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DE RUEHMO #1530/01 1621307
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P 111307Z JUN 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 3747
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001530 SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT DOE FOR HEGBURG, EKIMOFF DOC FOR JBROUGHER NSC FOR MMCFAUL, JELLISON E.O. 12958: DECL: 06/11/2019 TAGS: EPET ENRG ECON PREL RS GM

SUBJECT: NORD STREAM CEO SAYS PIPELINE WILL BE COMPLETED BY OCTOBER 2011 -- IF IT STARTS ON TIME Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b/d)

 ------- SUMMARY ------- 1. (C) Nord Stream Managing Director Matthias Warnig (protect) told the Ambassador in a June 11 meeting that he expects the first 27.5 bcm phase of Nord Stream to be completed on schedule by October 2011 if construction starts on schedule in April, 2010. The gas for Nord Stream, according to Warnig, will be new and additional to existing exports, although the source of the gas is as yet unidentified. He said that although he is a "de facto employee of Gazprom," he personally believes South Stream is unlikely to be built anytime soon and that gas from Shtokman is unlikely to be available until "at least" 2018. He concluded by noting that even if all planned gas pipelines are built, Ukraine is unlikely to ever be replaced as the main conduit for Russian gas to Europe. Warnig, who is reportedly a close friend of PM Putin, will be in Washington the week of June 15 and is seeking various high-level USG meetings. End summary. -------------------------------------------- "SPENDING LIKE HELL" DESPITE LACK OF PERMITS -------------------------------------------- 2. (C) Warnig told the Ambassador that by the end of this year Nord Stream will have spent over 1 billion euros, including for the purchase of 50 thousand tons of pipe, which is being stored in facilities in Germany, Finland. He said the company is "spending money like hell" but is not "over budget." Quite the contrary, Warnig said that when Gazprom formed the company in early 2007, it prepared a business plan and estimated costs at 7.4 billion euros. That figure had not changed as lower steel prices have offset other increases, such as mine-clearing expenses. 3. (C) Warnig said he is concerned, however, about slow movement on permits and approvals in the face of commercial and financial deadlines. He stressed that construction must begin by April 2010 to avoid substantial commercial and financial losses (presumably from the need for financing and payments for future gas deliveries). In addition to permits needed directly from Russia, Finland, Sweden, Denmark, and Germany, the company needs to get the approval of all Baltic littoral states (Poland, Estonia, Latvia, and Lithuania as well) under the ESPOO Convention. To do so, the company needs to address the transboundary and environmental impacts of the project. Warnig said the company "can cope with the facts" required to comply with all permitting and ESPOO requirements, but that it has no power over the international and domestic politics in various countries that might delay the project. 4. (C) The Ambassador asked whether the project has the full support of the German government. Warnig said yes, noting that he has regular, direct access to Chancellor Merkel's office and that Nord Stream Chairman Gerhard Schroeder also meets frequently with Merkel. However, Warnig lamented that Russian diplomacy is sometimes heavy-handed and counterproductive. Warnig said he is careful to try always to paint the project as an EU-Russia project, to reflect the fact that Dutch company Gasunie is also a partner. He said he also expects Gaz de France to join the project soon. ----------------------- 2011 TARGET, GAS SUPPLY ----------------------- 5. (C) If the necessary permits are obtained, Warning maintained, construction of the first phase of the pipeline would begin in April 2010 and be complete by October of 2011, as scheduled. He said it is too early to know exactly where the gas for the pipeline will come from, but that gas supply for Nord Stream would be additional to current exports. He cited various potential long-term sources, but noted that "the crisis has freed up a lot of gas" and that supply should not be a problem. MOSCOW 00001530 002 OF 002 6. (C) Warnig said gas supply "is Gazprom's responsibility" but added that in his "personal opinion," Gazprom should buy additional gas from independent producers and oil companies. According to Warnig, DPM Sechin (who is in charge of energy policy) and PM Putin share the view that Gazprom must open up its pipeline system to third-party suppliers and thus it was just "a matter of time" before Gazprom was forced to do so, despite its current resistance. ---------------------- SHTOKMAN, SOUTH STREAM ---------------------- 7. (C) In response to the Ambassador's questions about the status of the Shtokman gas field (a proposed source of gas for Nord Stream) and the South Stream gas pipeline, Warnig smiled and noted that he "is a de facto employee of Gazprom and must be careful" about what he says. However, he then agreed with the Ambassador that the official Gazprom projection of gas from Shtokman by 2013 was "absolutely unrealistic" and that it would be "at least 2018" before gas flowed from Shtokman. And on South Stream, Warnig also agreed with the Ambassador that the pipeline would not be built anytime soon, if ever, noting that nothing was "happening" with regard to South Stream: no company had been formed, no engineering work was underway, and no business plan had been prepared. 8. (C) Warnig added that as difficult as the political problems were for Nord Stream they were much worse for South Stream. The political roadblocks to building a pipeline across the Black Sea could be insurmountable. Since Ukraine would be unlikely to give permission for the pipeline to cross its Black Sea territory, South Stream would have to cross Turkish waters. However, Turkey would also be unlikely to allow a pipeline that would bypass it as a transit corridor to the rest of Europe. ------- UKRAINE ------- 9. (C) In response to the Ambassador's questions about the existing gas transit corridors, Warning noted that they are unlikely to diminish much in importance. He said Putin had made a firm commitment to Poland that the Yamal pipeline would continue to be used to capacity. As for Ukraine, Warnig said the pipeline route through Ukraine "simply cannot be replaced." Asked if Putin understood this, Warnig (who is known to have close ties to Putin) said "he does." Warnig declared that Ukraine would always be the main transit country for Russian gas to Europe. ---------------------------- UPCOMING VISIT TO WASHINGTON ---------------------------- 10. (C) Warnig closed by telling us that he will be in Washington for several days starting Monday, June 15 and that he is seeking meetings with NSC Senior Director Mike McFaul and Undersecretary Burns. Especially given Warnig's reportedly close friendship with Prime Minister Putin, we recommend the Department facilitate Mr. Warnig's meeting requests. BEYRLE