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Viewing cable 08STATE106338, BACKGROUND AND TALKING

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Reference ID Created Released Classification Origin
08STATE106338 2008-10-04 00:30 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Secretary of State
VZCZCXRO8424
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHC #6338/01 2780034
ZNR UUUUU ZZH
P 040030Z OCT 08
FM SECSTATE WASHDC
TO RUEHRL/AMEMBASSY BERLIN PRIORITY 7391
RUEHSM/AMEMBASSY STOCKHOLM PRIORITY 6075
EUROPEAN POLITICAL COLLECTIVE
UNCLAS SECTION 01 OF 02 STATE 106338 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG EPET GM SW RS
SUBJECT: BACKGROUND AND TALKING 
POINTS ON U.S. POSITION REGARDING 
NORDSTREAM PIPELINE 
 
REF: STOCKHOLM 611 
 
1.  (SBU) The United States supports reducing Russia's 
dominance in European gas markets through development of 
a Southern Corridor bringing gas from the Caspian region 
through Turkey to European markets.  Nordstream 
bolsters Gazprom's position in European gas markets and 
could negatively impact the energy security of Ukraine, 
the Baltic littoral states and Poland.  However, 
Nordstream's energy security implications for Europe 
require a nuanced approach.  The United States should not 
advocate a view opposing the development of Nordstream. 
If asked for United States' views, Posts may draw from 
points provided below. 
 
Background 
 
2.  (SBU) As planned, the European Commission (EC) 
supports Nordstream because it is a project to bring 
additional Russian gas to Europe to meet its growing 
demand, rather than diverting gas that currently transits 
Poland and Ukraine.  Nordstream is planned to consist of 
two parallel pipelines each designed to deliver 27.5 
billion cubic meters per year (bcm/a); the first pipeline 
is scheduled to be completed in 2011 and the second in 
2012, for a total capacity of 55 bcm/a mainlined from 
Russia to Germany.  The primary source of gas for the 
first pipeline, the Russian Yuzhno-Russkoye field (25 
percent 
owned by German firm BASF), is projected to reach its 
planned output of 25 bcm/a in 2009, two-years ahead of 
schedule.  However, other Russian sources of supply for 
Nordstream's second pipeline, the Bovanenko field on the 
Yamal Peninsula and the Shtokman field in the Barents 
Sea, 
are several years behind schedule and may not be ready in 
time for the second phase. 
 
3.  (SBU) In the event of production delays, it is 
unclear 
where gas to fill the second phase of Nordstream would 
come from.  If the second phase of Nordstream diverts 
current volumes of gas transiting other nations through 
existing or inexpensively-upgraded infrastructure, then 
it 
could possibly harm the energy security of some eastern 
EU 
members and Ukraine.  We should highlight this 
possibility 
to European nations that favor Nordstream.  We indeed 
seek 
to explore with Kyiv and our EU partners the possibility 
of expanding gas transit across Ukraine by 20 bcm/a, a 
project Ukrainian authorities estimate would cost around 
USD 800 million. 
 
4.  (SBU) USG policy is to encourage Russia to increase 
its oil and gas production to boost supply on global 
markets.  USG attempts to oppose or undermine projects 
that bring additional gas to market could contradict our 
2006 G-8 St. Petersburg Energy Security Principles 
commitments. 
 
5.  (SBU) We also strongly support the efforts of the 
European Commission to create a common EU internal market 
for gas and electricity along the lines envisioned in the 
Third Energy Package.  A unified energy market, with 
increased electricity and gas interconnections between EU 
members, would significantly enhance European energy 
security.  Currently Russia faces 27 separate European 
markets.  If it faced one unified market the dynamics of 
the relationship could change positively.  Greater 
interconnectivity also would help mitigate the risk from 
asymmetric shocks to one EU member. 
 
6.  (SBU) Both Germany and the Netherlands have supported 
Nordstream, ostensibly to compensate for declining North 
Sea production.  At the same time, Chancellor Merkel 
inherited Nordstream from former Chancellor Schroeder, 
who 
concluded the deal shortly before assuming a position at 
the head of the Nordstream development company, 
Nordstream 
AG, a joint venture between Gazprom and German energy 
companies.  Following Russia's attack on Georgia, Germany 
 
STATE 00106338  002 OF 002 
 
SUBJECT: BACKGROUND AND TALKING 
POINTS ON U.S. POSITION REGARDING 
NORDSTREAM PIPELI 
may be more sensitive to the possible downsides of 
Nordstream and the corresponding value of diversification 
options.  Nordstream causes concern among other EU 
members, such as the Baltic States. 
 
7.  (SBU) Department requests Posts draw from the 
following talking points regarding the U.S. position on 
Nordstream if raised: 
 
BEGIN POINTS 
 
-- The EU and United States oppose business as usual with 
Moscow, as long as Russia is in violation of its 
commitments 
Under ceasefire documents signed by President Medvedev. 
 
-- It is important for Europe and the United States to 
work 
together to increase diversification of energy supplies. 
The key to this objective in Europe is the realization of 
a "Fourth" or "Southern Corridor" to export Caspian gas 
directly to Europe. 
 
-- U.S. policy is to support EU efforts to diversify 
sources of energy supply, as well as to develop 
transparent, market oriented pipelines, which meet the 
best international practices for governance, transparency 
and environmental safety.  This is consistent with the 
2006 St. Petersburg Global Energy Security Principles 
that 
all G-8 members pledged to uphold. 
 
-- Our central - and long held - position is that 
diversification of energy supplies will benefit both 
consumers and suppliers and improve European energy 
security. 
 
-- Another core goal is full integration of European 
energy markets into a single market space.  A common EU 
internal market for gas and electricity, as envisioned in 
the Third Energy Package proposed by the European 
Commission, would increase electricity and gas 
interconnections between Member States, boosting 
efficiency and enhancing EU energy security. 
 
-- These internal reforms and diversification of energy 
sources are increasingly important given growing doubts 
as 
to whether Russia can produce enough gas to meet growing 
European demand.  We encourage Western investment in new 
Caspian gas reserves so that these additional volumes can 
flow to the European market via new, non-Gazprom 
infrastructure. 
 
The IEA has said that Russia could encounter problems 
Fulfilling its existing European gas contracts as early 
as 2011 absent significant upstream investment; Russian 
gas 
production declined in 2007 for the first time since 
2000, 
according to the 2008 BP Statistical Review of World 
Energy. 
 
-- While Gazprom has said it will boost upstream gas 
investment, and Russia has announced domestic gas price 
increases to reduce demand, it is unclear whether such 
measures will have a concrete impact on increasing gas 
available for export. 
 
-- If competition deepens more generally in the European 
gas and electricity markets, including by building 
interconnections among European natural gas and 
electricity grids (especially those that connect Germany 
to Poland and the Baltic states), Nordstream's potential 
negative effects could be mitigated and it could have a 
beneficial impact on EU energy security by bringing new 
gas to market. 
RICE