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DE RUEHBS #1504/01 2701529
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FM USEU BRUSSELS
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INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHAH/AMEMBASSY ASHGABAT
RUEHKB/AMEMBASSY BAKU
RUEHSI/AMEMBASSY TBILISI

UNCLAS SECTION 01 OF 03 BRUSSELS 001504 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET EU
SUBJECT: DAS DOUG HENGEL'S MEETINGS WITH EU OFFICIALS 
 
¶1.  (SBU) Summary.  In September 11 meetings with EU 
officials visiting DAS Doug Hengel learned that energy 
security is getting more focused attention at high levels 
with many initiatives underway.  While the process going 
forward will be complex, the EU is focused on internal 
reforms (with competition rules that would limit Gazprom's 
ability to gobble up assets, although not cut them out 
completely), new energy security proposals in November, the 
Southern Corridor (with Van Aarsten going to Turkey soon for 
a heart-to-heart with Erdogan plus a gas security proposal) 
and perhaps a way to move gas to Bulgaria and north not based 
on Nabucco (a pipeline that brings gas from Russia). 
 
¶2.  (SBU) In the meetings, DAS Hengel pushed the need for 
high level European attention to Azerbaijan and Turkmenistan 
so they feel a strategic connection, cautioning that without 
this attention there may be no Southern Corridor.  EU 
officials acknowledge this need, but the only indication 
given of more attention was possible visit by Barroso to the 
region in early November.  The Europeans face many challenges 
going forward, including possible complications from 
disagreements on climate change proposals, and difficulties 
with Italy (they seem to be seen as more of a problem than 
Germany), and Turkey unless they become more reasonable.  End 
Summary. 
 
Energy Security and Competition Policy 
-------------------------------------- 
¶3.  (SBU) On September 11 DAS Hengel met with Ruud Boogert, 
Member of Competition Commissioner Kroe's Cabinet.  Boogert 
described the EU's efforts to form a single internal market 
for gas and electricity through the proposed "Third Energy 
Package".  He said the Commission's goal is to increase 
competition, achieve fair prices for consumers, and achieve 
solidarity in case of gas supply disruptions.  Boogert 
emphasized that October will be a very important month for 
the Third Energy Package with the Energy Council scheduled to 
meet mid-month.  If the October Council has a positive 
result, Boogert is hopeful an agreement can be reached with 
Parliament before the end of this year.  Boogert reiterated 
that the cutoff for action on this package is March 2009, 
after which the Parliament will be going into the election 
cycle. 
 
¶4.  (SBU) The Council reached general agreement on the 
Package in June, but there are still some things member 
States do not agree on.  Grouped together, these objections 
from member states could form a blocking minority.  Boogert 
said one of the issues being debated in the Council is the 
"Third Country Clause", commonly referred to as the "Gazprom 
Clause."  Boogert believes the text of this measure is 
evolving in an attempt by member states to level the playing 
field, both within the EU and externally.  The original 
clause was targeted externally, but the latest Council 
version attempts to make sure that an unbundled energy 
company in one member state cannot be acquired by an 
integrated energy company from another member state. 
 
¶5.  (SBU) Boogert said that the Commission believes more 
investment and interconnection of the gas system is very 
important for the EU's security of supply.  He believes that 
private investment will be available for this sector once the 
EU establishes a more unified cross-border regulatory 
environment.  Boogert feels increased investment will also 
depend on further consolidation in the markets.   He expects 
progress on the electricity portions of the Third Energy 
Package, as electricity is less controversial than gas. 
 
¶6.  (SBU) Asked about using Competition authorities to go 
after Russia's Gazprom, Boogert stressed that there is a very 
high burden of proof if the Competition Commissioner wants to 
go after a company because of its dominant position in the 
market.  He also stressed that member states still hedge EU 
and national interests, working together with the EU while at 
the same time making private deals with the Russians to 
insure their own energy supply.  According to Boogert, the 
only thing the Commission can do is act when Gazprom tries to 
take over a European interest and then it must be considered 
on a case by case basis. 
 
¶7.  (SBU) Boogert described Piebalgs interest in Nabucco as 
important.  One of the challenges Nabucco faces is finding a 
sufficient upstream gas supply.  The Commission has been 
talking with the European Investment Bank (EIB) about how to 
insure against the political risk for the pipeline, given 
developments in Georgia.  Boogert believes that the EIB may 
 
BRUSSELS 00001504  002 OF 003 
 
 
be willing to fulfill this role.  This would, however, need 
approval by the EU Council.  Boogert also pointed out that 
the EU views the lack of a transit deal with Turkey as the 
major stumbling block in the way of Nabucco. 
 
The Southern Corridor 
--------------------- 
¶8.  (SBU) In a meeting with Brendan Devlin, assistant to the 
EU's Nabucco Coordinator Jozias Van Aartsen, Devlin outlined 
current EU thinking on the Southern Corridor strategy.  Van 
Aartsen's focus remains on a transit agreement with Turkey. 
Devlin was not confident, however, that the EU is close to a 
breakthrough.  Over the summer the Commission had reached 
what it considered to be a working level agreement with the 
Turkish side, involving the &Caspian Development 
Corporation8 concept as a way to aggregate demand and insure 
sufficient quantities of gas for Turkey and Europe. 
According to Devlin, talks fell apart when the Turkish side 
re-demanded a 15 percent take-off provision and the Energy 
Ministry started talking about needing all Azeri gas for the 
domestic Turkish market. 
 
¶9.  (SBU) Devlin said the EU's will also consider the rival 
White Stream project that would bring Caspian gas to Europe 
via Ukraine.  Van Aartsen plans to make some public 
statements in late October about the importance and value of 
the White Stream project. 
 
¶10.  (SBU) Devlin also raised the possibility of using 
existing pipelines in Romania and Bulgaria to achieve the 
effect of Nabucco, without actually building Nabucco.  There 
are existing gas pipelines around the Black Sea in Romania 
and Bulgaria that currently transport Russian gas from north 
to south.  Devlin said he is investigating whether or not 
these pipelines could be reversed, but much depends on who 
owns these pipelines - a subject which Devlin described as 
"murky at best."  These pipelines could conceivably transport 
as much as 30 bcm of gas and could be used under a 
"back-haul" scheme.  Under this scenario, a European company 
could contract for Azeri gas through a swap arrangement with 
Turkey.  The Azeri gas would actually flow to Turkey, while 
the European customer would receive Russian gas originally 
destined for Turkey. 
 
¶11.  (SBU) Addressing the rumor that Energy Commissioner 
Piebalgs would be taking over Van Aartsen's role as Nabucco 
Coordinator, Devlin said that Van Aartsen would continue as 
Coordinator but that Piebalgs would oversee the process. 
Devlin described the relationship between the two as a "good 
cop, bad cop.  According to Devlin, Van Aartsen has agreed to 
make the harsh public statements in an attempt to get things 
moving, while Piebalgs would reassure the Turks about the 
importance of the Southern Corridor. 
 
¶12.  (SBU) Director General for Transportation and Energy 
(DG-TREN) Mathias Ruete confirmed that Piebalgs is looking to 
visit Ankara in November.  He was not optimistic that a deal 
could be reached this year, and said it may fall upon the 
Czech Presidency to engage the Turks during the new year. 
Ruete said that the French Presidency is seeking to devise a 
final agreement on the Third Energy Package during the 
October European Council meeting, which the Council would 
then present to the Parliament as a final offer.  He said the 
Dutch and the British understand the importance of the third 
country (Gazprom) clause but fear takeovers of their 
respective energy industries by other (European) energy 
companies that would remain vertically integrated.   He urged 
DAS Hengel to stress the importance of unbundling to Dutch 
and British officials.  On the Climate and Energy Package, he 
noted that the Poles (among others) have indicated that they 
cannot accept the green house gas (GHG) emissions reductions 
targets in the current draft, and the Commission was working 
on a solution.  He was pleased with the cooperation on 
biofuels, but DAS Hengel stressed the need for U.S. and EU 
experts to compare notes on sustainability criteria. 
 
¶13.  (SBU) In meetings with Matthew Baldwin and Steven 
Everts, advisors to Barroso and Solana respectively, DAS 
Hengel stressed the need for high-level EU engagement with 
Azeri and Turkmen leaders.  He said that Presidents Aliyev 
and Berdimuhamedow were vocal about the lack of high-level 
European engagement, without which, the Southern Corridor 
would be in jeopardy.  Baldwin stated that plans were being 
considered for Barroso to visit Baku and Ashgabat later this 
fall, although no commitment had been made.  He believes that 
Turkey will be more cooperative following the invasion of 
 
BRUSSELS 00001504  003 OF 003 
 
 
Georgia.  Everts said that Solana does not plan to travel to 
the region but rather planned to discuss energy security with 
the Kazakh and Turkmen Foreign Ministers in Paris at the 
September 17-18 EU-Central Asian Ministerial (see Paris 1777) 
and with the Azeri Foreign Minister in New York during UNGA. 
Everts said that Solana would likely attend the Nabucco 
Summit in Budapest, scheduled for January 26-27, 2009. 
.