VZCZCXRO9062
RR RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV RUEHTRO
DE RUEHC #3922/01 1412114
ZNY CCCCC ZZH
R 202105Z MAY 08
FM SECSTATE WASHDC
TO RUEHRO/AMEMBASSY ROME 6395
INFO EU MEMBER STATES COLLECTIVE
IRAN COLLECTIVE
UN SECURITY COUNCIL COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 1158
RUEHAK/AMEMBASSY ANKARA 4396
RUEHAH/AMEMBASSY ASHGABAT 9573
RUEHTA/AMEMBASSY ASTANA 9769
RUEHEK/AMEMBASSY BISHKEK 2989
RUEHDBU/AMEMBASSY DUSHANBE 0875
RUEHKV/AMEMBASSY KYIV 6412
RUEHMO/AMEMBASSY MOSCOW 1006
RUEHNT/AMEMBASSY TASHKENT 0150
RUEHTRO/AMEMBASSY TRIPOLI 0549
RUEAIIA/CIA WASHINGTON DC 3064
RHEHNSC/NSC WASHINGTON DC 0539
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/TREASURY DEPT WASHINGTON DC 9467
RUEHBS/USEU BRUSSELS
RUEHNO/USMISSION USNATO 4601
RUCNDT/USMISSION USUN NEW YORK 1843
RHEHAAA/WHITE HOUSE WASHINGTON DC 3337
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 STATE 053922 
 
SIPDIS 
 
E.O. 12958: DECL: 05/20/2018 
TAGS: ENRG EPET ETTC EFIN EUN LY AG TU RS IR IT

SUBJECT: U/S JEFFERY AND ITALIAN ENI CEO SCARONI DISCUSS 
IRAN AND RUSSIA/GAZPROM 
 
Classified By: U/S Reuben Jeffery III for reasons 1.4 (b) and (d) 


 
¶1. (C) Summary.  Under Secretary Reuben Jeffery met with 
Italian energy firm Eni's CEO Paolo Scaroni on May 6 in 
Washington.  Scaroni came to Washington seeking U.S. views on 
Eni's activities in Iran and to discuss its growing 
relationship with Russia's Gazprom.  U/S Jeffery pushed back 
hard when Scaroni asked how the USG would feel about Eni 
conducting a feasibility study for building a pipeline from 
Iran's South Pars fields to Turkey.  He emphasized such a 
project would hurt international efforts to bring Iran to the 
table over its nuclear program.  Regarding Gazprom, U/S 
Jeffery expressed concern about Europe's increasing 
dependence on Russian gas.  Scaroni explained that Europe 
needs Russia to meet its growing demand and that the proposed 
Eni-Gazprom South Stream pipeline will not kill other 
projects because there is enough demand for all.  End summary. 
 


---------------------- 
IRAN:  U/S JEFFERY OPPOSES ENI'S PROPOSED PIPELINE 
FEASIBILITY STUDY 
---------------------- 
 

¶2. (C) Scaroni began by outlining the company's 50-plus years 
of involvement in Iran.  He explained that Eni currently has 
$3 billion invested in Iran through two production-sharing 
agreements (""buy backs"") it won in 2001 with French oil 
company Total, and is only now entering the crucial repayment 
period.  (Comment:  The two Eni investments are located in 
Darkhovin phases 1/2 and South Pars 4/5.  End comment.)  As a 
result, Scaroni noted that while Eni does not plan to leave 
Iran, it is not planning any new investments.  He went on to 
say, however, that Eni is under ""lots of pressure"" to sign a 
new contract to help Iran exploit the South Pars 19/20/21 
fields and export the gas in liquefied form.  Scaroni 
stressed Eni is not ready for new projects in Iran, but is 
considering conducting a feasibility study for building a 
pipeline from South Pars to Turkey in order to bring gas to 
Europe.  Europe is ""between a rock and a hard place"" and Iran 
is the only alternative to Russia as a major source for gas 
supplies.  He said the National Iranian Oil Company (NIOC) 
had recently proposed the pipeline idea to Eni in Rome. 
 


¶3. (C) Under Secretary Jeffery was clear:  the U.S. would 
""discourage in the strongest possible terms"" this feasibility 
study or any new investment in Iran.  Observing the UNSC 
resolutions on Iran, he noted the international community has 
decided to make short-term commercial sacrifices to bring 
Iran to the table over its nuclear program.  Jeffery 
emphasized that the U.S. is already ""disappointed"" with 
Switzerland over Swiss firm EGL's gas deal signed with Iran 
earlier this year.  While the U.S. understands Europe's need 
for gas, the priority must be to increase the pressure on 
Iran to comply with the UN Security Council resolutions. 
 


¶4. (C) Scaroni countered that Eni's proposal was not an 
investment in the energy sector, just a no-obligation study. 
As he explained, Eni wants to have a commercial/business 
""edge"" for when the world makes peace with Iran and all of 
Eni's U.S competitors come into the country, as happened in 
Libya.  Scaroni asked directly if the feasibility study would 
be acceptable to the U.S.  His assistant added that, in Eni's 
analysis, the study did not violate the Iran Sanctions Act 
(ISA).  Scaroni reassured U/S Jeffery that Eni wants full 
transparency and would keep Washington informed every step of 
the way.  Downplaying Iran's overall importance to Eni, 
 
STATE 00053922  002 OF 003 
 
 
Scaroni commented that Eni is ""number one"" in the European 
gas market and could easily survive without Iran.  Scaroni 
also said the ""weakness"" on Iran of the recently departed 
Prodi government was a problem for Eni.  Eni wants clear 
guidance, and the Prodi government's silence made them 
""uncomfortable.""  Eni is waiting to see what the new 
Berlusconi government will do.  (Comment:  The Italian 
government owns 30 percent of Eni.  End comment.) 
 


¶5. (C) U/S Jeffery reiterated that the U.S. would strongly 
oppose this study as it would have the same detrimental 
effects as the Swiss EGL deal.  He warned that the Congress 
is looking to pass even tougher legislation against Iran. 
Deals like Eni's proposal would only magnify concerns on the 
Hill that the U.S. should be more aggressive in its approach, 
even if it meant working less in concert with the 
international community to stop Iran's nuclear program. 
 


---------------- 
U/S JEFFERY EXPRESSES CONCERN OVER DEPENDENCY ON RUSSIA; 
SCARONI SAYS EUROPE NEEDS RUSSIAN GAS 
----------------- 
 

¶6. (C) When asked by U/S Jeffery why Eni is pursuing the 
South Stream pipeline project with Gazprom, Scaroni replied 
bluntly that Europe needs Russian gas.  According to Eni, 
Europe will require 200-300 billion cubic meters (bcm) of 
additional gas over the next 10-15 years, and Russia will 
provide half of this increase.  South Stream is a worthy 
project because it is better to obtain gas directly from 
Russia and avoid future Russia-Ukraine disputes.  Besides, 
with Eni's experience building the Blue Stream pipeline with 
Gazprom, his company is the only one capable of constructing 
South Stream. 
 


¶7. (C) In response to U/S Jeffery's question about other 
pipelines, Scaroni replied that Eni did not get behind 
Nabucco because there is not enough gas to supply it.  He 
said Eni has nothing against Nabucco and denied that South 
Steam would damage the prospects for other projects because 
it will mostly replace Russian gas currently flowing through 
the Friendship Pipeline in Ukraine.  (He said Russia has an 
""obsession"" with bypassing Ukraine.)  Of the 30 bcm to flow 
through South Steam, only 10 bcm will be new supply.  There 
is enough future demand from Europe to fill Nabucco, South 
Stream, and more.  When asked about the cost of South Stream, 
Scaroni said the $15)20 billion price tag is half the cost 
of an LNG-equivalent chain.  He claimed the cost of a 5 bcm 
liquefaction facility was now about $5 billion, not including 
the cost of ships and regasification at the delivery end.  In 
addition, Scaroni observed, the LNG manufacturing and 
shipping process consumes 12 percent of any gas involved, 
delivering only 88 percent.  By contrast, a pipeline only 
consumes about 6 percent of its gas, making it more 
efficient. 
 


¶8. (C) U/S Jeffery said that the U.S. is concerned about 
Europe's growing dependency on Russia for energy.  Scaroni 
acknowledged these concerns, admitting:  ""The more I know the 
Russians, the more I get worried.""  But Eni is expanding a 
pipeline from Algeria, building one from Libya and seeking to 
site LNG facilities in Italy.  As to Gazprom as a commercial 
partner, Scaroni said Eni's relationship with them was 
""perfect.""  They are bureaucratic and take a long time to 
make decisions, but they are reliable.  Scaroni downplayed 
concerns about Eni's cooperation with Gazprom in North 
Africa.  When Eni bought a gas property in Russia under its 
strategic agreement with Gazprom, it had to offer to Gazprom 
assets outside Russia.  He also clarified that the asset swap 
is for a share in a Libyan oil field, not gas.  Regarding 
Algeria, Scaroni said Gazprom and the Algerians are talking 
 
STATE 00053922  003 OF 003 
 
 
all the time and do not need Eni's help to make a cartel if 
they so choose. 
 

¶9. (C) Comment:  This was a cordial but frank meeting. 
Scaroni attempted to draw a link between seeing a full return 
on its $3 billion investment in Iran and Eni's willingness to 
be responsive to Iranian requests, such as the feasibility 
study.  That said, it is clear Eni does not wish to wind up 
on the wrong side of USG sanctions.  At the same time, 
Scaroni was frank and open about Eni's intention to continue, 
or even expand, its business relationship with Gazprom since 
Russia will continue to be the primary source for increased 
European energy demand.  End comment. 
 
¶10. (U) Participants:  Eni (Italy) - CEO Paolo Scaroni, 
Leonardo Bellodi, and Enzo Viscusi.  USG - U/S Reuben 
Jeffery, EEB DAS Douglas Hengel, E staff Robert Winchester 
and Thomas Pierce, EUR/WE notetaker Kevin Opstrup. 
RICE 
"