETING WITH
RUSSIAN ENERGY MINISTER SHMATKO ON BILATERAL ENERGY
COOPERATION

Classified By: Ambassador John R. Beyrle. Reasons 1.4(b),(c) and (d)


1. (C) SUMMARY. DOE Deputy Secretary Poneman and DOE Moscow
representatives met with Russian Federation Energy Minister
Sergey Shmatko on June 10, 2009 in Moscow to discuss future
cooperation in areas of mutual interest to include energy and
climate change. During the ninety-minute meeting, Shmatko
proposed four potential areas of cooperation based on joint
proposals he and DOE Secretary Chu had previously discussed
at the May 2009 G8 energy ministerial meeting in Rome. These
areas included energy efficiency, clean coal, smart grids,
and alternative fuels. Poneman responded that Shmatko,s
comments tracked closely with Secretary Chu,s impression of
their meeting in Rome, indicating several areas of mutual
interest. Poneman suggested that future cooperation could be
pursued under the proposed Inter-Governmental Commission,
specifically in the proposed Energy and Environment
sub-committee. Poneman also noted that the U.S. side had
worked hard in an attempt to bring the 123 Agreement to the
point where it could be resubmitted to Congress, but he was
not clear how long this opportunity might last. END SUMMARY.

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INTRODUCTORY REMARKS
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2. (C) Minister Shmatko was relaxed, well briefed, and
quickly and clearly outlined his agenda. He frequently
referenced a document listing several potential areas of
energy and climate change cooperation that Deputy Secretary
Poneman had delivered to RF Deputy Energy Minister Yanovskiy
earlier in the day. During his introductory remarks, Shmatko
noted that his background was in the nuclear industry and
that, while Rosatom has the lead in all Russian nuclear
matters, he and Rosatom General Director Sergey Kiriyenko
cooperate closely in all matters. Shmatko then spoke
positively about his Rome meeting with DOE Secretary Chu and
mentioned that he had just arrived in Moscow from a Baltic
Pipeline System II (BPS) inauguration ceremony in Bryansk,
Russia. Shmatko stated that the BPS was necessary as it was
Russia,s responsibility to diversify supplies and ensure the
energy needs of its neighbors. Shmatko chose not to elaborate
further on this subject.

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SHAMTKO,S PROPOSAL
--------------


3. (C) Turning to the way ahead, Shmatko proposed four areas
of potential DOE-RF Energy Ministry cooperation including
energy efficiency, clean coal, smart grids, and alternative
fuels. On energy efficiency, Shmatko said that the Russian
State Duma is considering a revolutionary law to incentivize
private investment in energy efficiency technologies and
added that he sees colossal potential for U.S. and Russian
cooperation on this front. On clean coal, Shmatko said that
Russia,s coal sector has structural problems which cannot be
solved without developing clean coal technology. On smart
grids, he noted that Russia has ideal conditions to deploy
smart grid technology due to its large land mass and obsolete
equipment. Regarding alternative fuels, Shmatko stated that
Russia has made unique research achievements, but needs new
technology to scale them up.


4. (C) Poneman responded that Shmatko,s comments tracked
closely with Secretary Chu,s impression of their meeting in
Rome, i.e. that their meetings were brief but substantive,
indicating several areas of mutual interest. He noted the
advanced work in the U.S. on biofuels, and suggested that
Russia could potentially host a carbon capture and storage
project as proposed by the G8. Poneman agreed that
significant potential exists for bilateral cooperation and
that the upcoming July 2009 POTUS visit to Moscow would
present an excellent opportunity to advance concrete results.


5. (C) Poneman further suggested that cooperation could be
pursued under the proposed Inter-Governmental Commission,
specifically in the proposed Energy and Environment
sub-committee. Responding to Shmatko,s reference to his
nuclear background at Atomstroiexport, Poneman also noted the


potential for nuclear power cooperation and the hope that the
U.S. and Russia could build a new international architecture
for the nuclear fuel cycle. Shmatko specifically asked if
Poneman was referring to the 123 Agreement and Poneman
replied that he was. Poneman added that the U.S. side had
worked hard in an attempt to bring the agreement to the point
where it could be resubmitted to Congress, but that it was

not clear how long this opportunity might last. Poneman
finished by asking the Minister what the two sides should do
in the next month before the presidents meet.

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FROM SCIENCE TO INDUSTRY
--------------


6. (C) Shmatko mentioned that he had read the DOE paper
given to Yanovskiy by Poneman earlier on June 10 (attached),
and that it meshed with his proposals. Shmatko then agreed to
do his homework and said he would respond to the DOE energy
and climate change cooperation paper suggesting possible
areas of cooperation, but he did not provide a timeline.
Shmatko proposed that both sides could potentially sign a
Memorandum of Understanding (MOU) outlining areas of
cooperation and setting forth clear goals and firm deadlines;
form a working group at the ministerial level to develop a
work plan within six months of the Presidential Summit; and
ensure that government-to-government efforts are designed in
a manner to support commercial involvement. Shmatko also
suggested that a &joint agency8 could be set up to carry
out the work plan. (Comment: Shmatko likely refers to a joint
agency structure along the lines of the recently established
Russian-German energy efficiency agency in Moscow. Shmatko
specifically mentioned it at the beginning of the meeting.
End Comment) Shmatko emphasized that he wanted to avoid
politicization of any future joint DOE/RF efforts and that he
desired to transition the results of such a venture into
commercial applications as soon as possible.


7. (C) Poneman replied that Shmatko had presented an
important proposal that would require serious consideration
and response by U.S. agencies and the White House, but
caveated his remark by saying he (Poneman) could not respond
formally during the meeting. Poneman closed by saying that
while the U.S. and Russia are broadening energy cooperation
to new areas that had arisen in the G8 Energy Ministerial,
the focus of the June 10 meeting on new issues was in no way
aimed at displacing longstanding channels of communication on
other energy issues such as nuclear and hydrocarbons. Poneman
noted that Special Envoy Morningstar would be traveling to
the Russian Federation during the week of June 15 and that
Ambassador Morningstar looked forward to meeting with Shmatko
at that time. Shmatko ended the meeting by saying that it
appeared both sides have similar positions.


8. (SBU) Deputy Secretary Poneman has cleared on this cable.

(SBU) ATTACHMENT

Potential Areas for Energy and Climate Change Cooperation
(non-paper)

Energy Efficiency. Share challenges and exchange best
policy practice in developing building codes and other
standards in the industrial and residential sectors, as well
as training for energy audits. Exchange knowledge on how to
improve energy conservation in federal buildings. Reach
beyond Washington and Moscow to engage local governments
through an Energy Efficiency Blueprint program between
&twinned8 municipal governments, whereby experts in each
locality pursue projects in parallel and exchange their
experience and lessons learned. Exchange views on how best to
advance energy efficiency through market practices.
Renewable Energy. Discuss ways to promote distributed
generation of power from renewable energy sources in remote
areas. Identify barriers to the development of wind power.
Share expertise on the development of second-generation
biofuels and explore options for developing sustainable woody
biomass utilization (e.g., harvesting forest brush and
debris) to provide carbon-neutral energy and decrease air
pollution. Explore potential cooperation on solar,


geothermal,, and/or tidal energy.
Clean Energy Innovations. Pursue joint R&D activities
between our scientific establishments. Partner with Russia on
&clean-coal8 technology. Cooperate on developing
technologies that will bridge the transition to a low-carbon
economy, including carbon capture and storage. Jointly commit
to active participation in the Carbon Sequestration
Leadership Forum. Discuss possibility that Russia could host
one of the 20 full-scale demonstration projects the G-8
intends to launch by 2010.
Energy Investment Environment. Assess ways to implement
the G-8,s St. Petersburg Energy Security Principles,
developed under Russian leadership, to create open and
transparent market conditions that attract private sector
investment and competition into the global energy sector,
including both the U.S. and Russian energy sectors.
Global Climate Change. Share information on the U.S.
government,s experience regulating SO2 and NOx through a cap
and trade program, as Russia has signaled its intention to
develop market mechanisms as part of its recent draft
&climate doctrine.8 Explore possibilities for joint work
to help developing countries meet mitigation and adaptation
challenges.
Gas Flaring Reduction. Seek ways to advance efforts to
reduce the volume of natural gas Russian oil producers flare
each year, as this is the source of as much as 10 percent of
Russia,s annual greenhouse-gas emissions and a significant
source of air pollution.
Oil and Gas System Efficiency. Expand current
bilateral efforts under the Methane to Markets Partnership
and advance technical cooperation to improve efficiency in
the oil and natural gas sectors to reduce leaks and losses of
methane and increase natural gas sales.
Coal Mine Methane Capture and Utilization. Advance
ongoing efforts and cooperation under the Methane to Markets
Partnership to recover and utilize coal mine methane as a
clean energy source
Power Sector Infrastructure. Pursue collaboration on
improving the efficiency of generation, transmission, and
distribution sector operations, including improvements to
power system stability and load management as well as
efficiency gains through the implementation new grid
technologies.
Liquefied Natural Gas (LNG). Discuss cooperation on the
commercial development of additional LNG supplies including
liquefaction facilities in Russia, particularly in the
northern European portions of Russia, as one tool to pursue
mutual goals in energy security and to increase market
flexibility and diversity.
Arctic Cooperation. Jointly discuss ways to preserve
the environment and protect indigenous populations while
pursuing appropriate development in the Far North, in
coordination with our joint membership and growing
cooperation in the Arctic Council.
Data Exchange. Periodically exchange analysis and
projections of energy and electricity demand, production, and
pricing.



BEYRLE