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FM SECSTATE WASHDC
TO RUEHTH/AMEMBASSY ATHENS PRIORITY 4357
RUEHBW/AMEMBASSY BELGRADE PRIORITY 0951
RUEHUP/AMEMBASSY BUDAPEST PRIORITY 5117
RUEHLJ/AMEMBASSY LJUBLJANA PRIORITY 5778
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RUEHAH/AMEMBASSY ASHGABAT 0305
RUEHTA/AMEMBASSY ASTANA 1134
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUETIAA/DIRNSA GEORGE G MEADE MD
RHEHNSC/NSC WASHINGTON DC 1862
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C O N F I D E N T I A L SECTION 01 OF 02 STATE 111310 
 
SIPDIS 
 
E.O. 12958: DECL: 10/08/2018 
TAGS: ENRG ECON PGOV EU BG GR HU RS SL SB IT AS
SUBJECT: SOUTH STREAM - BACKGROUND FOR POSTS' USE 
 
REF: A. ATHENS 1256 
     ¶B. 07 STATE 150552 
 
Classified By: DAS Judy Garber for reasons 1.5(B) and (D) 
 
¶1.  (U) Department is aware that posts do or may contend 
with questions about South Stream.  In the interest of 
keeping posts apprised of Washington thinking on this 
issue, we offer the below background on South Stream for 
your use in discussing the issue with host governments. 
This background supersedes Reftel B talking points.  Posts 
should not "deliver a demarche" based on this, but rather draw 
on points when asked about South Stream, when discussing the 
use of European Energy Security, and when advocating U.S.- 
supported approaches (Southern corridor, Nabucco, TGI, etc.). 
Posts should also avoid public/media discussion of these 
views, specifically on South Stream beyond general points 
advocating energy independence and diversity as well as our 
concerns about energy monopolies.  Thus, Posts 
should not/not leave text of below background with host 
governments as a non-paper.  The Department welcomes 
reporting on this topic.  Please direct questions to 
EUR/ERA Erin McConaha or Ben Rockwell or EEB/ESC/IEC/EPC 
¶J. Larry Wright. 
 
BACKGROUND 
---------- 
¶2. (C) The following points are background for Posts' use: 
 
--  Washington has concerns about the proposed South 
Stream pipeline that bear reflection by European 
governments, especially monopoly control over energy. 
This policy is anti-monopoly in nature, not anti-Russian. 
 
-- U.S. concerns over South Stream are threefold: (1) it 
is unlikely to significantly enhance diversification or 
sources of supply; (2) it largely serves to bypass 
Ukraine; and (3) it is designed to undercut new and 
significantly more cost effective gas deliveries from the 
Caspian to Europe via the Southern Corridor. 
 
-- Over the course of the last year, Russia has concluded 
agreements on South Stream with Serbia, Bulgaria, Hungary, 
and Greece.  More recently, Greece has ratified the South 
Stream agreement and Moscow is courting Austria, the last 
link in the chain. 
 
-- The Russia-Georgia conflict, meanwhile, has further focused 
some European capitals on the potential political 
vulnerabilities of dependence on Russian gas or gas controlled 
by Russia.  Now is not the time for governments to conduct 
business as usual with 
Russia. 
 
-- We encourage European governments 
to prioritize projects that will realize diversification 
of energy supply. 
 
-- While the Nordstream pipeline is planned to transport 
new Russian gas production to Germany, over two-thirds of 
South Stream will be filled with existing gas rerouted 
around Ukraine.  The source of any new gas remains 
unsecured, though Central Asia appears to be the prime 
focus. 
 
-- The Southern Corridor can deliver new gas supplies from 
Central Asia to Europe for 40 to 50 percent cheaper than 
South Stream.  South Stream faces enormous technical and 
financial challenges, with Gazprom's own construction 
estimates running to 20 billion dollars. 
 
-- Rerouting extant gas does not enhance European security 
of supply.  The real potential for Russian production 
shortfalls compound this concern.  By contrast, projects that 
 
STATE 00111310  002 OF 002 
 
 
access new sources 
of supply from the Caucasus and Central Asia (outside the 
control of Gazprom and the Kremlin) strengthen European 
energy security, as well as the security and independence 
of the supplier countries. 
 
-- By bypassing Turkey, Ukraine, Moldova, and Romania, 
South Stream aims to undercut these countries' quest for 
deeper integration with their European neighbors/allies. 
 
-- Russia already is the largest provider of imported 
natural gas to Europe.  While European demand may make all 
pipelines viable in the long-run, we encourage our 
partners to strengthen their own negotiating leverage with 
Russia by developing Southern Corridor alternatives first. 
 
-- Realizing a Southern Corridor of energy infrastructure 
to transport Caspian Basin oil and gas, including projects 
such as the Turkey-Greece-Italy Interconnector (TGI) and 
Nabucco, would enhance consumer countries' leverage in 
negotiations with Gazprom and improve the competitive 
health of European markets. 
 
-- The European Commission's proposal to create a single, 
liquid, interconnected energy market and unbundle energy 
companies would also significantly improve European energy 
security. 
 
-- It is important for Europe and the U.S. to work 
together to increase diversification of energy supplies. 
 
-- Key to this in Europe is the realization of a "Fourth" 
or "Southern Corridor" to export Caspian gas directly to 
Europe. 
 
-- U.S. policy is to support EU efforts to diversify 
sources of energy supply, as well as development of 
transparent, market oriented pipelines that meet the best 
international practices for governance, transparency, and 
environmental safety. 
 
-- This is consistent with the 2006 St. Petersburg Global 
Energy Security Principles that all G-8 members pledged to 
uphold. 
 
-- Our central - and long held - position is that 
diversification of energy supplies will benefit both 
consumers and suppliers and improve European energy 
security. 
 
-- Another core goal is full integration of European 
energy markets into a single market space. 
 
-- A common EU internal market for gas and electricity, as 
envisioned in the Third Energy Package proposed by the 
European Commission, would increase electricity and gas 
interconnections between member states that would boost 
efficiency and reduce vulnerability to market 
disruptions. 
 
-- The USG will continue to support development of new 
sources of gas for Europe by encouraging Western 
investment in Caspian gas reserves and pressing Azerbaijan 
and Turkey to conclude a gas transit agreement to enable 
supply contracts for Caspian Basin gas. 
 
END BACKGROUND 
RICE