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C O N F I D E N T I A L SECTION 01 OF 04 BRUSSELS 000110 
 
SIPDIS 
 
E.O. 12958: DECL: 01/26/2019 
TAGS: ECON EPET EUN RS UP TU ZB ZJ
SUBJECT: THE EU'S ENERGY SECURITY: MAINTAINING THE MOMENTUM 
FOR DIVERSIFICATION 
 
REF: (A)ANKARA 56 (B) BAKU 31 (C) BRUSSELS 31 
 
BRUSSELS 00000110  001.2 OF 004 
 
 
Classified By: EEST Chief Louis L. Bono for reasons 1.4(b) and (d). 
 
¶1. (C) Summary and Introduction:  The recent dispute between 
Russia and Ukraine over gas supply and transit underscores 
yet again the precariousness of Europe's energy supply. 
Despite attempts by the parties to portray this as a 
commercial dispute, it was evident that gas was being used as 
a weapon in a broader geo-political struggle between Russia 
and Ukraine ) with Europe suffering the humanitarian 
consequences.  In order to insulate our European partners 
from the whims and undue influence of petro states, to 
further our relations with Black Sea and Caspian states, and 
to preserve the integrity of energy markets, we need to 
intensify our bilateral efforts to improve Europe's energy 
security.  One of the key components to this, as noted at the 
2008 U.S.-EU Summit, is to increase competition through 
interconnectivity and diversification of resources and 
routes.  The major challenge will be to convince the 
individual EU member states of the commonality of purpose. 
¶2. (U) The European Commission has outlined a plan of action 
for the EU in its Second Strategic Energy Review (SER).  The 
EU's Energy Security and Solidarity Action Plan, to be taken 
up by the European Council in March 2009, calls for: 
-     The development of infrastructure to enhance cross 
border transmission of electricity and gas supplies between 
member states, and to establish links with new suppliers 
(diversification); 
-     Improving external relations with supplier and transit 
states; 
-     The maintenance of gas and oil stocks by member states; 
-     Energy efficiency; and 
-     Exploitation of indigenous resources including 
renewables, coal, and nuclear. 
As president of the EU Council, the Czech Republic has 
identified energy security as a priority for the 
Transatlantic agenda.  The EU's action plan provides a good 
framework for cooperation.  End summary. 
TURKEY AND THE SOUTHERN CORRIDOR 
-------------------------------- 
¶3. (C) A major component of the EU's energy security efforts 
is to develop new gas sources and alternative routes to 
market.  To this end the EU, with U.S. support, has been 
focusing on the development of the Southern Corridor, to 
bring Caspian and Middle Eastern, including Iraqi, gas to 
Europe.  This endeavor has taken on renewed urgency following 
the recent cutoff of Russian gas, and we should maintain this 
momentum. 
¶4.  (C) The key to getting Caspian, and eventually Central 
Asian and Iraqi resources to Europe lies with Turkey.  Having 
also suffered cuts in Russian gas due to the dispute with 
Ukraine, and with their Russian supply contract due to expire 
in 2011, Turkey is intent on cornering Azeri gas supplies. 
Turkey seeks as much as 8 billion cubic meters per annum 
(bcm/a) from Azerbaijan's Shah Deniz (SD) II field field, and 
may be willing to pay western prices for it.  (Ref. A)  If 
Turkey succeeds, it would leave roughly 5 bcm/a available for 
Europe from SD II.  Five bcm/a may be sufficient for the 
Turkey-Greece-Italy (TGI) interconnector, but it would not be 
enough to sanction the first phase of the Nabucco. 
Regardless, the Southern Corridor projects will remain 
stalled until Turkey concludes a bilateral sales agreement 
with Azerbaijan.  Thus, we should continue to encourage the 
two to conclude a bilateral sales an agreement that would 
leave sufficient supplies for the European market. 
¶5. (C) Our efforts to provide Turkey with assurances and 
guarantees to satisfy its energy needs have been praised, but 
we must impress upon our EU partners to do more of the same. 
Less than seven percent of the European Investment Bank's 
 
BRUSSELS 00000110  002.2 OF 004 
 
 
(EIB) funding for Turkey over the past five years (about 556 
million euros) has gone to the energy sector, whereas the 
European Bank for Reconstruction and Development has only 
just commenced operations in Turkey.  If the EU is to 
convince Turkey of its sincerity as an energy partner, it 
must do more to help Turkey meet its energy demand. 
¶6. (C) Equally important is the political relationship. 
During a recent visit to Brussels, Prime Minister Erdogan 
declared that he would not use gas as a "weapon", but earlier 
stated that Turkey would reconsider its commitment to the 
Southern Corridor if the Energy Chapter of its accession 
process were not opened.  Finally, while Azeri gas is crucial 
to the near term expansion of the Southern Corridor, its 
long-term sustainability depends on supplementary sources. 
The Nabucco consortium is keen to pursue gas from both 
Turkmenistan and Iraq.  Estimates indicate that Turkmenistan 
has significant reserves, but the lack of high-level EU 
engagement, combined with stiff competition from Russia and 
China, has not helped European suitors.  Iraq provides 
another viable source, but prospects are dim while its 
hydrocarbons legislation remains in limbo.  We must also 
address the consortium's interest in Iran as a secondary 
source.  The USG initially opposed Nabucco as it was 
conceived to transmit Iranian gas to Europe.  The project has 
evolved, as European policy makers have moved away from Iran 
as a source, but the reality remains that if supplies from 
Turkmenistan or Iraq cannot be secured, the consortium could 
easily turn back to Iran. 
UKRAINE 
------- 
¶7. (C) Ukraine's reliability as a transit partner is as 
dubious as Russia's reliability as a supplier.  Nevertheless, 
over 80 percent of Russian gas supplies to the EU pass 
through Ukraine.  If/when the Nabucco and Nord Stream 
projects come on line, their aggregate transmission capacity 
of 86 bcm/a represents less than half of Ukraine's capacity 
of 179 bcm/a.   Accordingly, the EU will remain dependant on 
Ukraine as a transit partner and improvements in Ukraine's 
infrastructure and transparency are needed to strengthen 
Europe's security of supply.  For instance, one of the major 
issues during the recent Russia-Ukraine dispute was the gas 
needed to power Ukraine's compressors to pump supplies to 
Europe.  Under normal circumstances, only two to three 
percent of the transit gas is needed for this purpose. 
However, the antiquated and inefficient Ukrainian system 
requires six to eight percent for its compressors.  (Note: 
There is speculation that Ukraine may have padded the figures 
to secure additional supplies for its own use.  Even so, this 
underscores the need to improve transparency.  End note.) 
¶8. (C) One suggestion has been to meter EU supplies as they 
enter and exit Ukraine.  In addition, we should help Ukraine 
manage its domestic demand by improving efficiency, adopting 
a market price structure and diversifying its energy sources, 
including renewables and increased domestic hydrocarbons 
production.  The U.S. and EU agreed at the 2008 Summit to 
cooperate with Ukraine towards these ends, but there has been 
little action. 
¶9.  (C) Although the recent crisis has soured EU-Ukraine 
relations, we should seize upon the fears of vulnerability to 
turn the tide and strengthen this relationship.  A priority 
would be to establish a joint U.S.-EU-Ukraine energy working 
group as we committed ourselves to do at the 2008 Summit, 
though Commission officials have been reluctant to follow 
through. 
RUSSIA 
------ 
¶10. (C) The EU has had difficulties managing its relations 
with Russia, due in part to the aversion of some member 
states to upset their principal supplier of oil and gas. 
Russia supplies about 25 percent of the EU's total gas 
 
BRUSSELS 00000110  003.2 OF 004 
 
 
supply, 47 percent of its imports, and in the case of some 
member states, 80 to 100 percent of their gas needs. 
Russia's decision earlier this month to cut off supplies 
contravenes its 2006 St. Petersburg commitment to 
transparent, predictable and stable energy markets.  EU 
Energy Commissioner Piebalgs remarked that for the first 
time, Gazprom did not care about the impact of its actions 
toward Ukraine on its customers.  (Ref. C) 
¶11.  (C) There has been much rhetoric throughout Europe the 
past few weeks about the need to reduce dependency on Russian 
gas supplies.  European Commission President Barroso 
reportedly told Prime Minister Putin during the cut-off that 
"if supplies do not resume, (he) will recommend European 
energy companies stop purchasing Russian gas."  This is a bit 
of a hollow threat, given the dearth of alternative sources 
and the sheer size of Russian gas reserves, but it marks a 
change in Barroso's tone.  Time will tell whether Putin has 
overplayed his hand, or whether the Europeans will forget the 
incident after a few months of steady supplies.  A key 
indicator may be the manner in which Russia/Gazprom responds 
to the contractual suits that European customers are 
preparing to file for failure to deliver.  Most expect 
Gazprom will invoke the force majeure clause (or "force 
Putin" as some call it).  If Gazprom is not willing to assume 
significant responsibility for the cut in deliveries, the EU 
and member states should be inclined to expedite attempts to 
diversify.  Nevertheless, with limited source and 
transmission options, the EU will remain dependent on Russian 
gas for the near future.  Thus, it will be important for the 
EU to refocus Russia, and for that matter Gazprom, on 
repairing external relations, honoring legal commitments, and 
investing in infrastructure and exploration.  What leverage 
the Europeans can bring to bear to accomplish these 
objectives remains the chronic question mark. 
THE BALTICS 
----------- 
¶12. (C) Estonia, Latvia, and Lithuania are essentially energy 
islands, isolated from Europe's electricity grid.  Lithuania 
must decommission its Ignalina nuclear power plant by the end 
of this year.  The plant provides about 70 percent of 
Lithuania's power and a substantial portion of Latvia's. 
Estonia's oil shale reserves lend it some additional 
independence, that is, until the EU's carbon emissions cap 
kicks in over the next few years.  The simple answer for the 
Baltic states is to source electricity from Russia, but 
Russia's unreliability as an energy supplier, coupled with 
its historically fractious relationship with the region, 
could spell disaster.  We and the EU must not lose sight of 
this precarious arrangement in our efforts to address Ukraine 
and the Southern Corridor.  Proposals to interconnect the 
Baltics with the rest of Europe and to diversify sources have 
been put forth but have been beset by infighting, lack of 
vision and insufficient funding.  We must encourage EU 
attention to this issue and urge the Baltic states to set 
aside nationalistic proclivities and cooperate on common 
solutions. 
COMMENT: DIVERSIFICATION OF POWER SOURCES 
----------------------------------------- 
¶13. (C) In support of his policy to promote a green 
technologies revolution, the President remarked that the 
manner in which we use energy strengthens our adversaries. 
Energy Commissioner Piebalgs conveyed a similar sentiment - a 
fear of a European market increasingly dependent on Russia 
and Iran.  (Ref. C)  Over the last few years, our leaders 
have pledged and re-pledged to promote strategic cooperation 
on energy technologies, as well energy security.  As we seek 
to strengthen Europe's security of supply, we should assess 
the progress that has been made on energy cooperation and 
examine ways to intensify it through the development and 
deployment of alternative sources such as renewables and 
 
BRUSSELS 00000110  004.2 OF 004 
 
 
nuclear, cleaner technologies such as carbon capture and 
storage, and energy efficiency mechanisms. 
.