Identifier
Created
Classification
Origin
09STATE119995
2009-11-20 17:16:00
CONFIDENTIAL
Secretary of State
Cable title:  

ENERGY SECURITY BRIEFER FOR EU AMBASSADORS

Tags:  ECON EFIN ENRG EPET RS UP XG XH 
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VZCZCXRO8520
OO RUEHAG RUEHROV RUEHSL RUEHSR
DE RUEHC #9995/01 3241722
ZNY CCCCC ZZH
O 201716Z NOV 09 ZDS ZDS
FM SECSTATE WASHDC
TO EU MEMBER STATES COLLECTIVE IMMEDIATE
RUEHBS/USEU BRUSSELS IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 03 STATE 119995 

SENSITIVE
SIPDIS

E.O. 12958: DECL: 11/17/2019
TAGS: ECON EFIN ENRG EPET RS UP XG XH
SUBJECT: ENERGY SECURITY BRIEFER FOR EU AMBASSADORS

REF: COMING SEPTEL

STATE 00119995 001.2 OF 003


Classified By: NMCELDOWNEY

PLEASE ZFR STATE MRN 119995 IMI 119995 AND ASSOCIATED
MCNS. CABLE WAS SENT IN ERROR.

STATE 00119995 002 OF 003


networks and integration of electricity grids.
- Encourage sufficient natural gas storage capacity.

------
Russia
------

7. (C) Russia has the world,s largest reserves of natural
gas and will be a critical global energy supplier in the
foreseeable future; European dependence on Russian gas is
likely to grow in tandem with increasing demand. In addition,
most of Europe,s nuclear fuel comes from Russia. Russia,s
desire for influence over the former Soviet and Eastern Bloc
states and its position as an energy supplier give it the
ability and the motive to use gas supplies as a lever of
political influence, particularly in Central and Eastern
Europe.


8. (C) Russia,s extremely poor business climate, poor record
with foreign investors and problems with the rule of law and
corruption are weakening its energy sector. While questions
remain as to whether Russia will able to maintain its current
level of production due to insufficient investment in
existing fields and lack of progress in bringing large new
fields online, reduced European gas demand due to the
financial crisis and a global oversupply of gas has given
Russia some breathing room. Russia has indicated that it
intends to expand the involvement of foreign companies in its
strategic, hydrocarbon sector, but it has not yet offered
a specific model for cooperation that includes details on tax
incentives, ownership rights or minimum bids.


9. (C) While the European Commission, including President
Barroso, believes Russia has used energy as a political
weapon, and could continue to do so, some EU member states do
not agree. These member states support other Russian-backed
pipelines, such as Germany,s interest in the Nordstream
pipeline and Italy,s participation in the proposed South
Stream pipeline. The U.S. does not oppose any of these
pipelines as long as the projects will increase the volume of
gas flowing to Europe.


4. (C) U.S. goals in Russia:
A constructive and cooperative energy relationship with
Russia based on mutual benefit, transparency, and
internationally accepted market norms and principles.


5. (C) U.S. Strategy in Russia:
- Promote U.S. and European investment and access to energy
deposits in Russia, Europe, the Caspian and Central Asia.
- Promote the legal, investment, and regulatory frameworks in
producing countries to facilitate the conclusion of
international business agreements allowing the production,
sale, and transit of hydrocarbon resources.
- Reinvigorate U.S.-Russia dialogue on energy issues to
provide a strong base for mutually beneficial cooperation on
energy, including efficiency and renewable energy.
- Promote a non-adversarial relationship through dialogue,
making clear that we do not consider Eurasian Energy as a
"zero-sum game."
- Integrate Russia into European energy markets.
- Remain open to Russian participation in European and
Eurasian energy projects, while opposing Russian Domination
of same.

--------------------------------------------- ---
Transit Problems and the 2009 Ukraine Gas Crisis
--------------------------------------------- ---

C O N F I D E N T I A L SECTION 01 OF 03 STATE 119995

SENSITIVE
SIPDIS

E.O. 12958: DECL: 11/17/2019
TAGS: ECON EFIN ENRG EPET RS UP XG XH
SUBJECT: ENERGY SECURITY BRIEFER FOR EU AMBASSADORS

REF: COMING SEPTEL

STATE 00119995 001.2 OF 003


Classified By: NMCELDOWNEY

PLEASE ZFR STATE MRN 119995 IMI 119995 AND ASSOCIATED
MCNS. CABLE WAS SENT IN ERROR.

STATE 00119995 002 OF 003


networks and integration of electricity grids.
- Encourage sufficient natural gas storage capacity.

--------------
Russia
--------------

7. (C) Russia has the world,s largest reserves of natural
gas and will be a critical global energy supplier in the
foreseeable future; European dependence on Russian gas is
likely to grow in tandem with increasing demand. In addition,
most of Europe,s nuclear fuel comes from Russia. Russia,s
desire for influence over the former Soviet and Eastern Bloc
states and its position as an energy supplier give it the
ability and the motive to use gas supplies as a lever of
political influence, particularly in Central and Eastern
Europe.


8. (C) Russia,s extremely poor business climate, poor record
with foreign investors and problems with the rule of law and
corruption are weakening its energy sector. While questions
remain as to whether Russia will able to maintain its current
level of production due to insufficient investment in
existing fields and lack of progress in bringing large new
fields online, reduced European gas demand due to the
financial crisis and a global oversupply of gas has given
Russia some breathing room. Russia has indicated that it
intends to expand the involvement of foreign companies in its
strategic, hydrocarbon sector, but it has not yet offered
a specific model for cooperation that includes details on tax
incentives, ownership rights or minimum bids.


9. (C) While the European Commission, including President
Barroso, believes Russia has used energy as a political
weapon, and could continue to do so, some EU member states do
not agree. These member states support other Russian-backed
pipelines, such as Germany,s interest in the Nordstream
pipeline and Italy,s participation in the proposed South

Stream pipeline. The U.S. does not oppose any of these
pipelines as long as the projects will increase the volume of
gas flowing to Europe.


4. (C) U.S. goals in Russia:
A constructive and cooperative energy relationship with
Russia based on mutual benefit, transparency, and
internationally accepted market norms and principles.


5. (C) U.S. Strategy in Russia:
- Promote U.S. and European investment and access to energy
deposits in Russia, Europe, the Caspian and Central Asia.
- Promote the legal, investment, and regulatory frameworks in
producing countries to facilitate the conclusion of
international business agreements allowing the production,
sale, and transit of hydrocarbon resources.
- Reinvigorate U.S.-Russia dialogue on energy issues to
provide a strong base for mutually beneficial cooperation on
energy, including efficiency and renewable energy.
- Promote a non-adversarial relationship through dialogue,
making clear that we do not consider Eurasian Energy as a
"zero-sum game."
- Integrate Russia into European energy markets.
- Remain open to Russian participation in European and
Eurasian energy projects, while opposing Russian Domination
of same.

-------------- ---
Transit Problems and the 2009 Ukraine Gas Crisis
-------------- ---


1. (C) In January 2009, contractual disputes led Russia to
cut off natural gas shipments to Ukraine, as it had
previously done (albeit for a shorter period) in January

2006. This crisis hurt Russia,s reputation as a reliable
supplier, both in Western and Eastern Europe. Russian
officials know that another cutoff could cause further damage
Russia,s reputation, but they have indicated that Russia may
turn the gas off again in 2010 if Ukraine defaults on its gas
bills. As noted above, 80 percent of Russian gas intended for
Europe flows through Ukraine, holding countries dependent on
these transit lines for gas for residential heating hostage
both to Russia,s political maneuvering and Ukraine,s
internal political and fiscal problems. Europe increasingly
blames both Russia and Ukraine for the repeated disputes.


2. (C) Ukraine,s increasing fiscal problems and lack of
progress on reforms mandated under its IMF program make it
likely that Ukraine will not be able to pay its gas bills
this winter. The EU recently rebuffed a suggestion by
Russian Prime Minister Putin that the EU should help Ukraine
pay these bills. Vulnerable countries have increased storage
since last year, but the prospect of another gas supply
disruption will increase the pressure to find more secure

STATE 00119995 003 OF 003


transit for energy supplies to Europe.


3. (C) The January 2009 gas crisis demonstrated to EU member
states the inherent problems of the current system. As a
result, strong EU and U.S. support reinvigorated the proposed
Nabucco pipeline, which would deliver Caspian (and perhaps
Iraqi) gas to Europe through Turkey. An inter-governmental
agreement was signed in July by the Nabucco host governments
(Turkey, Romania, Austria, Bulgaria and Hungary). Nabucco is
part of the "Southern Corridor," which also includes a
proposed Turkey-Greece-Italy (TGI) pipeline. The European
Commission supports Nabucco and TGI (the EU has approved 200
million Euro for Nabucco and 100 million Euro for TGI).
Progress on the project is at a standstill until Turkey and
Azerbaijan complete a gas purchase and transit agreement, a
necessary step in making Nabucco a workable project. The
U.S. does not support one pipeline over another, but
encourages all negotiating parties to make progress, so that
these projects can move forward.


4. (C) Both Ukraine and Turkey have dysfunctional internal
energy markets that threaten their energy security and
economic development. Problems with corruption and the
business climate mean that both producers and consumers face
threats to their legitimate interests.


5. (C) U.S. Goals for Ukraine:
- Turkey and Ukraine as transparent and reliable transit
states for Russian, Caspian, and Middle Eastern energy to
European and world markets.


6. (C) U.S. Strategy for Ukraine:
- Work, both bilaterally and in cooperation with Europe, to
promote transparency and reform of the energy markets and to
improve the business climate to encourage investment in
domestic energy production.
- Promote finalization of a gas transit and purchase
agreement between Turkey and Azerbaijan.
- Work with the EU and the IMF to encourage necessary reforms
in Ukraine under the IMF stand-by arrangement.
- Work with the EU and bilaterally to encourage greater
conservation, efficiency and market reform both in Turkey and
Ukraine.
CLINTON