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RUEHPOD RUEHROV RUEHTM
DE RUEHBS #1440/01 2611429
ZNR UUUUU ZZH
R 171429Z SEP 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHKB/AMEMBASSY BAKU

UNCLAS SECTION 01 OF 03 BRUSSELS 001440 
 
SENSITIVE 
SIPDIS 
 
H FOR CODEL LUGAR 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET EU
SUBJECT: SENATOR LUGAR DISCUSSES ENERGY SECURITY WITH EU 
OFFICIALS 
 
¶1.  (SBU) Summary.  Senator Lugar met separately this week 
with EU Competition Commissioner Nellie Kroes and EU Energy 
Commissioner Andris Piebalgs.  The meeting with Commissioner 
Kroes focused on the EU's efforts to liberalize the internal 
market for natural gas and electricity.  Kroes provided the 
Senator with an overview of her efforts to bring competition 
to the European energy market and stressed the need to move 
away from national vertically integrated firms and towards a 
true common European market for energy.  The meeting with 
Commissioner Piebalgs focused on the external energy market, 
and the challenge of bringing energy security to Europe. 
While acknowledging the importance of seeking alternate 
supplies for gas, Piebalgs downplayed the threat posed by 
Russia's dominance of gas supply to Central Europe. 
Uncharacteristically, he seemed to backpedal on meeting 
European climate goals by suggesting that Central Europeans 
could gain energy security by building new coal-fired power 
plants to be offset by trading in Clean Development Mechanism 
(CDMs).  End Summary. 
 
----------------------------------- 
Discussions with Commissioner Kroes 
----------------------------------- 
¶2.  (SBU) The meeting with Commissioner Kroes focused on the 
EU's efforts to liberalize the internal market for natural 
gas and electricity.  Kroes provided the Senator with an 
overview of her efforts to bring competition to the European 
energy market and stressed the need to move away from 
national vertically integrated firms and towards a true 
common European market for energy.  She said that she is 
convinced of the ned to unbundle energy supply and energy 
transmission as a way to enhance completion in the energy 
market.  Kroes sees globalization as her biggest challenge at 
the moment, but believes globalization is a good thing.  She 
stressed the need to look forward and not pull back because 
of the financial crisis.  She praised U.S. policy on 
globalization and said and that the EU is learning from the 
U.S. model. 
 
¶3.  (SBU) Regarding the EU's attempt to build a common market 
for gas and electricity, Kroes said the biggest challenge is 
protectionism in member states.  She said the EU needs to 
communicate the benefits of a common market to the people of 
the EU to overcome member states' tendencies to protect 
national champions.   On the Third Country, or so called 
"Gazprom" clause, Kroes said this is something the EU had to 
tackle and that the Commission couldn't be naive and believe 
that the Russians wouldn't try to take advantage of the 
situation and snap-up unbundled transmission networks.  She 
said unbundling is not something that can be applied only to 
EU companies, it has to apply to all companies doing business 
in the EU.  She views Gazprpom as tough, very confident, and 
also very political. 
 
¶4.  (SBU) On the Nabucco pipeline project, Kroes said that 
unless the EU can reach a transit agreement with Turkey, 
there will be no Nabucco.  She appealed for U.S. support with 
Turkey to encourage them to look beyond their own domestic 
needs for natural gas.  Kroes believes the situation in 
Georgia may spur some in the EU to push harder for Nabucco 
and other options for diversifying gas supply.  Nonetheless, 
Kroes was not confident about finding a solution to enable 
Nabucco, stating "time is not on our side." 
 
-------------------------------------- 
Discussions with Commissioner Piebalgs 
-------------------------------------- 
¶5.  (SBU) The meeting with Commissioner Piebalgs focused on 
the external energy market, and the challenge of bringing 
energy security to Europe.  Piebalgs stressed the importance 
of the unbundling provisions in the Commission's proposed 
Third Energy Package.  He explained that one of the things 
that makes Europe vulnerable to supply disruptions is the 
fact that the gas and electricity grids in member states are 
not interconnected.  According to Piebalgs, vertically 
integrated energy companies have no incentive to invest in 
building cross-border interconnections when doing so would 
erode their ability to set prices within their captive 
markets.  He cited the example of the lack of interconnection 
between Spain and France, a subject of fruitless negotiations 
for the past 20 years.  Piebalgs believes that unbundling the 
transmission networks will spur the construction of 
cross-border interconnections bringing more completion to the 
market, increasing Europe's energy security, and ultimately 
resulting in lower prices for consumers. 
 
 
BRUSSELS 00001440  002 OF 003 
 
 
¶6.  (SBU) While acknowledging the importance of seeking 
alternate supplies for gas, Piebalgs downplayed the threat 
posed by Russia's dominance of gas supply to Central Europe. 
Piebalgs said the EU is continuing to look for alternative 
gas supplies from a variety of sources including the Caspian 
Sea region, Iraq, Nigeria (via the proposed Trans-Saharan 
pipeline), and increased supplies from Norway.  Piebalgs 
argued that the European market is currently well supplied 
with gas and there is no immediate need to seek new gas 
supplies, adding that he is receiving no industry pressure 
asking for new supplies.  He stated he was confident in 
Gazprom's ability to supply European needs going forward.  In 
fact, Piebalgs stated he is confident that the EU will be 
able to reduce its gas needs going forward through 
improvements in energy efficiency, conservation measures, and 
increasing the use of renewable energy.  He also views 
nuclear as a part of the mix for those member states who 
favor it.  Even if Russian gas production does decline, 
Piebalgs believes that Russia would cut back supplies to its 
own people before they would cut off gas supplies to paying 
customers in the West.  Uncharacteristically, Piebalgs seemed 
to backpedal on meeting European climate coals by suggesting 
that Central Europeans could gain energy security by building 
new coal-fired power plants to be offset by trading in Clean 
Development Mechanism (CDMs). 
 
¶7.  (SBU) On Nabucco, Piebalgs sees two major difficulties: 
transit through Turkey and securing sufficient gas supplies. 
He views Turkey as the biggest obstacle, with Turkey 
uncertain whether to demand all the gas for its own use, 
purchase all the gas and then resell it to Europe, or operate 
merely as a transit state.  Turkey is worried that the Azeris 
will apply higher prices to all the gas entering the 
pipeline, regardless of its destination. Piebalgs said that 
Turkey needs to understand that there are alternatives, such 
as White Stream, available for transit. On gas supply for 
Nabucco, Piebalgs sees the first challenge as convincing 
Azerbaijan to go ahead with development of its gas reserves. 
The second challenge is to find a way to reach an 
accommodation between Azerbaijan and Turkmenistan so that gas 
from Turkmenistan can flow west. 
 
¶8.  (SBU) One of the challenges Piebalgs sees going forward 
is that more and more of the world's oil and gas supply is 
becoming nationalized.  He is unsure whether the EU can 
continue to rely on commercial actors to work the market to 
obtain sufficient energy supplies or if there will come a 
time when the EU will have to start looking at 
inter-governmental negotiations for energy supplies.  Citing 
Russia, he asked "can we expect the market to change Russia?" 
 Piebalgs is not willing to give up on the market economy, 
but realizes there will be a lot of pressure by Russia 
against any competition.  Piebalgs indicated that he believes 
oil and oil prices are bigger problems for the EU's energy 
security than is natural gas.  Even with increased use of 
renewables for transit, the transit sector will remain 
dependent on oil supplies.  Gas can be substituted. 
 
------------------ 
Tri-Mission Dinner 
------------------ 
¶9.  (SBU) At a Tri-Mission dinner attended by representatives 
from the EU, NATO, and Government of Belgium, Senator Lugar 
stressed the importance of energy security and encouraged the 
EU to develop its energy policy.  External Affairs 
Commissioner Benita Ferrero-Waldner agreed on the importance 
of energy security and stressed the need to bring the Nabucco 
pipeline project forward.  Robert Cooper, Council Director 
General for External Affairs, also noted the importance of 
Nabucco but added that the EU should also focus on other 
efforts to diversify supply and other opportunities to 
enhance energy security through changes in EU energy policy. 
The EU's Nabucco Coordinator, Jozias Van Aartsen, agreed on 
the need to liberalize the European energy market.  On 
Georgia, Van Aartsen indicated that the EU could consider 
inviting Georgia into the Energy Community as a first step in 
the road towards EU membership.  Van Aartsen added that 
post-Georgia private companies are more skeptical about 
investing in Russia. 
 
¶10.  (SBU) Comment.  In general EU officials were receptive 
and supportive of U.S. initiatives to improve the EU's energy 
security.  Commissioner Piebalgs statements downplaying 
Europe's needs for natural gas and touting the reliability of 
Russia as a supplier were unexpected and out of character 
with previous statements from him.  The comment about using 
 
BRUSSELS 00001440  003 OF 003 
 
 
CDM's to let member states buy their way out of any gas 
supply shortfalls is especially troubling.  End Comment. 
 
Silverberg 
.