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RUEHPOD RUEHROV
DE RUEHBS #0534/01 1000524
ZNR UUUUU ZZH
R 090524Z APR 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMUC/EU CANDIDATE STATES COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHAH/AMEMBASSY ASHGABAT
RUEHKB/AMEMBASSY BAKU
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RUEHNT/AMEMBASSY TASHKENT
RUEHSI/AMEMBASSY TBILISI

UNCLAS SECTION 01 OF 03 BRUSSELS 000534 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET ETRD EU TU
SUBJECT: EU STRATEGY FOR THE SOUTHERN GAS CORRIDOR 
 
¶1.  (SBU) Summary.  In an April 7 meeting, EU Commission 
officials discussed the EU's strategy for the Southern Gas 
Corridor to bring gas from the Caspian region to Europe. 
Jozias Van Aartsen, the EU's Coordinator for the Southern Gas 
Corridor, believes the EU and Turkey need to agree to 
prioritize the Nabucco pipeline project over the other 
contenders.  Nabucco would supply Caspian gas into the 
Russian dominated market where it would be competition for 
Russian gas. The Commission reasons that there is enough gas 
in the Caspian region only for one pipeline to Europe to be 
built within the next 6-7 years.    Van Aartsen plans to 
lobby EU Commission President Barosso to make Nabucco the EU 
priority and encourage him to push Turkey to do the same when 
Barosso visits Turkey on April 11.  End Summary. 
 
¶2.  (SBU) On April 7 2008 EST Officers met with EU Commission 
officials to discuss the EU's strategy for the Southern Gas 
Corridor to bring gas from the Caspian and Middle East to 
Europe.  Brendan Devlin, assistant to Jozias Van Aartsen who 
is the EU's Coordinator for the Southern Gas Corridor, began 
by explaining the nature of Mr. Van Aartsen's role in 
determining EU policy and negotiating on behalf of the EU. 
Van Aartsen's role is as a facilitator who seeks to guide the 
negotiations and focus the EU's policy goals.  Devlin was 
keen to point out that Van Aartsen's statements do not 
necessarily reflect the views of the Commission.  Van Aartsen 
has a wide mandate to push development of the Southern 
Corridor, while at the same time giving the Commission a 
certain degree of deniability.  Van Aartsen can be 
contradicted by EU officials and to a certain degree is 
considered expendable.  However, a Commission official who 
attended the meeting indicated that the Commission is largely 
in line with Van Aartsen's views. 
 
Van Aartsen's Message to Barosso 
--------------------------------- 
¶2.  (SBU) Van Aartsen planned to brief EU Commission 
President Barosso on 8 April on how he thinks the EU should 
approach the Southern Corridor in advance of Barosso's 
planned meeting on 11 April with Turkish Prime Minister 
Erdogan.  According to Devlin, Van Aartsen will stress five 
points with Barosso: 
 
--  The intergovernmental agreement (IGA) for the Nabucco 
pipeline should be signed in an inter-governmental commission 
in The Hague in June. 
 
--  Turkey should commit to sending a Vice President for the 
IGA ceremony. 
 
--  Azerbaijan and Georgia must take part in the IGA. 
 
--  The EU should offer to cooperate with Turkey on the 
Turkish domestic gas market. 
 
--  The EU and Turkey should agree that Nabucco is the 
priority pipeline for both Europe and Turkey.  This means 
prioritizing Nabucco over other competing pipelines such as 
the Turkey-Greece-Italy (TGI) pipeline and the Trans-Adriatic 
pipeline (TAP). 
 
Two Separate Agreements Needed for Nabucco 
------------------------------------------ 
¶3.  (SBU) Devlin indicated that to accomplish Nabucco, two 
separate agreements would be needed.  The first step is the 
IGA for the entire route with all the countries involved 
(Azerbaijan, Georgia, Turkey, Bulgaria, Romania, Hungary, 
Austria.)  The IGA would cover taxes, right of ways, 
jurisdiction, etc., but not transmission. Secondly, Nabucco 
will need a transmission agreement between the EU and Turkey. 
 The IGA falls under the competence of the EU Member States 
involved, but transmission is an EU competence.  Such an 
EU-Turkey transmission agreement would cover all pipelines 
(Nabucco, TAP, TGI, etc.).  Devlin indicated that TGI broke 
EU rules when it included netback terms in the TGI pipeline 
IGA.  This should have been handled via an EU-Turkey 
agreement because transmission is an EU competence. 
 
¶4.  (SBU) Van Aartsen has been encouraging Turkey to sign on 
to the Energy Community Treaty so that Turkey can use the 
treaty for the transmission agreement.  Turkey is an observer 
of the Treaty, but not a signatory.  Devlin indicated the 
 
BRUSSELS 00000534  002 OF 003 
 
 
Energy Community Treaty basically applies EU rules and would 
require that transmission fees be directly related to costs. 
The alternative to using the treaty would be to negotiate an 
EU-Turkey bilateral transmission agreement from scratch.  Van 
Aartsen is arguing against the bilateral approach because 
negotiating such an agreement would inevitably bring up 
Turkish accession to the EU, Cyprus, and other political 
issues. One Member State could potentially block it.  Devlin 
pointed out that negotiating the Energy Community Treaty took 
six years and negotiating a bilateral EU-Turkey transmission 
treaty from scratch could equally delay Nabucco by six years 
or more (especially with Italy likely to delay so that they 
can get TGI first).  Van Aartsen has offered Turkey the 
option of deleting the parts of the Energy Community Treaty 
they don't like (coal fired power plant restrictions, targets 
on sulfur, etc.) as long as they keep the relevant sections 
on transit. 
 
¶5.  (SBU) Turkey has consistently said no to the Energy 
Community idea, but the reasons for their opposition may be 
misunderstanding of the treaty.  Devlin opined that at a 
working level the Turks do not see the opportunities the 
treaty would provide; only the perceived restrictions it 
would impose.  He believes the EU needs to educate working 
level Turkish authorities on the possibilities presented by 
the treaty and the art of "imaginative implementation" as 
practiced by the EU member states. 
 
Why Nabucco? 
------------ 
¶6.  (SBU) In response to EST officer's questions on why 
Nabucco should be the priority and not TGI or TAP or any of 
the other projects, Devlin responded that the Nabucco 
pipeline has the highest strategic importance for the EU. 
Nabucco is the biggest project (31 bcm/y) whereas the TGI is 
only 8 bcm/y.  Nabucco would supply Caspian gas into the 
Russian dominated market where it would be competition for 
Russian gas and provide an alternative supplier to countries 
which only have one choice - Russia.  A pipeline into Italy, 
where it would compete with Algerian gas, would not have the 
same strategic importance, he said.  TGI gas won't get out of 
the Italian market. The White Stream project would also be a 
viable project and has several advantages, but the project is 
not very far along and Nabucco is much further advanced.  Van 
Aartsen believes there is not enough gas for all the pipeline 
projects at once.  If TGI goes first it would suck up the gas 
for Nabucco and delay Nabucco by as much as five years. 
Nabucco would provide the strategic benefit of countering 
Russian market dominance.  And with Nabucco, gas could still 
flow to Italy via the hub in Baumgarten. 
 
Timing Matters 
-------------- 
¶7.  (SBU) Devlin stressed that timing is critical for the 
Nabucco project.  This summer a number of long-term gas 
contracts in member states will come up for renewal, notably 
in Hungary.  Negotiations for these supply contracts will be 
ongoing through the fall.  Devlin opined that if companies 
have a 99 percent guarantee of Nabucco gas and 100 percent 
guarantee of Russian gas they will opt for Russian gas.  He 
stressed that the supply gap is now.  He believes the member 
states need a viable alternative to Russian gas by the end of 
the year. If Nabucco doesn't get this batch of contracts 
they'll have to rebuild the supply contracts over time, which 
could delay Nabucco's startup until 2017.  To make Nabucco a 
viable alternative to Russian gas, Van Aartsen believes the 
EU needs to remove the risk from the equation.  As such, Van 
Aartsen is looking at possible European Investment Bank 
mechanisms to remove the risk for suppliers and consumers 
such as "Off take or Pay" guarantees for suppliers 
(Azerbaijan, Turkmenistan, etc.) and "Ship or Pay" guarantees 
for consumers. 
 
¶8.  (SBU) Van Aartsen is hoping to wrap up the EU-Turkey 
transmission agreement by September or November.  The EU 
wants to have a final investment decision on Nabucco during 
the French Presidency.  The EU also wants to get a Turkish 
agreement on Gaz de France (GDF) participation in Nabucco. 
Turkey originally said they excluded GDF on technical 
grounds, but later leaked that they did it for political 
reasons.  Van Aartsen believes French support for the project 
is crucial.  Van Aartsen is not planning to go to Azerbaijan 
 
BRUSSELS 00000534  003 OF 003 
 
 
or Turkmenistan until he has a "cash deal" he can lay on the 
table. His philosophy is he should hold back until he has a 
concrete deal to offer.  In Van Aartsen's opinion, according 
to Devlin, too many people have been going to Azerbaijan and 
Turkmenistan, saying "this is really important", and then 
going away again.  When Van Aartsen goes, he wants to be able 
offer a fixed route and an investment guarantee.  The next 
technical meeting with Turkey will be in Istanbul on April 
21, 2008. 
 
The USG Role 
------------ 
¶9.  (SBU) As for what the USG can do to support the EU's 
efforts Gas for Nabucco Devlin requested two things:  1.) 
Encourage  Georgia and Azerbaijan to participate in the 
discussions on transmission and 2.) Get Turkey to propose to 
prioritize Nabucco over the other options.  Devlin also 
suggested the US could play a role in educating Turkish 
officials on the concept of a commercial gas hub. The EU is 
not opposed to Turkey having a commercial gas hub, like an EU 
or a US commercial gas hub -- Not acting as an intermediary, 
just a market place, with an operator running things. 
Turkey, on the other hand, has been pushing the idea of the 
hub acting as an intermediary.  Devlin jokingly suggested 
flying the staff from Henry Hub to Turkey to teach them how a 
commercial hub works.  The EU is trying to get Turkey to give 
up the idea of being the "Ukraine of the South." 
 
¶10.  (SBU) Comment.  Van Aartsen's priorities are not 
necessarily the Commission's priorities, but they are 
probably close.  And Barroso could in the near term wind up 
adopting Van Aartsen's objectives. The Commission has trouble 
promoting one pipeline over another, because each of the 
proposed pipelines would benefit various member states.  End 
Comment. 
 
 
Murray 
.