VZCZCXRO2715
PP RUEHIK
DE RUEHFR #1679/01 3441508
ZNR UUUUU ZZH
P 101508Z DEC 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC PRIORITY 7820
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 PARIS 001679 
 
SENSITIVE 
SIPDIS 
 
NOT FOR INTERNET DISTRIBUTION 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET PREL FR
SUBJECT: Scenesetter: Special Envoy Morningstar Visit to Paris 
 
PARIS 00001679  001.2 OF 003 
 
 
¶1.  (SBU) Embassy Paris warmly welcomes your visit on December 
14-16.  France is a strategic partner on global energy issues, both 
in its own right, and as a policy leader within the EU.  France has 
a long-standing and statist policy of pursing energy independence. 
It currently meets 50 percent of its energy needs domestically 
(versus 23 percent in 1973), thanks mainly to the fact that it 
produces 78 percent of its electricity from nuclear power.  France 
also places priority on diversification of oil and gas supplies. 
France is sometimes at odds with other EU members over the role of 
nuclear power in Europe's energy mix, and over how to engage 
constructively with key natural gas supplier Russia.  France's 
energy consumption is made up of 40 percent electricity, 32 percent 
oil, 15 percent gas, 5 percent renewables, and 4 percent coal. 
Nuclear power generates 78 percent of France's electricity while 10 
percent of its total energy production comes from renewables, and 2 
percent through a combination of oil, gas, and coal (with the 
remainder made up by imports). 
Nuclear: Crown Jewels 
--------------------- 
¶2.  (SBU) France is the second-largest nuclear energy producer in 
absolute terms after the U.S. and is the country with the largest 
percentage of electricity generated by nuclear power.  The French 
nuclear industry is active in the entire energy chain from uranium 
mining to waste reprocessing.  Nuclear power gives France one of the 
lowest levels of greenhouse gas emissions among OECD countries, but 
at a price. 
¶3.  (SBU) France's 58 nuclear reactors need life-extension 
investment -- a time-consuming and costly process.  In November, 18 
reactors were shut down due to maintenance, fuel reloading, and 
unplanned equipment failures.  France is pioneering a new generation 
of nuclear reactors with the EPR (European Pressurized Reactor) with 
one project underway in Finland, one in France, and two more on the 
drawing board (in France and China.).  But France has encountered 
snags in building the EPRs.  The original Finnish contract is behind 
schedule and 25 percent over budget.  The cost of power generated at 
an EPR is expected to be higher than current generation reactors, in 
part because of greater safety standards. 
¶4.  (SBU) Due to concerns over waste treatment and social 
acceptance, French-generated nuclear power is intended primarily for 
France and exports are intentionally limited.  Although still an 
electricity exporter, France's exports are falling due to lack of 
investment in existing nuclear plants.  France also needs to 
modernize its electrical grid and expand European interconnections. 
President Sarkozy launched this month a blue ribbon panel to set 
strategic priorities for the future of France's civil nuclear 
sector. 
Oil and Gas 
----------- 
¶5.  (SBU) France relies on foreign imports to meet virtually all of 
its oil demand -- the largest sources being Norway, Russia, 
Kazakhstan, Saudi Arabia, and Libya.  With one of the world's 
"supermajor" oil companies (Total SA), France is sensitive to the 
growing policy challenges of accessing reserves.  The GOF has 
substantial holdings in other French energy companies -- Electricite 
de France, GDF-Suez and Areva -- and plays an active role in 
high-profile decisions.  France provides these companies with 
critical political support, and promoting French energy majors 
abroad is an integral part of French foreign policy. 
¶6.  (SBU) France has diversified its natural gas supplies (Algeria, 
Norway, Russia) and supports expanding liquefied natural gas (LNG) 
capacity and shipments.  France has two LNG terminals, operated by 
GDF-Suez, and a third under construction that belongs to Total and a 
subsidiary of GDF. An additional four LNG terminal projects are 
under development.  Total also has leaseholds in southeastern France 
which have shale gas potential.  Since 2007, France's shale gas 
sector has opened up for competition for what are assumed to be 
limited reserves.  Now in the preliminary surveying stage, the shale 
gas sector will enter the exploration phase as early as next year 
with exploitation a few years down the road. 
Russia 
------ 
¶7.  (SBU) The GOF has participated in the EU's "Energy Dialogue" 
with Russia since 2000 and leads the working group on crisis 
management strategies.  The GOF emphasizes the importance for the EU 
of "solidarity mechanisms" to respond to possible gas supply 
disruptions, or other issues that may affect member states unevenly. 
 France realizes that Europe cannot do without Russia to meet its 
energy demand.  Russian PM Vladimir Putin was in France recently for 
the Fourteenth Franco-Russian Intergovernmental Seminar.  Russian 
and French government and industry leaders signed approximately 20 
agreements and contracts in a broad range of fields including 
energy, environment, infrastructure and the environment.  EDF 
recently acquired a 10 percent stake in the South Stream pipeline 
and GDF-Suez wants to buy German interests in Gazprom's Nord Stream 
project, but the deal is still under review.  France is ramping up 
for next year when it launches the "Year of Russia" with increased 
economic, cultural, and scientific exchanges.  The GOF's long-term 
objective is to establish a broad-based economic zone with Russia 
based on the free movement of people, goods and services. 
Turkey 
 
PARIS 00001679  002.2 OF 003 
 
 
------ 
¶8.  (SBU) The GOF supports discussions on the EU energy chapter with 
Turkey, although President Sarkozy opposes Turkey's bid to join the 
EU as a full member.  He supports a "privileged partnership" in lieu 
of EU membership and suggested establishing an "economic zone of 
common security" between the EU and Turkey (as well as with Russia). 
 French bilateral relations with Turkey have been tense, but are 
improving.  France recognizes the importance of good economic 
relations, given Turkey's key transit role for energy supplies.  The 
GOF encourages projects with Turkey in the field of energy, one 
being the "Solar Plan" that was launched by the current 
French-Egyptian presidency of the Union for the Mediterranean.  The 
Plan aims to export electricity from renewable energies into the EU 
that will contribute to implementing the European Energy and Climate 
package.  In November, a partnership agreement was signed between 
French and Turkish national grid operators (RTE and TEIAS) to 
promote development of the Turkish electricity market. 
France, Central Asia and the Caucasus 
------------------------------------- 
¶9.  (SBU) France pursues a "triangular" relationship with Russia and 
Caspian Basin countries as it looks to find new oil and gas sources 
and route and integrate the region into a broader political and 
security regional framework.  The first EU-Central Asia Forum on 
security issues was held under the French EU Presidency in September 
¶2008.  More recently, France has devoted political attention to 
Kazakhstan.  President Sarkozy visited the country in October 2009 
and announced it was the GOF's "major strategic partner" in Central 
Asia.  French energy majors Areva and Total have worked in 
Kazakhstan for years.  Total now leads the North Caspian Operating 
Company, which is developing the giant Kashagan oil field in Western 
Kazakhstan.  France is expanding its presence in other countries of 
the region as well.  It recently opened an embassy in Bishek, the 
Kyrgz Republic, to focus on strengthening economic exchanges and 
bilateral cooperation.  Azerbaijan's president visited President 
Sarkozy this month in Paris. 
US-French Relations: General Background 
--------------------------------------- 
¶10.  (SBU) You will arrive two and a half years into President 
Nicolas Sarkozy's five-year term, a period marked by strong 
coordination between the U.S. and France on key strategic issues. 
The financial crisis and subsequent G20 response, as well as the 
lead-up to the Copenhagen climate change summit, have tested this 
relationship and shown that we can find ways to work together 
despite fundamental differences on some issues. Since the advent of 
President Sarkozy in 2007 and the election of President Obama in 
2008, the U.S.-French bilateral relationship has become arguably the 
best it has ever been, with a robust political relationship buoyed 
by renewed support for the U.S. in public opinion.  Sarkozy, is a 
fierce advocate for French interests, is committed to pushing France 
forward as a global leader and believes he can best advance French 
interests by working in tandem with the United States rather than in 
opposition to us.  Politically robust government-to-government 
relations do not mean, however, that France always aligns itself 
with the United States.  Sarkozy at times equates the health of the 
relationship with the strength of U.S.-French political and 
strategic cooperation in other parts of the world, rather than with 
the economic relationship. 
¶11.  (SBU) Franco-American economic ties are robust. Bilateral 
trade, investment and affiliate sales amount to an estimated USD 1.3 
billion per day.  France is the United State's eighth largest trade 
partner, and the United States is France's sixth largest trade 
partner.   The U.S. is the top destination for French foreign 
investment, with direct investment stock of USD 163 billion.  There 
are approximately 2,300 French subsidiaries in the U.S. that provide 
more than 520,000 jobs and generate about USD 235 billion in 
turnover.  The U.S. is in turn the largest foreign investor in 
France, with USD 75 billion in investment in 2008, and turnover of 
about USD 228 billion.  U.S. firms employ 650,000 people in France. 
This Embassy is committed to further enhancing these economic ties. 
¶12. (SBU) France's economy has outperformed most other EU member 
states during the financial crisis, due largely to France's 
extensive social safety net (e.g. long-lasting unemployment benefits 
and training programs) which acts as an automatic stabilizer.  But 
government stimulus has also played an important role.  The Sarkozy 
administration pushed through a 26 billion euro stimulus package, 
which -- with automatic stabilizers -- equals 2.5 percent of gross 
domestic product (GDP).  The government also announced a 35 billion 
euro "grand emprunt" (a "recovery bond" offering) to stimulate 
research and investment in innovative industries.  The French 
economy grew at an annual rate of 1.2 percent in 2Q09, driven 
largely by a decline in the trade deficit, and by government 
consumption.  Unemployment increased to 9.1 percent on average in 
Q209, compared to 7.4 percent in 2008, with a 23.9 percent youth 
unemployment rate.  To date, secondary effects of lower employment 
rates have not significantly weakened what until now has been 
remarkably resilient consumer demand.  The dark side of all this, 
however, is the soaring budget deficit, which doubled in the first 
seven months of 2009 to 109 billion euros (USD 155 billion). 
Because of this, Sarkozy continues to press for reforms that reduce 
the burden of the state (reducing the civil service by attrition, 
 
PARIS 00001679  003.2 OF 003 
 
 
consolidating sub-national administrative layers) as well as 
encourage small and medium-sized businesses (reduced paperwork, tax 
exemptions, financing) and provide investment incentives. 
 
RIVKIN