EURASIAN ENERGY POLICY: PRESS GUIDANCE

UNCLAS SECTION 01 OF 04 STATE 107194 SENSITIVE SIPDIS C O R R E C T E D C O P Y (ADDING SENSITIVE CAPTION) E.O. 12958: N/A TAGS: ENRG EPET PPD SUBJECT: EURASIAN ENERGY POLICY: PRESS GUIDANCE STATE 00107194 001.4 OF 004 ¶1. (SBU) The purpose of this cable is to provide Embassies with talking points and general press guidance that they can draw on as needed regarding our Eurasian Energy policy. We continue to believe that diversity ) of energy suppliers, transportation routes and energy sources ) is the key to energy security. This belief guides our work to encourage new oil and gas production in Russia, Kazakhstan, Turkmenistan and Azerbaijan. We continue to work with producers in Central Asia and the Caucasus to find new routes to market including new routes for oil and natural gas to be delivered to Europe and markets beyond. We call this route the &Southern Corridor8 which includes the Nabucco and Turkey-Greece Italy Interconnector (TGI) pipelines for natural gas. We are also working with some of the countries of the region to increase energy efficiency and to develop new clean, energy alternatives. ¶2. (SBU) There are two major areas in which our policy differs from the previous Administration. The first is our emphasis on engagement; we recognize that we cannot achieve our energy goals alone. We need the help and support of our allies and we must open a dialogue on energy security issues, even when we don,t agree. This new approach is most apparent in our relationship with Russia, where the Administration has set a new, positive tone, but it also applies to Europe and others. The second area of difference relates to the scope of our Eurasian energy policy. New resources and new pipelines alone are not enough to increase European or global energy security. We must also support efforts to increase market competition, to build new LNG facilities, gas and power interconnections, and gas storage capacity, to explore opportunities to develop unconventional gas, and to create a single, integrated European market for energy. ¶3. (SBU) Below are provided cleared responses for Posts, use as needed regarding what we believe might be the &difficult8 questions on Eurasian energy. You can find this guidance at http://eeb.e.state.sbu. We will work to keep it updated. We welcome your comments and requests for additional guidance as needed. ¶4. (U) Begin guidance in the format of questions and answers. --Why is the U.S. focused on European energy security? Isn,t this a problem for Europe to solve? A: Taking goods and services together, the EU and the U.S. account for the largest bilateral trade relationship in the world. The significant amount of bilateral trade and investment illustrates the high degree of interdependence of the two economies. We have an interest in maintaining this level of commercial and economic activity with Europe and therefore have an interest in an economically strong Europe. In addition, Europe is our partner on any number of global issues. Of course, Europe is composed of many different states and energy security is a more pressing issue for some than for others. And, it is true that we can,t be more European than the Europeans. However, we do see that Europe is taking steps to enhance its energy security. Since the January 2009 gas cut-off to Europe, the European Commission has increased funding for electricity and gas interconnections, gas storage facilities and alternative energy. --What is the U.S. policy on Russian gas for Nabucco? A: According to the commercial structure of the Nabucco consortium, third parties have the right to bid on purchasing up to 50% of the total capacity of the pipeline. Third parties are not entitled to ownership or managerial stakes in the consortium. Whether or not Russian gas will be included in Nabucco is a decision for the consortium members, as well STATE 00107194 002.4 OF 004 as for Russia, which to date has not stated whether or not it would consider participating. If Russian gas is included in the Nabucco project, doesn,t that undermine the objective, which is to encourage the diversification of suppliers to Europe (i.e., not Russia) and means of transport for Caspian gas (i.e., not Russian pipelines). The Nabucco pipeline would be an integral part of a Southern Corridor to transport Caspian (and potentially Iraqi) gas to Europe. It would represent a diversification of sources for the European Union and a diversification of export routes for Caspian and Middle Eastern producers. Some Russian gas shipped through the pipeline would not fundamentally alter that design, since it still would carry primarily Caspian and/or Iraqi gas. --Will there be another Russian-Ukraine gas cut off/dispute this winter? A: We have been working closely with Ukraine, Russia and the EU, as well as the international financial institutions, to develop strategies to avoid another crisis. We encourage Russia, Ukraine, and Europe to work together on gas transit issues and make every effort possible to avoid another crisis. We support efforts by the EU and international financial institutions to help Ukraine reform its energy sector and modernize its gas transit infrastructure. We will continue our discussions on this issue with our partners in the EU and at international financial institutions, as well within the context of our Strategic Partnership Commission with Ukraine. --What will the US and Russia discuss about energy issues? A: The U.S. and Russia cooperate on a number of energy issues, and are looking for more ways to deepen this cooperation. As President Obama said at the U.S.-Russia Summit in Moscow in July, &the United States and Russia have more in common than they have differences.8 The White House has announced a new bi-national Presidential Commission that will cover a host of important bilateral issues. In particular, the bi-national commission will broadly cover three energy topics: energy efficiency; clean energy technologies; and energy security. We are working to have an open dialogue with Russia and identify areas of mutual interest and benefit. On some issues, we may disagree, but that doesn,t mean we shouldn,t have a discussion. In any event, we will continue to strongly support Europe,s initiative to diversify its energy sources and routes. Russia is and will continue to be a major player in energy markets. It is in all of our interests for Russia to increase production of oil and gas resources. That is not inconsistent with seeking diversification or competition. We will continue to strongly support Europe,s initiative to diversify its energy sources and routes. Another potential area for cooperation is on energy efficiency and savings. Increasing energy development and production cannot achieve energy security alone; we must think about conservation too. Increasing energy efficiency helps producers and consumers, allows for a better allocation of scarce resources, and is also integral to our overall climate goals. --Does the U.S. support the Russian-backed projects Nord Stream and South Stream? A: The U.S. neither supports nor opposes either of these pipelines. In general, U.S. policy is to support transparent and commercially-viable pipeline projects that meet environmental safety standards. On Nord Stream, we understand that some European countries view the project as beneficial to their energy security while others have raised environmental and other concerns about the project. These concerns should be addressed before the pipeline is built. STATE 00107194 003.4 OF 004 South Stream is still in the conceptual phase. There are some major questions about its technical and commercial viability. --Where will the gas come from for Nabucco? A: There are a several possibilities for gas supply and clearly this should be the focus of the work of the Nabucco consortium in this next phase of project development. Exploration of Azerbaijan,s Shah Deniz field is continuing and we have heard from the companies developing the field that the resource base looks promising, with potential production of up to 15-16 BCM. In addition, there are several other offshore fields that could provide additional production over the longer term. Nonetheless, as a practical matter, Azerbaijani gas is necessary but not sufficient to launch Nabucco. There are other potential suppliers that could supply gas for the project. Turkmen President Berdimuhamedov recently stated his desire for Turkmenistan to participate in Nabucco. We are encouraging the Turkmen government to work cooperatively with international oil companies, which have the capital and expertise to help raise the level of gas production for export. We are hopeful that Azerbaijan,s President Aliyev and Turkmen President Berdimuhamedov will be able to come to an agreement on shipping Turkmen gas to the West. Iraq is another potential supplier. At the July 13 signing ceremony for the Nabucco IGA, Prime Minister Maliki said Iraq would like to supply up to 15 BCM to Nabucco. However, here are many practical questions about how and when Iraqi gas would be available for Nabucco. It,s not clear how much gas Iraq needs for domestic consumption and in what timeframe. If the gas came from northern Iraq, it would require an agreement between the Kurdish government and the central government in order to be exported. If the gas came from the south, in the form of associated gas, significant new investment in exploration and production and transportation infrastructure would be needed. Western Iraq could also provide gas for Nabucco, but this would also require extensive investment and development. The Nabucco consortium is now talking about the project beginning operation in 2014, five years from now. That is something to keep in mind when people talk about Iraqi gas not being available until 2016 or about the long time it will take to get Turkmen gas going westward. --Is Nabucco anti-Russian? A: Nabucco is not anti-Russian. Nabucco is designed to provide access to diverse energy sources and competition for the Central and Southeastern European nations. It simply mitigates risk and that is good policy. Diversification makes good economic sense. More broadly, our Eurasia Energy Policy is not anti-Russian and we do not view our respective policies on energy in this region as a &zero-sum game.8 --What is the U.S. policy on Iranian gas for Nabucco? Our position on Iran has not changed. We oppose Iranian gas in the Southern Corridor at this time. Although the Administration is committed to engagement with Iran, outstanding issues, such as the nuclear issue, must be resolved before we can think about Iran as a participant in any Southern Corridor projects. --Does the U.S. prefer Nabucco over the Turkey-Greece-Italy pipeline (TGI) or the Trans-Adriatic pipeline (TAP)? A: We don,t favor one pipeline over another. What is important is to build a Southern Corridor that will connect the resources of the Caspian with growing markets in Turkey and Europe. Nabucco is a strategically important project. It is a larger pipeline that would supply more gas to Europe once that gas is available. The July 13 signing ceremony of the Intergovernmental Agreement (IGA) gave it new impetus. However, there are still many issues that need to be resolved before the project becomes reality. The Turkey-Greece-Italy pipeline project is somewhat smaller but would supply gas to certain areas in Europe. In fact, Bulgaria and Greece announced a deal to build an interconnector so that Bulgaria could benefit from TGI. This is also a very important STATE 00107194 004.4 OF 004 project. We understand TAP plans to include Iranian gas and as a matter of policy and law, we do not support the development and export of Iranian gas at this time. --Do we support the Caspian Development Corporation (CDC)? A: The Caspian Development Corporation (CDC) is a concept developed jointly by Turkey and the EC. The idea is to bundle the purchasing power of private sector gas companies, so that Turkmenistan can negotiate with the one company (consortium leader) for a large gas sales-purchase agreement, rather than negotiate with several companies for smaller deals. In essence, CDC is designed to make it easier for Turkmenistan to ship gas west. The World Bank is currently managing a feasibility study of the concept and may have some suggestions on the structure and operation of CDC by the end of the year. We applaud EC efforts to promote Europe,s energy security through the diversification of energy supplies and support efforts that will encourage Turkmenistan and other Caspian countries to develop their gas reserves and send them to Europe through a Southern Corridor. For that reason, we support the feasibility study that is now underway. We also want to ensure that free market forces and the private sector are encouraged as the primary means through which gas is produced and transported. We also want to make sure CDC doesn,t disadvantage U.S. companies who want to do business in Turkmenistan. --Does the United States support development of Trans-Caspian pipelines? A: The United States believes that diversification of routes and market enhances the economic and energy security of both producer and consumer countries. We support the development of commercially viable pipelines and we believe that a Trans-Caspian pipeline would offer new options for exporters and better access to world markets for Caspian producers. The development of Trans-Caspian pipelines has been under discussion for years. However, delimitation issues and competition from existing pipelines have kept the idea on the drawing board. Currently oil and gas exports from Kazakhstan and Turkmenistan primarily transit Russia. Kazakhstan exports some oil to Azerbaijan, China and Iran. Turkmenistan exports some natural gas to Iran and probably will being shipping gas to China in late 2009 or early 2010. Kazakhstan is developing a new tanker-based oil transport network to increase export across the Caspian to Azerbaijan and beyond. Our Trade and Development Agency (TDA) is funding a study of Azerbaijani-Kazakhstan Trans-Caspian oil and gas transport pipelines. --Does the U.S. support the export of Turkmen gas to China? A: The export of Turkmen gas to China is a logical, market-driven development. It serves to diversify Turkmenistan,s customer base for its natural gas resources and serves Chinese energy needs. Turkmenistan also is looking to sell gas to European markets though a Southern Corridor, which we continue to encourage. China is becoming an increasingly important player in Central Asia. China and Kazakhstan have completed an oil pipeline which now transports over 200,000 bpd of crude from eastern Kazakhstan to western China. The PRC is building a pipeline to bring up to 40 billion cubic meters per year of natural gas from Turkmenistan and possibly Uzbekistan and Kazakhstan to western China. That pipeline, which should become operational in 2010, will greatly alter natural gas markets in Central Asia by allowing Central Asian suppliers to diversify their export routes. CLINTON