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R 161506Z DEC 08
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UNCLAS SECTION 01 OF 02 BRUSSELS 001907 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET EUN
SUBJECT: RWE PROPOSES TWO NEW APPROACHES TO GET NABUCCO 
MOVING 
 
REF: BRUSSELS 1776 
 
¶1.  (SBU) In a December 9 meeting with Econ Officers, an 
official from German RWE raised two new approaches RWE is 
pursuing to advance the Nabucco gas pipeline project.  The 
first approach he outlined would be for RWE and Austrian OMV 
to form a "Caspian Energy Corporation" to negotiate directly 
with Turkmenistan to buy gas for Nabucco.  The second 
approach would be to co-opt the competition by inviting 
Italian Edison to join the Nabucco consortium. 
 
The Caspian Energy Corporation 
------------------------------ 
¶2.  (SBU) RWE is not necessarily opposed to the Commission's 
proposal to form a "Caspian Development Corporation" (CDC, 
reftel) as a way to bring Turkmen gas into Nabucco, but it is 
concerned that the World Bank study process proposed by the 
Commission will take too long. RWE  is also wary of any 
business solution designed by the Commission.  As a result, 
RWE and OMV are seeking to form a "Caspian Energy 
Corporation" (CEC) whose purpose would be the same as that of 
CDC, but would only involve the two partners (at least 
initially).   Our RWE contact said there was too much "noise" 
surrounding the CDC proposal and that he believes a private 
company would be able to act more quickly to approach 
Turkmenistan with a credible offer to buy gas.  RWE has 
pitched the same idea to EU Energy Commissioner Andris 
Piebalgs, but so far Piebalgs is "not too keen" on the idea. 
 
¶3.  (SBU) RWE believes it is essential to move now to lock in 
a secondary source for Nabucco (beyond Azerbaijan).  CEC 
would look at the "tie-in option", that is tying in offshore 
Turkmenistan gas production facilities to nearby offshore 
Azerbaijan production facilities and requiring only about 60 
km of new pipeline.  This would be a "baby step" but could 
provide up to 8 bcm of gas for Nabucco.  RWE indicated this 
approach could potentially  get around the whole Caspian 
delimitation issue that would undoubtedly have to be 
addressed for a trans-Caspian pipeline solution as envisaged 
by CDC.  Another option RWE would like to consider is for CEC 
to buy gas from Turkmenistan via Iran, this could be either 
via actual transit or through a swap arrangement with Iran 
and Turkey.  Econ Officers reminded our RWE contact that the 
U.S. would not support any solution involving Iran.  Ideally, 
according to RWE, CEC would also involve an upstream partner 
in Turkmenistan, such as Petronas or a U.S. or other Western 
company.  CEC would only need to negotiate an 
intergovernmental agreement (IGA) between Azerbaijan and 
Turkmenistan, as once the gas entered Azerbaijan it would go 
into the Nabucco system.  CEC would basically be an 
instrument to aggregate demand and build any necessary 
infrastructure to deliver the gas to Azerbaijan. 
 
¶4.  (SBU)  Commission officials at DG-TREN told Econ Officers 
on December 12 that the Commission would not be opposed to 
the CEC idea as long as it is pro-competitive and results in 
getting the gas necessary for Nabucco to go forward.  The 
Commission is of the opinion, however,  that Turkmenistan 
will need more than a simple offer to buy 8 bcm of gas to 
make the commitment to ship gas west to Europe.  In the 
Commission's mind, Turkmenistan needs a financial guarantee 
for a substantial about of income for a long period of time. 
 
¶5.  (SBU) According to the Commission, the CDC concept would 
be for an initial volume of 12-13 bcm with up to a 50-year 
take-or pay guarantee which would be backed up by the 
European Investment Bank (EIB).  The Commission also sees CDC 
as providing cover for private companies vis-a-vis Russia. 
The Commission believes any company that made a deal directly 
with Turkmenistan would suffer in its relations with Gazprom, 
where as with CDC the companies would only be participating 
in a smaller way and likely would not engender the same 
response from the Russians.  The Commission is optimistic 
that the proposed World Bank study on CDC can be concluded by 
June 2009, which would allow for a 2010 startup and could 
bring gas volumes on stream by 2015. 
 
¶6.  (SBU)  The Commission intends that CDC would also be used 
as a development mechanism (investing in schools, 
infrastructure, and training) to achieve the EU's wider 
development goals in the region.    Our contacts reaffirmed 
that the Commission does not envisage CDC having any role in 
upstream development.  The World Bank put an upstream role in 
 
BRUSSELS 00001907  002 OF 002 
 
 
the original Terms of Reference, but this not something the 
Commission proposed and not something the Commission will 
accept.   The demand for gas presented by CDC could require 
Turkmenistan to hold a new licensing round for development of 
additional offshore or onshore blocks, but this would not 
affect existing contracts and is not something CDC would 
participate in. 
 
¶7.  (SBU) Econ Officers also spoke with a contact from 
Italian Edison -- the Italian part of the Turkey-Greece-Italy 
pipeline (TGI) -- about the CDC concept on December 15. 
Edison is not opposed to the idea of a CDC as long as it is 
not a "Commission Club of Friends."  Even then, Edison would 
probably participate as a way to get more gas.  Edison is 
skeptical, however,  of any Commission solution to getting 
gas from Turkmenistan and fears that it would be influenced 
by EU politics. 
 
If You Can't Beat Them, Join Them 
--------------------------------- 
¶8.  (SBU) According to our contact, RWE would be interested 
in having Edison join the Nabucco consortium as a way of 
eliminating the competition for Azeri gas volumes posed by 
TGI.  RWE believes that if any Azeri gas goes to TGI instead 
of Nabucco, the Nabucco project will be dead for at least 
eight years.  According to RWE, Edison is not in this to 
build pipelines, it just wants the gas for its electricity 
generation.  As such, why not have Edison join Nabucco as an 
equity partner?  RWE is now approaching Electricite de France 
(EDF) -- who is a large shareholder in Edison -- to garner 
support for bringing Edison into Nabucco.  In RWE's mind 
there will be plenty of capacity in Nabucco to accommodate 
Edison's needs.  As our RWE contact put it, there is a "fully 
open door" for Edison to join Nabucco as the seventh equity 
partner. 
 
¶9.  (SBU)  Econ Officers raised the notion of Edison joining 
Nabucco with our Edison contact.  Our contact laughed, but 
said that this was not the first time he had heard of this 
idea.  He said, however, he was not aware of any ongoing 
negotiations and that he, based in Brussels, would likely not 
be involved in any such discussions.  He said that joining 
Nabucco would have a certain appeal for Edison.  The driver 
behind Edison's desire to build TGI is to obtain an alternate 
gas source.  Currently Edison is totally dependent on Italian 
Eni for all its gas supply.  Building TGI would diversify 
Edison's gas sources away from a single supplier.  Edison is 
not a pipeline company and would likely look favorably on any 
solution that allowed it to buy gas directly from the source, 
rather than Eni. 
 
¶10.  (SBU) Comment.  Our industry contacts at both Nabucco 
and TGI express a greater sense of urgency than that felt by 
the Commission and like many in industry they are skeptical 
of any solution proposed by government.  Both of RWE's 
proposals appear promising.  The CEC idea could accomplish 
the goal of bringing Turkmen gas west without the Commission 
baggage attached to the CDC idea -- provided CEC were not 
granted an exclusive export license from Turkmenistan. 
Having Edison join Nabucco would likewise eliminate the 
competition between Nabucco and TGI for Azeri volumes.  RWE, 
Edison, and the Commission would all prefer to see their 
individual plans come to fruition, but at the end of the day 
all of them would likely support any solution that results in 
Caspian basin gas flowing to them through the Southern 
Corridor.  End Comment. 
 
Silverberg 
.