09MOSCOW2715, PUTIN’S SOUTH STREAM WISHES UNLIKELY TO COME TRUE

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #09MOSCOW2715.
Reference ID Created Released Classification Origin
09MOSCOW2715 2009-11-02 15:16 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Moscow

VZCZCXRO6328
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHMO #2715/01 3061516
ZNY CCCCC ZZH
P 021516Z NOV 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5271
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 002715 
 
SIPDIS 
NOFORN 
 
DEPT FOR EUR/RUS, EEB/ESC/IEC GALLOGLY AND GREENSTEIN, 
S/EEE MORNINGSTAR 
DOE FOR HEGBURG, EKIMOFF 
DOC FOR JBROUGHER 
NSC FOR MMCFAUL 
 
E.O. 12958: DECL: 11/01/2019 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: PUTIN'S SOUTH STREAM WISHES UNLIKELY TO COME TRUE 
 
Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b/d) 
 
------- 
Summary 
------- 
 
1. (C) PM Putin stated during a meeting with Italian PM 
Berlusconi that the proposed South Stream gas pipeline could 
be completed before the proposed Nord Stream gas pipeline. 
His statement followed agreement by Turkey to allow South 
Stream feasibility studies in its Black Sea waters, and 
agreements between Gazprom and Serbia's Sribjagas on gas 
storage and construction of the Serbian leg of South Stream. 
Gazprom and Italy's ENI, its 50-50 South Stream partner, also 
reportedly decided to accelerate the project.  However, 
despite this apparent progress, we still believe that South 
Stream faces significant obstacles.  Under current 
conditions, we expect gas from Nord Stream a few years after 
the current proposed 2011 target date, and from South Stream 
several years after the current proposed 2015 target date -- 
if ever.  End summary. 
 
----------------------------------------- 
South Stream Takes a Few Steps Forward... 
----------------------------------------- 
 
2. (U) PM Putin once again surprised analysts and journalists 
on October 22 when he stated during a meeting with visiting 
Italian PM Silvio Berlusconi that the proposed South Stream 
gas pipeline could be completed before the proposed Nord 
Stream gas pipeline.  Putin's statement followed developments 
indicating some movement on South Stream.  Earlier in the 
week, Turkey gave approval for Gazprom and Italy's ENI, 
Gazprom's 50-50 partner on South Stream, to conduct South 
Stream feasibility studies in Turkish Black Sea waters. 
Also, during President Medvedev's trip to Serbia that same 
week, Gazprom and Srbijagas agreed to set up a joint venture 
to manage construction of the pipeline on Serbian territory 
and to build gas storage facilities in Serbia.  In 
conjunction with the Putin-Berlusconi meeting, Gazprom and 
ENI reportedly agreed to accelerate the project. 
 
--------------------------------------------- ------ 
...But Very Unlikely to Be Built Before Nord Stream 
--------------------------------------------- ------ 
 
3. (SBU) Putin's statement was a surprise because Nord Stream 
is an already established company that has conducted reams of 
feasibility, technical, and environmental impact studies, and 
has spent hundreds of millions of dollars on infrastructure 
and pipe.  South Stream, on the other hand, remains a project 
on paper.  Gazprom itself plans to complete the first phase 
of Nord Stream by 2011 (a delay from the original target date 
of 2010), and to complete only the first leg of South Stream 
by 2014.  Most analysts believe both estimates are 
optimistic, with the South Stream timeline particularly 
unrealistic. 
 
4. (C) Deutsche Bank oil and gas analyst Pavel Kushir 
(protect) told us on October 23 that a situation in which 
South Stream would be completed before Nord Stream is "highly 
unlikely" given the different stages in which each project 
currently finds itself.  He (along with other watchers) noted 
that Putin's statement could only come true if Nord Stream is 
seriously delayed or if South Stream is built "incredibly 
quickly."  Credit Suisse oil and gas analyst Andrey 
Ovhinnikov (protect) was more blunt, suggesting to us on 
October 23 that Putin's statements do not make sense.  He 
compared them to Putin's earlier reference in China to the 
"Asian oil basket" -- "No one knows what that is," 
Ovchinnikov said, "but it sounds good at the time he says 
it."  Both Ovchinnikov and Kushnir also indicated that 
Putin's statement could be related to a growing expectation 
that Sweden may not provide needed Nord Stream permits 
anytime soon. 
 
5. (C/NF) Referring to his PM's apparent agreement with 
Putin, Italian Embassy Energy Officer Lorenzo Fanara 
explained to us on October 23 that "of course those are just 
political statements."  Fanara believed there was a link 
 
MOSCOW 00002715  002 OF 002 
 
 
between Turkish agreement on South Stream feasibility 
studies, and an earlier agreement by Rosneft, Russia's 
state-owned oil company, on the Samsun Ceyhan oil pipeline to 
Turkey, in which ENI also has an interest.  Fanara also 
downplayed a reported statement by ENI CEO Pablo Scaroni that 
ENI may make a final investment decision on South Stream in 
2010.  He said such a decision could only come after 
feasibility studies that are planned to be concluded only at 
the end of 2010.  As to why ENI is participating in a project 
that many see as uneconomic, Fanara said that ENI's 
calculation is "different from Gazprom's."  He noted that 
ENI'
s construction subsidiary is slated to build the pipeline 
and that the project guarantees gas for ENI to distribute 
within Italy. 
 
6. (C/NF) Fanara also commented on whether South Stream is 
needed at all, given Nord Stream's likely construction and 
the gas glut that is forecast to continue in the medium-term. 
 He said that gas for South Stream would "clearly" be 
diverted from Ukraine.  Although this may be uneconomic, he 
said, the GOR "is obsessed" with bypassing Ukraine. 
 
------- 
COMMENT 
------- 
 
7. (C) Russian political leaders' statements about the 
economy or energy projects often overlook how they may sound 
to educated observers.  Putin's comment on South Stream is 
likely just a flip "political statement," as Fanara put it. 
Unless Nord Stream is delayed by many years, it would be 
extremely unlikely for South Stream to be completed first. 
Gazprom estimates the total costs of the South Stream 
pipeline at approximately 24 billion euros.  This estimate is 
difficult to confirm because few real studies have been 
concluded regarding the scope and path of the pipeline. 
Regardless of the exact final cost, raising such vast sums of 
money would prove very tricky in the current credit 
environment.  Financing should be even more difficult for a 
project of questionable economic merit, and at a time of 
great uncertainty about future gas demand and pricing in 
Europe.  Furthermore, the pipeline has to compete with other 
priorities for Gazprom's limited cash.  Logistical, 
environmental, technical, legal, and political obstacles only 
add to the uncertainty over the future of South Stream.  We 
continue to believe that we will not see gas flowing into 
Europe from the South Stream project until at least several 
years after the current target date of 2015, if then. 
Beyrle

Wikileaks

Advertisements
Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: