VZCZCXRO4558
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHTC #0589/01 1931016
ZNR UUUUU ZZH
P 111016Z JUL 08
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1725
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 1795
RUEHNY/AMEMBASSY OSLO 5020
RUEHAT/AMCONSUL AMSTERDAM 3987
RUEHGA/AMCONSUL CALGARY 0007
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 03 THE HAGUE 000589 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/ESC/IEC (SGALLOGLY), EUR/WE (TSMITH) 
 
E.O. 12958: N/A 
TAGS: ENRG EPET NL
SUBJECT: DUTCH PARTICIPATION IN GAZPROM'S NORD STREAM 
PIPELINE 
 
REF: A. THE HAGUE 365 
     ¶B. 06 THE HAGUE 1999 
 
THE HAGUE 00000589  001.2 OF 003 
 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE HANDLE ACCORDINGLY 
 
¶1. (SBU) SUMMARY: Gasunie CEO Marcel Kramer told us that 
the Nord Stream natural gas pipeline enhances European 
energy security.  GONL-owned Gasunie has a 9 percent stake 
in Nord Stream.  Kramer described his positive experience 
partnering with Gazprom, Nord Stream's controlling 
shareholder.  He said Gazprom is motivated by business 
logic rather than political goals.  Kramer implied that 
Gasunie would not have taken a stake in Nord Stream if the 
project were not environmentally sound and a net plus for 
Europe's energy security.  END SUMMARY. 
 
------------------------- 
GASUNIE'S CHARM OFFENSIVE 
------------------------- 
 
¶2. (SBU) Dutch gas transportation company Gasunie hosted 
ambassadors from Poland, Denmark, and Finland, Charge and 
Econoff at its Groningen headquarters on June 27 (the 
ambassadors of Estonia, Latvia, Lithuania, and Sweden 
attended a similar event in February 2008).  Gasunie 
arranged these briefings to assuage concerns from countries 
that the Nord Stream pipeline, which will transport Russian 
natural gas to Germany via the Baltic Sea, will bypass. 
(Note: Gasunie, founded in 1963 after the discovery of 
natural gas in the Netherlands, split into two companies in 
2005 as part of the Dutch energy sector's aggressive 
"unbundling."  The gas trading arm, Gasterra, was spun off 
while the Dutch Government bought out Shell's and Exxon's 
combined 50 percent stake in Gasunie, giving it full 
ownership over the gas pipeline business.  Gasunie's 
management and the GONL maintain an arms-length 
relationship, CEO Kramer claimed.  He went on to report 
that Finance Minister Wouter Bos, representing the GONL at 
Gasunie's June 25 annual meeting, said the company should 
act as if it is publicly traded and earn a "reasonable 
return of around 7 percent" for the government.  Post has 
e-mailed Gasunie presentation materials to EUR/WE.  End 
note.) 
 
--------------------------------------------- -- 
FILLING EUROPE'S GROWING NATURAL GAS SUPPLY GAP 
--------------------------------------------- -- 
 
¶3. (SBU) Kramer described Europe's challenge of ensuring 
adequate gas supply and competition despite falling 
domestic production rates.  (Note: Almost 20 percent of gas 
consumed in Europe comes from the Netherlands, where 
production is in long-term decline.  End note.)  He said 
Gasunie's strategic target of connecting to diverse 
international sources of natural gas (ref A) will help 
address this challenge.  He noted the urgency of attracting 
new gas flows to the Netherlands because gas from Norway 
"was not coming as quickly as hoped."  Kramer predicted 
that Russia will inevitably increase its share of Europe's 
gas market, although mostly in Germany and Eastern Europe 
as "Russian gas becomes less competitive as it moves 
west."  Kramer pointed to Russia's own growing energy 
consumption and corresponding rise in domestic gas prices 
as key factors going forward.  Kramer predicted that by 
2015 the economics will have changed so much (i.e., the 
price of gas in Europe less transport costs versus the 
price in Russia) that Russian gas producers will keep more 
gas at home.  He said that in recent meetings Gazprom 
senior executives conceded that they needed to "get their 
upstream investment into shape" to boost supply to meet 
both domestic and European demand. 
 
---------------------------------- 
INSIGHTS FROM WORKING WITH GAZPROM 
---------------------------------- 
 
¶4. (SBU) Kramer said Gasunie's involvement in the Nord 
Stream pipeline "yielded additional insights" into Gazprom 
and the Russian energy sector.  He said Gasunie had taken 
Gazprom seriously since the 1990s, which positioned it well 
to beat out "three or four other European countries" to 
become the fourth shareholder in Nord Stream.  Kramer said 
that Gasunie evaluated the deal to acquire a 9 percent 
 
THE HAGUE 00000589  002.2 OF 003 
 
 
stake as it would any other major investment.  He added 
that the GONL gave "positive feedback" to the deal as a way 
of retaining a "significant role" for the Netherlands in 
Europe's energy equation.  (Note: Gasunie also bought BEB 
Transport -- the gas transport division of a German 
Shell/Exxon joint venture -- in November 2007.  BEB's 
pipelines tie into Gasunie's existing network, linking the 
Netherlands to northern Germany, Berlin, Denmark, and the 
landing points for Norwegian gas.  End note.)  Kramer said 
that although cost estimates for constructing the Nord 
Stream pipeline have risen sharply, the latest figure of 
EUR 7 billion (USD 11.1 billion) "seems reasonable".  He 
added that delays in Norway's pipeline infrastructure 
investment have freed up pipe-laying capacity and reduced 
the costs. 
 
¶5. (SBU) Gasunie's participation in Nord Stream was 
announced during Prime Minister Balkenende's November 2007 
visit to Russia (ref B).  Kramer described the negotiations 
with Gazprom, which lasted from June 2006 to June 2008, as 
"businesslike" with "financially skillful, competent 
counterparts" who approached the situation with a purely 
corporate Gazprom perspective.  Kramer mentioned two 
difficult negotiating points.  First, how to craft voting 
rules for Gasunie as the smallest shareholder.  For 
example, Gasunie insisted on unanimity among the four 
shareholders (Gazprom, e.ON Ruhrgas, BASF-owned 
Wintershall, and Gasunie) on the pipeline's environmental 
aspects.  Second, convincing Gasunie's other partners in 
the BBL pipeline to allow Gazprom an option to purchase a 
minority stake.  (Note: The Bacton Balgzand Line (BBL), 
operational since 2006, transports natural gas from the 
Netherlands to the UK.  Gasunie has a 60 percent share, 
Belgian gas transport company Fluxys and German energy 
giant e.ON Ruhrgas each have 20 percent shares.  If Gazprom 
exercises its option to buy a 9 percent stake in BBL, the 
shares will come from Gasunie, leaving it with a majority 
51 percent.  According to Kramer, Gazprom has not yet 
decided whether to exercise the option.  Gasunie had to 
explain to Gazprom that BBL meets EU rules, meaning that 
the shareholders only own and operate the pipeline and 
cannot dictate who runs gas through it.  A Gazprom stake in 
BBL would not automatically make it a conduit for Gazprom 
product.  End note.) 
 
¶6. (SBU) Kramer shared further impressions of working with 
Gazprom.  He called the first Nord Stream board meeting he 
attended "normal" -- they made decisions on procuring 
pipes, coatings, and pipe-laying barges.  Kramer noted that 
Gazprom initially treated as the pipeline's construction as 
a purely technical challenge.  He said they had little 
awareness of the need to speak to people along the pipeline 
route, perhaps in the "Russian tradition," but their 
thinking has since "matured significantly."  He trumpeted 
Nord Stream's efforts to remedy its public relations 
problems and listen to concerns seriously, despite "some 
along the pipeline's route using the project for political 
purposes."  For example, he said Nord Stream's 
environmental impact studies measure up to domestic Dutch 
standards but the consortium first went about them in a 
"technocratic" way, consulting only with each country's 
regulators.  Now, according to Kramer, Gazprom understands 
the need to discuss the environmental issues openly in 
order to build public trust.  Kramer said that through this 
experience Russian engineers have "become acquainted with a 
different way approaching the environment," and he has also 
seen a "new generation of managers come into Gazprom."  In 
that spirit, Gasunie and Gazprom have teamed up with others 
to establish the Energy Delta Institute in the 
Netherlands.  Gasunie is trying to attract more foreign 
(particularly Eastern European) students to the Institute, 
which offers courses on natural gas operational and 
regulatory subjects.  CDA said post would put Gasunie in 
touch with the Marshall Center in Garmisch, Germany, given 
its long track record providing training programs for 
Eastern European and other officials. 
 
------- 
COMMENT 
------- 
 
¶7. (SBU) Gasunie is trying hard to dispel fears that Nord 
Stream is a tool to strengthen Russia's grip on Europe's 
 
THE HAGUE 00000589  003.2 OF 003 
 
 
energy security.  CEO Kramer portrayed the project as 
ambitious but realistic and Gazprom as driven by commercial 
concerns, not political ones -- although some of his 
comments about Gazprom sounded optimistic.  Gasunie is 
smart to leverage the Dutch reputation as transparent, 
trustworthy business people to burnish Nord Stream's image, 
but Gasunie will not reassure Nord Stream's detractors on 
its own.  END COMMENT. 
 
Gallagher