VZCZCXRO2812
RR RUEHIK
DE RUEHCP #0521/01 3231501
ZNR UUUUU ZZH
R 191501Z NOV 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC 5324
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 1538

UNCLAS SECTION 01 OF 03 COPENHAGEN 000521 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/ESC/IEC/EPC, EEB/ESC/IEC/ENR 
STATE FOR OES/EGC BENJAMIN ZAITCHIK 
 
E.O. 12958: N/A 
TAGS: ECON ENRG KGHG SENV EIND EPET DA
SUBJECT: DONG ENERGY'S ROLE IN DENMARK'S ENERGY SECURITY 
 
COPENHAGEN 00000521  001.2 OF 003 
 
 
(U) SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY.  NOT FOR 
INTERNET DISTRIBUTION. 
 
¶1.  (SBU) SUMMARY: DONG Energy CEO Anders Eldrup recently 
briefed the Ambassador on Denmark's energy security and 
DONG Energy Group's activities.  As a result of difficulties 
stemming from the 1973 OPEC oil embargo, 
Denmark set a national priority to end reliance on foreign 
energy.  The Government achieved this by switching to 
coal-fired electricity generation, installing district 
heating to increase efficiency of these power plants, 
and enacting measures to stimulate development of alternative 
energy sources (notably wind and biomass).  At 
the same time, Denmark discovered oil and natural gas 
reserves in its North Sea territory, which enabled it to 
supply all local energy demand from domestic sources.  Today, 
Denmark's North Sea reserves are dwindling and 
Danes are demanding more renewable energy.  Thus, DONG is 
investing heavily in renewable (mostly wind) energy, and 
seeking a solution to the electricity-storage problem by 
investing in the development of infrastructure to support 
electric cars and use the car batteries as storage capacity. 
DONG also has ambitious plans to reverse the 
ratio of its renewable/fossil-fuel energy mix from 15-85 
today to 85-15 by 2040.  Denmark is also diversifying 
its natural gas supply, but DONG has decided to source no 
more than 25% of its supply from GAZPROM through the 
Nord Stream pipeline.  Eldrup indicated that he does not 
foresee DONG making the public stock offering that had 
been planned for January 2009 anytime soon.  END SUMMARY. 
 
¶2.  (U) The Ambassador met with DONG Energy CEO Anders Eldrup 
on November 9, 2009, to receive a briefing on 
DONG's activities, the Danish experience with renewable 
energy, Denmark's 35-year path to energy self-sufficiency, 
and Eldrup's views on energy security.  (NOTE: DONG Energy is 
a 73% Danish Government-owned, fully integrated 
energy holding company.  It was formed in 2006 in a six-way 
merger that included the Danish Oil and Natural 
Gas Company.  DONG Energy is now one of northern Europe's 
significant energy groups, with divisions engaged in 
procuring, producing, distributing, trading and selling 
energy (oil, natural gas, and electricity) and related 
products across the region.  DONG Energy is a highly 
innovative company, particularly with regard to renewable 
energy.  END NOTE) 
 
¶3.  (U) Eldrup began by providing a historical context for 
Denmark's current energy outlook.  Prior to the 1973 
OPEC oil embargo, Denmark was dependent on oil -- almost 
exclusively from Saudi Arabia -- for 95% of its energy 
needs.  Having suffered greatly during the OPEC embargo, the 
Danish Government made energy security a national 
priority.  It pursued a three-pronged energy security 
strategy through the second half of the 1970s and the 
1980s. 
 
¶4.  (U) First, Denmark switched electricity production almost 
entirely to coal-fired plants.  The rationale 
behind this move was that the supply of coal available to 
Denmark was much more diverse than oil and, thus, 
less susceptible to interruption.  At the time, there was no 
domestic debate about the emissions caused by coal 
-- debate centered almost exclusively on energy independence. 
 
 
¶5. (U) Second, the government embarked on a major 
infrastructure project to install district heating 
throughout the country.  District heating is a system where 
the heated water that is a by-product of 
electricity generation is distributed via underground 
pipelines to residences, businesses, and government 
buildings to provide radiant heat during winter months.  This 
method can be used within a 50 kilometer radius 
of a power plant.  Today, 60% of households in Denmark are 
heated by district heating, producing considerable 
energy savings.  District heating does not require any 
additional energy production to heat the homes, and 
greatly increases the efficiency of coal-fired plants.  The 
energy return (energy expended from burning coal 
compared to amount of electricity produced) without district 
heating in DONG's most efficient plants is 
approximately 47%; when coupled together with district 
heating, it is approximately 94%.  The Government 
viewed this efficiency gain as essential to gaining energy 
independence. 
 
¶6. (U) Third, realizing that Denmark possesses limited energy 
 
COPENHAGEN 00000521  002.2 OF 003 
 
 
resources, the Government sought to stimulate 
development in energy sources that are abundant locally. 
Wind and biomass were the two areas that received 
the most government support.  For biomass, the government 
support took the form of a mandate that DONG purchase 
excess straw from farmers and burn it in coal power plants to 
decrease the amount of coal imports.  For wind, 
the support took the form of heavy subsidies to help develop 
and deploy wind technology.  Though the goal was to 
increase energy security,  Eldrup credited these initiatives 
with kick-starting the Danish environmental 
industries that Denmark is so proud of today. 
 
¶7. (U) At the same time as these measures were being 
implemented, Denmark discovered oil and gas reserves in its 
North Sea territorial waters.  The finds were substantial 
enough that Denmark was eventually able to gain energy 
independence, though this required substantial investment in 
infrastructure.  Initial economic analyses indicated 
that Denmark stood to profit more from selling the gas to 
Germany, which already possessed the necessary 
infrastructure.  However, the Danish Government made a 
political decision to retain the oil and gas for domestic 
use to move toward the goal of supplying all Danish energy 
needs locally.  Danish Oil and Natural Gas (DONG) was 
established during this period to be the distributor of oil 
and natural gas in Denmark. 
 
¶8. (U) According to Eldrup, after having ended reliance on 
foreign oil and gas (Denmark is a net exporter of 
energy), Denmark today is demanding sustainable energy.  In 
response, DONG Energy is moving toward a greener 
energy supply, while also maintaining the goal of Danish 
energy independence.  The company is no longer 
constructing coal power plants and is closing some existing 
plants.  The company has set an internal 
goal to go from an energy production mix of 15% renewable and 
85% fossil fuel, as it has today, to a mix of 85% 
renewable and 15% fossil fuel by 2040.  To do this, DONG 
projects it will need to increase the share of wind- 
produced electricity consumed in Denmark from the current 20% 
to 40%.  Thus, the company's investments in the 
near term are heavily weighted toward developing its wind 
capacity, including electricity storage.  The backbone 
of the storage effort is a joint venture with U.S. firm 
Better Place to develop an electric car network in 
Denmark where not-in-use car batteries could store 
electricity generated by wind that could then be drawn on 
during peak demand periods.  Eldrup returned often to the 
theme that much of Denmark's export-led growth comes 
from the early steps it took to move to renewable energy and 
the industry that spawned, and he sees electric cars 
as again presenting that possibility. 
 
¶9. (SBU) Eldrup also touched on the future supply of natural 
gas for Denmark.  DONG plans to move from the 
status quo of 100% Danish sourcing and to diversify its 
supply through four channels: 1) one quarter from Danish 
North Sea reserves (Eldrup said that production levels will 
drop in the medium-term, but this will be a gradual 
decline over the next 30 years), 2) one quarter from other 
North Sea suppliers (Norway and Great Britain), 3) one 
quarter from Russian gas company GAZPROM, primarily via the 
Nord Stream pipeline, and 4) one quarter from 
liquefied natural gas (LNG) shipped in via the LNG terminal 
in Rotterdam where DONG has become a partner.  DONG 
may change that mix somewhat over the coming years, but has 
made a decision to not increase the share it 
purchases from GAZPROM to more than 25% of the total mix. 
 
¶10. (SBU) Eldrup ended with a few comments on DONG's planned 
public stock offering that was scheduled for 
January 2009, which he said was stopped by a political 
decision just "a couple of hours from happening."   The 
stock offering would have resulted in DONG going from 73% 
state ownership to just over 50%, not a complete 
privatization.  Eldrup said that the planned public offering 
stemmed from the move in the 1990s to privatize 
state assets, which he now perceives is waning in Denmark. 
Though the delay was originally taken because of 
stock market volatility, he indicated that he does not 
believe the offering will take place in the foreseeable 
future.  Eldrup, who is a former civil servant who made his 
career in the Finance Ministry, seemed to regard this 
as a positive development.  He went to lengths to emphasize 
that the DONG Energy Board of Directors maintains an 
arm's-length distance between government political decisions 
and DONG business decisions.  Nonetheless, he 
 
COPENHAGEN 00000521  003.2 OF 003 
 
 
pointed out the key role played by government support for and 
subsidizing of new technology in the 1980s. 
Denmark gained a first mover advantage in many areas, 
particularly wind energy, at that time, but Eldrup sees 
the terrain as being different today because of the intense 
competition in energy technologies coming from firms 
in China. 
 
¶11.  (U) COMMENT:  DONG Energy and its antecedents played a 
key role in creating and achieving the "Danish Model" of 
energy self-sufficiency.  The firm seems more than willing to 
support the Danish Government's political priorities of 
shedding fossil fuels like coal-generated power in favor of 
sustainable greener energy sources in the future, provided 
the government ensures its bottom-line profitability through 
continued subsidies and mandates to go green. 
MCCULLEY