Skip to content

08KYIV760, UKRAINE: DAS BRYZA’S DISCUSSIONS ON ENERGY WITH

April 15, 2008

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. #08KYIV760.
Reference ID Created Released Classification Origin
08KYIV760 2008-04-15 13:24 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXYZ0001
RR RUEHWEB

DE RUEHKV #0760/01 1061324
ZNY CCCCC ZZH
R 151324Z APR 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 5375
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L KYIV 000760 
 
SIPDIS 
 
SIPDIS 
 
DOE FOR LEKIMOFF AND CCALIENDO 
 
E.O. 12958: DECL: 04/08/2016 
TAGS: EPET ENRG PREL UP
SUBJECT: UKRAINE:  DAS BRYZA'S DISCUSSIONS ON ENERGY WITH 
PM TYMOSHENKO AND ENERGY MINISTER PRODAN 
 
Classified By: THE AMBASSADOR, REASONS 1.4 B) AND D) 
 
1. (C) Summary:  In meetings April 4 with PM Tymoshenko and 
April 5 with Minister of Fuels and Energy Prodan, DAS Matt 
Bryza explored ways the USG could work with the GOU to 
bolster Ukraine's energy security.  Tymoshenko said Ukraine 
needed to get direct access to central Asian gas, produce 
more domestically, and conserve gas at home.  Bryza pointed 
out there might be options with supplies from Norway, with 
supplies from Azerbaijan and Turkmenistan more challenging. 
Both Tymoshenko and Prodan responded positively to the idea 
of Ukraine working together with Europe to get access to 
Central Asian gas.  Both said in the ongoing gas negotiations 
Russia was insisting on retaining RosUkrEnergo as an 
intermediary.  Prodan thought there also might be 
opportunities to work with the Europeans to displace RUE as a 
spot supplier to the European market, and also possibly work 
with them to increase pipeline capacity through Ukraine as a 
more economical option than Nordstream or South Stream.  End 
Summary. 
 
TYMOSHENKO'S VISION FOR ENERGY SECURITY 
 
2. (C) DAS Bryza noted he was looking for strategies that 
would help Ukraine to stand with the Europeans and channel 
Gazprom toward market-based behavior.  Tymoshenko agreed that 
energy independence was essential, and that Ukraine in the 
past had opportunities to bolster independence but its 
leadership had proven weak and irresolute.  Now, she said, 
the problem is much more difficult than when she was Deputy 
PM for energy in 2000. 
 
3. (C) Tymoshenko outlined her strategy.  On gas, Ukraine 
first had to restore direct links with Turkmenistan.  She saw 
no reason why Turkmenistan could not sell directly to Ukraine 
and the EU.  Secondly, Ukraine needed to access better its 
own deposits of gas.  This meant attracting international 
investors, and her government's current review of Production 
Sharing Agreement laws was designed to assist this.  Finally, 
Ukraine needed to reduce gas consumption, and in some areas 
it could substitute other fuels for gas.  As a last option, 
they could take Russia to Stockholm arbitration for violating 
the 2004 agreement, but this would be a difficult option, she 
said.  For nuclear fuels, she felt Ukraine needed to produce 
more elements of the nuclear fuel cycle domestically, with 
the exception of enrichment.  For oil, Ukraine had access to 
oil transiting the Black Sea, but needed to utilize the 
Odesa-Brody pipeline and possibly build a new refinery in 
central Ukraine to process Caspian crude and increase the 
pipeline's offtake. 
 
SOURCES OF GAS 
 
4. (C) Bryza thanked Tymoshenko for outlining a strategy that 
in many ways reflects our own.  He noted Europe has three 
major potential sources of gas.  Azerbaijan (with possibly 
some gas from Iraq) could supply the Turkey-Greece-Italy  and 
Nabucco pipelines.  Even though this gas would not directly 
go to Ukraine, it could help stabilize prices in Europe by 
providing competition to Gazprom.  Norway was adding 44 BCM 
by 2013 and there was the potential to move some of this via 
Denmark and Poland to Ukraine.  Then there was Turkmenistan, 
but it was difficult to get President Berdymuhammedov to be 
courageous and think of supplying the West.  Bryza noted the 
Azeris had told us there had recently been some feelers from 
Ashgabat about connecting Turkmenistan's Block 1 deposit with 
Azerbaijan's transport infrastructure, which is only 60 
kilometers away.  Bryza made similar points to Prodan. 
 
JOINT ACTION WITH EU ON GAS ACCESS TO CENTRAL ASIA 
 
5. (C)  With both Tymoshenko and Prodan, Bryza noted there 
also could be possibilities to move Azeri or Turkmen gas via 
White Stream or LNG, though these options faced political and 
commercial challenges.  Another option could be to secure 
delivery of Turkmen and Kazakh gas via Russia,s pipeline 
system, if the Ukrainians and Europeans could act together to 
demand such third-party access, perhaps in a commercial 
venture involving the EU and its international financial 
institutions.  Both responded very positively to this idea. 
Tymoshenko said if they could set up a long-term gas 
arrangement with Turkmenistan, the transport could be worked 
out, with White Stream her preferred option, although she 
would be willing to look at LNG if that was more economical 
than a pipeline.  She stated she had spoken during the recent 
visit to both President Bush and Secretary Rice about direct 
access to Central Asia and found them supportive.  Bryza 
noted that Gazprom was relying on Central Asian gas to 
 
fulfill its European supply contracts, and that the Shtokman 
(in the Barents Sea) and Bovanenko (on Russia,s Yamal 
Peninsula) were years behind schedule and would be unable to 
feed Nordstream or South Stream for at least 10 years. 
Tymoshenko was adamant that Gazprom would not secure 
ownership or control of Ukraine's gas storage or transit 
pipelines, adding Ukraine had passed a law under PM 
Yanukovych that specifi
cally prohibited any transfer. 
 
TOUGH GAS TALKS 
 
7. (C)  Both Tymoshenko and Prodan indicated gas talks with 
Russia were very tough.  Prodan said the Russians were 
offering the simple choice of accepting RosUkrEnergo,s (RUE) 
continuing and murky role as an intermediary or immediately 
pay USD 315/thousand cubic meters, with no explanation why. 
Tymoshenko also related that their signals from the 
negotiators were that Russia was clinging to RUE.  She 
insisted it was essential to eliminate RUE and other shady 
intermediaries, and said it would be helpful if Ukraine were 
to get some public support.  Bryza suggested the U.S. could 
offer such support; but he also stressed the need for Ukraine 
to demonstrate its reliability as a gas transit country. 
 
TAKING THE "JUICY BUSINESS" FROM RUE 
 
8. (C) Prodan saw another way the EU might be able to 
cooperate with Ukraine.  Currently, Ukraine's contract with 
RUE obligated it to offer gas transit and storage to RUE at 
bargain rates.  RUE paid Ukraine USD 7.80 for storage, when 
in Europe the going rate was closer to USD 30, he said.  The 
contract also mandated Ukraine to offer RUE storage at this 
price for up to 10 bcm for 20 years.  RUE used this gas to 
sell cheaper Central Asian gas on European spot markets, 
earning massive profits.  As one of Prodan's aides remarked, 
it was curious why Gazprom would cede this particularly 
"juicy business" to RUE.  Prodan suggested that there was no 
reason the Europeans, perhaps through a consortium, could not 
take over this business.  They could buy the gas at the 
Russia/Ukraine border, could store it in Ukraine's gas 
storage, and then use it themselves to meet spot needs, thus 
avoiding paying RUE's spot prices.  Bryza agreed this might 
be interesting, and would also help increase transparency 
between the EU and Ukraine on gas matters. 
 
INCREASING GAS CAPACITY IN UKRAINE 
 
9. (C) Prodan noted that in the first quarter of 2008, 
Ukraine had transported a record amount of gas to Europe.  He 
remarked that it was thus ironic that the Europeans continued 
to believe the Russians' line that Ukraine was a unreliable 
gas transit state.  He added that since 2004 Ukraine and 
Russia had a project to expand the Ukrainian system's 
capacity by 19 bcm with a parallel pipeline to eliminate a 
bottleneck across the Carpathians from Bohorodchany to 
Uzhgorod.  This project, which only would cost USD 800 
million, would be practically free compared with Nordstream 
and South Stream.  Now, however, the Russians he said were 
silent about this project. Bryza said we might talk to the 
Europeans about this -- perhaps they could step in and help 
move this forward.  (Bryza will forward to the interagency 
community a paper outlining this proposal, which also 
includes the elements outlined in para. 8.) 
 
10. (U) Note:  DAS Bryza cleared this message. 
 
 
Taylor

Wikileaks

Advertisements

From → CONFIDENTIAL

Leave a Comment

Post tour comment here

Please log in using one of these methods to post your comment:

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: