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DE RUEHBS #1579/01 2841548
ZNR UUUUU ZZH
R 101548Z OCT 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHAH/AMEMBASSY ASHGABAT
RUEHTA/AMEMBASSY ASTANA
RUEHKB/AMEMBASSY BAKU
RUEHSI/AMEMBASSY TBILISI

UNCLAS SECTION 01 OF 03 BRUSSELS 001579 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET EU
SUBJECT: COMPETING PIPELINES 
 
¶1.  (SBU) On September 25 Eurogas, an industrial association 
of 44 gas companies and federations, held its annual policy 
conference in Brussels.  One of the sessions, "Key Challenges 
and Opportunities in the Development of Major 
Infrastructures," was comprised of presentations on the major 
East-West infrastructure projects: Nabucco, Nord Stream, the 
Trans-Adriatic Pipeline (TAP), South Stream, and the 
Turkey-Greece-Italy Interconnector (TGI).  Most of the 
presentations contained only general information about the 
respective projects.  However, TGI declared that there is not 
enough gas in the Caspian region to support all of the 
proposals, whereas Nabucco mentioned its interests in Russian 
and Iranian gas. 
 
Nabucco 
------- 
¶2.  (SBU) Martin Schwarzbichler, Head of Business Analysis 
for Austrian OMV's Gas unit stressed there is large potential 
for development in the Caspian and Middle East regions - 
Nabucco's targeted source.  He estimated 84.49 trillion cubic 
meters (tcm) exist in these two regions and an additional 
47.65 tcm in Russia alone.  Nabucco Gas Pipeline, 
International is a conglomerate of OMV (Austria), MOL 
(Hungary), Transgaz (Romania), Bulgargaz (Bulgaria), Botas 
(Turkey) and RWE (Germany) and is divided into national 
subsidiaries in Austria, Hungary, Romania, Bulgaria and 
Turkey. 
 
¶3.  (SBU) According to Schwarzblicher, transmission would 
commence in 2013; the first open season for transmission 
would allot 15 billion cubic meters per year (bcm/a) to the 
shareholders and the second round would open the remaining 16 
bcm/a to third-party bidders.  While Azerbaijan's Shah Deniz 
II field is expected to be the primary source for Nabucco, 
Schwarzbichler stated that Nabucco would require additional 
sources to meet its planned 31 bcm/a capacity and cited Iran, 
Iraq, Egypt and Russia as prospective suppliers.  He pointed 
out that there is already existing infrastructure linking 
Turkey with Iran and with Russia, but declined to provide any 
further information about potential Russian supplies. 
 
¶4.  (SBU) In subsequent discussions with RWE and OMV, company 
representatives reiterated the need to look beyond Azerbaijan 
for gas supplies and acknowledged that Russia and Iran are 
receiving serious consideration.  Jeremy Ellis from RWE added 
that gas from Turkmenistan is more problematic than accessing 
gas from Iraq over the short to medium term.  Ellis asked for 
U.S. and EU help in finding ways to encourage gas exports 
from Iraq and to find mechanisms to help offset the political 
and security risks of developing and exporting Iraqi gas 
deposits. 
 
TAP 
--- 
¶5.  (SBU) The Trans Adriatic Pipeline is a joint venture 
between Norway's StatoilHydro and Switzerland's EGL to bring 
Caspian gas to Italy via Turkey and Greece, much like TGI. 
According to Markus Brokof of EGL, EGL has contracted with 
the National Iranian Gas Export Company for 5.5 bcm/a and is 
also seeking to access gas from Azerbaijan's Shah Deniz II 
field. (Note:  Brokof ironically cited Senator Lugar's call 
for the opening of the Southern Corridor.  End note.) 
StatoilHydro has a 25.5 percent share of Azerbaijan's Shah 
Deniz field and an 8.65 percent share of the ACG field, also 
in Azerbaijan.  Like the other Southern Corridor proposals, 
TAP has been unable to secure a transit agreement through 
Turkey. 
 
Nord Stream 
----------- 
¶6.  (SBU) Nord Stream is a joint venture between Russia's 
Gazprom, German E.On and Wintershall Holding (a BASF 
subsidiary), and Dutch Gasunie.   In contrast to the 
"competing" Southern Corridor proposals, Dr.  Maartje van 
Putten described Nord Stream as one of many components of the 
EU's long-term energy policy.  She said that renewables alone 
will not meet increasing demand and estimated that the EU 
will need to import 81 percent of its gas supplies by 2025, 
compared to 58 percent in 2005.  With a capacity of 51 bcm/a, 
Nordstream will transmit Russian gas directly to Germany 
under the Baltic Sea, but van Putten emphasized it as a 
"European project" with links to ten member states through 
shareholders and/or contractors. 
 
South Stream 
 
BRUSSELS 00001579  002 OF 003 
 
 
------------ 
¶7.  (SBU) South Stream is a joint venture between Eni of 
Italy and Russia's Gazprom, that would transit gas westward 
under the Black Sea bypassing both Ukraine and Turkey. 
Conceived subsequent to Nabucco, Carlo Merrigi of Eni denied 
it was in competition with the other Southern Corridor 
proposals, despite projecting routes similar to both Nabucco 
- Bulgaria to Romania and Hungary and TGI - Bulgaria to 
Greec to Italy. He also insisted there are sufficient 
supplies to support the 30 bcm project.  He did acknowledge 
several challenges such as access to materials and 
technology, and most recently access to credit, although he 
said Eni and South Stream have enough capital for now. 
 
TGI 
--- 
¶8.  (SBU) The Greece-Italy Interconnector (IGI) is the final 
phase of the Turkey-Greece-Italy Interconnector (TGI) 
project.  IGI is a joint venture between Italian Edison and 
Greek Depa to build a subsea connection called Poseidon 
across the Adriatic.  In describing TGI, Elio Ruggeri of 
Edison was much more concrete than other presenters.   Edison 
expects European dependence on foreign gas to nearly double 
in the next 12 years, underscoring the need to open a route 
for Caspian supplies.  Ruggeri said Azerbaijan, Uzbekistan, 
Iran, Iraq, Turkmenistan and Kazakhstan hold about 22% of the 
world's reserves.  Both Iran and Iraq lack infrastructure and 
pose political challenges, where as Turkmen, Uzbek, and 
Kazakh supplies appear destined for Russia and China.  Thus, 
he argued, Azerbaijan's Shah Deniz II field, with a potential 
of 14-16 bcm/a (11-13 likely available for transit) is the 
most viable mid-term option for Europe.  In contrast to 
Nabucco, TGI, which has only 10 bcm/a capacity, would not 
need to be supplemented beyond Azerbaijan.  Further, Ruggeri 
pointed out that TGI will utilize existing infrastructure, 
most which is in place; only 800 km of new pipe is needed to 
transit gas under the Adriatic. 
 
¶9.  (SBU) In a subsequent conversation, Ruggeri said the main 
obstacle for TGI remains a purchase arrangement between 
Turkey and Azerbaijan.  Turkey originally agreed to a 15 
percent take from TGI's flow (a maximum of about 1.5 bcm/a), 
but has since retracted and is now seeking to contract 
directly with Azerbaijan for 8 bcm/a.  Ruggeri said Prime 
Minister Berlusconi was seeking to convene his Azeri, 
Turkish, and Greek counterparts next month in an attempt to 
finalize the deal. 
 
White Stream 
------------ 
¶10.  (SBU) Not represented at the conference was the White 
Stream gas pipeline project.  The UK-based White Stream 
company is the brainchild of Pipeline Systems Engineering 
(PSE) and Radon-Ishizumi consulting and engineering 
companies.  The project envisions building a gas pipeline 
from Georgia across the Black Sea to either Ukraine and/or 
Romania and then onward to markets in Central and Western 
Europe.  The project, however, so far lacks a major player 
from the gas production, distribution, or consumption sectors 
to champion the pipeline. 
 
Comment 
------- 
¶11.  (SBU) The Nabucco, TGI, and the TAP projects share a 
common challenge negotiating transit agreements with Turkey. 
The sticking point is how much gas Turkey will need for its 
own market and how much it will be comfortable allowing to 
flow onwards to Europe.  Contacts at several of the firms 
involved tell us that Turkey fears its Russian gas contracts, 
which expire in 2011, may not be renewed.  Thus Turkey is 
more concerned with securing Azeri gas for its domestic 
consumption rather than serving as a conduit for Europe. 
Until Turkey's supply fears can be assuaged, it seems 
unlikely that any of these projects will move forward. 
Industry and EU officials that we've talked with are well 
aware of this problem and are all looking for ways to help 
Turkey with its security-of-supply concerns. 
 
¶12.  (SBU) However, even if a transit agreement is reached 
with Turkey, Nabucco would still require a second source of 
supply beyond Azerbaijan to make it economically feasible. 
Nabucco representatives are not optimistic about the 
prospects of Turkmen gas.  Rather, they are more intent on 
exploring the prospects of supplementing Nabucco with 
supplies from Russia, Iran or Iraq.  They are very much aware 
 
BRUSSELS 00001579  003 OF 003 
 
 
that the former two pose implications for U.S. policy, and 
perhaps may use this to leverage U.S. guarantees for efforts 
to develop infrastructure within Iraq. 
 
¶13.  (SBU) While Russia's invasion of Georgia has caused the 
Europeans to refocus their efforts on diversification of 
supply, the reality is there does not appear to be enough gas 
in the region to support all of these proposals in the 
2010-2015 timeframe.  Indeed, one RWE executive echoed 
Special Envoy Gray's comments that Nord Stream will likely be 
in competition with any Southern Corridor project for Caspian 
Gas.  In reality, TGI and Nabucco are both competing for the 
same Azeri gas.  Whereas TGI represents the most expeditious 
way to open the Southern Corridor, Nabucco would bring more 
gas to a larger market, currently dominated by Russian gas. 
This begs the question, is the bird in the hand, better than 
two in the bush?  End Comment. 
.