VZCZCXRO3865
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHFR #1744/01 3571010
ZNY CCCCC ZZH
R 231010Z DEC 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 7965
INFO RHEHNSC/NSC WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 PARIS 001744 
 
SIPDIS 
 
E.O. 19528: DECL: 12/22/19 
TAGS: EPET ENRG EOCN ZK ZJ RS FR
SUBJECT: FRANCE: SPECIAL ENVOY MORNINGSTAR'S ENERGY CONSULTATIONS 
 
Ref. State 107194. 
 
Classified by Econ Minister Counselor Seth Winnick for reasons 1.4 
(B) and (D). 
 
¶1. (C/NF) Summary.  French officials and industry leaders support 
diversifying energy supply/routes in Central Asia, market 
competition, an Azerbaijan-Turkey agreement for gas supply and 
transit issues.  GDF-Suez joined Nord Stream and is interested in 
Nabucco and the Shtokman project.  Total SA emphasizes links between 
Kazakhstan and Azerbaijan, criticized the terms for developing Iraqi 
oil fields, and supports Iranian gas projects in the long-term.  The 
Total CEO considers refined products sanctions against Iran as 
counterproductive and questions the U.S. message to Indian companies 
vying for Iranian contracts.  IEA highlights a sluggish recovery for 
Ukraine and urges energy policy reform/restructuring for a 
sustainable gas relationship with Russia.  Gas is the default energy 
option for Europe but long-term gas contracts need more flexibility. 
End summary. 
 
¶2. (U) On December 14-15, the Special Envoy for Eurasian Energy 
(S/EEE) Richard Morningstar, met with GOF officials, industry leaders 
and the IEA who gave an overview on current policies, activities, and 
future challenges in the Eurasian energy markets and Iran/Iraq 
(participants para 20). 
 
GDF-Suez interest in Nabucco 
---------------------------- 
 
¶3.  (C/NF) GDF-Suez President Jean-Francois Cirelli expressed 
interest in eventual participation in the Nabucco gas pipeline 
project.  A stake in Nabucco provides access to capacity in Central 
Asia and insurance for getting the gas out, Cirelli argued.  GDF-Suez 
participation is doable in the next decade, once Nord Stream is 
concluded, and on a step-by-step basis, he specified. 
 
¶4.  (C/NF) GDF-Suez wants to see big companies (like RWE) in the 
project's partnership and an Azerbaijan-Turkey gas agreement. 
Cirelli raised doubts that Azeri gas is sufficient and thinks 
Iranian, Iraqi, and Turkman sources are "complicated."  Cirelli 
pointed out that Nabucco has been too politicized and there is less 
urgency for it after the economic downturn/financial crisis. 
 
Nord Stream now, Shtokman soon 
------------------------------ 
 
¶5.  (C/NF) GDF-Suez executives are negotiating with Gazprom for a 
nine percent stake in Nord Stream.  The company will have a purely 
financial role with no operational, managerial or customer stakes in 
the project, Cirelli noted.  The deal represents a "Gazprom risk"; 
the Russian company controls prices, gas delivery, and the 
infrastructure.  However, the move serves a broader strategy to 
strengthen GDF-Suez's industrial partnership with Gazprom.  Cirelli 
has his eye on the giant Shtokman field where GDF-Suez wants to 
market LNG when it comes on stream, a project in which Gazprom holds 
the majority interest. 
 
¶6.  (C/NF) GDF-Suez executives told us that Nord Stream folds into 
the company's energy diversification business model; it will bring 
more gas to northern Europe, reinforce interdependence between Europe 
and Russia, and complement supply routes through Ukraine, objectives 
consistent with USG interests. 
 
Total SA on oil and gas links 
----------------------------- 
 
¶7.  (C/NF) Total CEO Christophe de Margerie stressed to Ambassador 
Rivkin and S/EEE the need for links between Kazakhstan and Azerbaijan 
to get Kashagan crude to the market. 
 
Southern Corridor Gas Pipelines 
------------------------------- 
 
¶8.  (C/NF) On linking Turkmenistan to Azerbaijan, Total's legal 
department is convinced that a pipeline would require approval by the 
five Caspian Sea littoral states.  De Margerie prefers gas tanker 
shipments, a strategy that can also allay NGO criticisms on the 
environmental impact of energy installations in the region. 
 
¶9.  (C/NF) Regarding Nabucco, the Total CEO said Turkey is a problem 
and understood Azerbaijan will consider other options, including 
Russia as a buyer.  Turkey blocked Electricite de France (EDF) from 
participating in Nabucco, he recalled, when it turned to South 
Stream.  South Stream allows EDF to work with Russia and compete with 
Italy and Germany in the region, he claimed, and implied strongly 
that the EDF decision to join South Stream was actually made at the 
Elysee.  Nabucco has no gas, -- a situation that could change if the 
Chinese enter the deal --, and argued that current low gas prices 
discourage investment in pipelines.  The cost of accessing energy has 
increased, he said, noting the Shtokman gas field will cost 30 
 
PARIS 00001744  002 OF 003 
 
 
billion euros.  Financing is an issue for the industry, which is why 
take-or-pay gas contracts are used, De Margerie explained. 
 
Iraq - not interested, yet 
-------------------------- 
 
¶10.  (C/NF) On Iraq's second round of auctions for the rights to 
develop oil fields, Total said the terms were not profitable for a 
long-term investor.  The flat fee per barrel the Iraqis offered for 
developing the Majnoon and West Qurna fields was too low to recover 
costs, De Margerie underscored, and investment costs are unknown. 
The country lacks security, stability and a skilled work force, he 
continued.  In the end, Total joined the Chinese-led consortium and 
got a 25 percent stake in the Halfaya field.  Total supported opening 
the Iraqi market but won't cut a big deal now; it will get its foot 
in the door as a contractor and wait for better opportunities down 
the road as an operator. 
 
Iran: the U.S., the Indians 
-------------------------- 
 
¶11. (C/NF) The Total CEO favored gas projects in Iran but said there 
is no contract on the table, "it's worse than Iraq."  Pursing gas 
projects is "politically impossible," he conceded, but asked why the 
USG did not support talks on gas projects.  The U.S. position, S/EEE 
told De Margerie, is that when we settle the nuclear issue with Iran, 
gas projects will move forward. 
 
¶12. (C/NF) De Margerie asked why nothing has been said to India's Oil 
and Natural Gas Corporation which is active in Iranian energy 
markets.  He then pointed out the negative impact an embargo on 
refined petroleum products would have on the Iranian people who are 
in need of fuel; it will be a "disaster" for U.S.-French interests 
and a plus for the Iranian regime.  Fuel sanctions won't impact the 
petroleum products market, he said, noting that the Indians and the 
Chinese are replacing Total. 
 
Total post-Copenhagen 
---------------------- 
 
¶13.  (C/NF) Total's long-term goal is to develop oil and gas 
production more efficiently with an aim to reduce CO2 emissions, De 
Margerie said.  Total invests in research on renewable energy sources 
(RES), he added.  But he cautioned that RES development relies on 
subsidies and commercial viability is decades away; RES can't replace 
fossil fuels.  World economic growth requires access to a number of 
sources - gas, oil, nuclear, coal, De Margerie asserted.  Copenhagen 
negotiators need to remember the issue is "energy and the 
environment," not just the latter, he concluded. 
 
IEA on Ukraine/Russia prospects 
------------------------------- 
 
¶14. (C) IEA energy analyst Ian Cronshaw said Ukraine looks unstable 
due to poor fundamentals (industrial output, inflation), although gas 
policy changes could make important improvements post presidential 
election (January 2010).  Gas is still priced below cost for 
households and utilities, Cronshaw observed.  Ukraine has paid its 
gas bill so far and atmospherics between Russia and Ukraine have 
improved; relations are on a longer-term basis following a ten-year 
supply agreement that is linked to international prices, he said. 
However, for a sustainable gas relationship with Russia, Ukraine 
energy policy reform and restructuring are essential: improve energy 
efficiency, cost-reflective pricing, and transparency/governance. 
 
¶15. (C/NF) Russia is feeling the decrease in European gas demand but 
still relies on Ukraine for transit to meet peak needs in both gas 
and power sectors, Cronshaw told us.  European stocks are good, but 
eastern and southern Europe would suffer if a prolonged supply 
interruption occurs, he added.  Tension persists between Russian gas 
suppliers and European buyers, the IEA analyst noted.  Europe shifted 
to the spot market where gas is half the cost of Russian long-term 
contracted prices.  Moreover, the lack of flexibility of take-or-pay 
contracts raises doubts about their commercial viability; we need to 
think about alternative business model contracts, Cronshaw and 
Ambassador Jones, IEA Executive Director commented. 
 
Gas, Europe's energy by default 
------------------------------ 
 
¶16. (C/NF) European energy security can be strengthened by an 
integrated internal market, more robust interconnections and 
reversible pipelines for transporting gas where it is needed, 
Cronshaw stressed.  The EU 27 must harmonize their regulatory 
regimes, he highlighted.  Given the investment requirements for South 
Stream and the lack of big contracts, the project seems unrealistic 
whereas Nord Stream will come through, Cronshaw predicted.  Energy 
diversification is the goal but EU governments struggle to finance 
RES projects. Financing nuclear is a problem and coal is not 
environmentally compatible; gas is the energy by default, he 
 
PARIS 00001744  003 OF 003 
 
 
concluded.  Eighty percent of European power plants built in the last 
10 years were gas, Cronshaw reported. 
 
GOF gets the USG message 
------------------------ 
 
¶17.  (C/NF) On December 14, S/EEE described USG goals in Europe and 
Central Asia (reftel).  GOF officials provided a largely consistent 
view that France sees European energy security strengthened by 
internal energy market organization, increased interconnectors and 
infrastructure projects.  On South Stream, S/EEE noted that we 
neither support nor oppose the pipeline but had doubts on its 
technical and commercial viability.  From a political symbolism 
perspective, participation by the government-owned EDF lends 
credibility to the project, S/EEE commented.  He reiterated the 
importance of Nabucco and the need to diversify gas resources and 
bolster market competition in the region. 
 
Comment 
------- 
 
¶18.  (C) The French are not out front in realizing a European 
concerted effort, but do share U.S. concerns over energy 
diversification in Central Asia.  French industrial firms' activity 
supports the GOF's priority for a triangular relationship - Europe, 
Central Asia, and Russia.  Total SA, GDF-Suez, and EDF have a 
foothold in the region's major projects: Nord Stream, South Stream, 
Kashagan (Kazakhstan), Shtokman (Russia), Shah Deniz (Azerbajian). 
 
¶19.  (SBU) Meeting participants: 
-- Georges Serre, Deputy Director General for Global Affairs, 
Development and Partnerships (DGM), MFA; Sylvan Fourriere, Chef 
Energy Pole; Christophe Sammartano, Energy Officer (Central Asia, 
Russia, CIS) for the same directorate.  Valerie Luebken, U.S. Desk 
Officer, Office of American and Caribbean Affairs, MFA. 
-- Pierre-Marie Abadie, Director for Energy, Directorate for Energy 
and Climate Change, Ministry of Ecology, Energy, Sustainable 
Development and the Sea (MEEDDM); Carole Lancereau, Head, 
International Unit, Directorate for Energy and Climate Change, for 
the same ministry. 
-- Ambassador Richard Jones, Deputy Executive Director, IEA; Ian 
Cronshaw, Head, Energy Diversification Division; Tim Gould, Program 
Manager, Caspian, Caucasus, Southeast Europe, Directorate of Global 
Energy Dialogue, IEA. 
-- Jean-Francois Cirelli, Vice-Chairman and President, GDF-Suez; 
Philippe Hochart, VP Caspian, Iran, Global Gas and LNG; Jean-Marie 
Dauger, Executive VP; Denis Simmoneau, Diplomatic Advisor, GDF-Suez. 
-- Christophe de Margerie, CEO Total SA; Hubert des Longchamps, VP, 
International Relations, Total SA. 
 
¶20.  (SBU) This cable was cleared by Ambassador Richard Morningstar. 
 
RIVKIN