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Cablegate: Gazprom Asks U/S Jeffrey to Help "Mitigate

VZCZCXRO6981
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #3534/01 2001006
ZNR UUUUU ZZH
P 191006Z JUL 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 2200
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 4266
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MOSCOW 003534

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND GARVERICK,
OES MIOTKE AND COVINGTON, EAP YAMAMOTO, AND EEB SAEGER
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR MCKIBBEN

E.O. 12958: N/A
TAGS: EPET ENRG ECON PREL PINR RS
SUBJECT: GAZPROM ASKS U/S JEFFREY TO HELP "MITIGATE
ATMOSPHERE OF MISTRUST."

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.

1. (SBU) Summary: During a July 16 meeting, Gazprom Deputy
Chairman Aleksander Medvedev told U/S Jeffrey that EXIM's
possible withholding of financing for the Sakhalin 2 LNG
project would be neither in the interests of U.S. equipment
and service suppliers nor the United States, an export
destination of the project's gas. He repeatedly requested a
response to the letter sent to EB DAS Paul Simons on the
issue. Stressing that Russia "does not discriminate based on
national origin," he said that ConocoPhillips is still a
candidate for the remaining 24% of the Shtokman gas field
development project. Medvedev expressed hope that Gazprom
could expand into the U.S. market as well as expand its oil
and power-generation businesses. On pipelines to Europe, he
suggested the only viable routes were those in which Russia
is a partner, as only Russia has the gas to fill the
pipelines, given Iran's political baggage and Turkmenistan's
inability to adequately increase supply. He believes that
domestic gas price liberalization will dampen demand and
increase supply, and rejected (without specifics) an IEA
analysis that Russia is underinvesting in upstream gas. He
asked that we help "mitigate the atmosphere of mistrust."
End summary.

-------------------------------------------
EXIM FINANCING FOR SAKH 2 IN U.S. INTEREST
-------------------------------------------

2. (SBU) Gazprom's Deputy Chairman (and CEO of Gazprom's
export subsidiary) Aleksander Medvedev started his July 16
meeting with U/S Jeffrey by expressing dismay that "under
pressure from the State Department" EXIM may not participate
in financing the Sakhalin 2 LNG project. Medvedev bluntly
suggested that U.S. equipment suppliers and service companies
would be negatively impacted by any project delays, while
maintaining that EXIM support was marginal and that
alternative financing could be found. He also said that,
given potential LNG shipments from the project to the United
States, he would expect the USG to support the project. He
showed a recent letter he had sent to EB DAS Paul Simons, and
said he was still waiting for a reply. He suggested that
pressure was being applied to the EBRD to withhold financing
as well, despite the project, in his view, being a perfect
fit for EBRD financing.

3. (SBU) Believing EXIM's decision could not be based on
economic considerations, Medvedev repeatedly referred to this
issue, again invoking the potential business for U.S.
exporters and potential gas deliveries to the U.S. He said
he is willing to travel to the United States, if needed, to
assuage concerns about Gazprom, adding that there is great
potential for increased economic activity between the two
countries. "We need to mitigate the atmosphere of mistrust."

--------------------------------------
GAZPROM -- A LEADING AMERICAN COMPANY?
--------------------------------------

4. (SBU) Medvedev claimed that Russia does not discriminate
based on national origin of companies when deciding on
business partners. He said ConocoPhillips was still being
considered for 24% of the Shtokman gas field project, leaving
Gazprom with 51%, with 25% having already been awarded to
Total. Medvedev then described Gazprom's aspirations to
expand into international markets, specifically citing North
America and China, Japan, and Korea. He told an anecdote
about a taxi driver in the United States pointing to a BP
station, saying "BP is a leading American company," adding
that he would like Gazprom to be misidentified that way
sometime in the future.

------------------------------------------
PIPELINES NEED GAS AND WE HAVE ALL THE GAS
------------------------------------------

5. (SBU) Discussing Russia's planned Nordstream and
Southstream pipelines, Medvedev said Russia is committed to

MOSCOW 00003534 002 OF 002


multiple export routes for its gas and that Gazprom has
allocated 50% of its investment budget to transportation
projects. He said Russia needs to diversify away from
dependence on Ukraine as a transit route as Ukraine's poorly
maintained infrastructure is not reliable. He said the
proposed Southstream pipeline under the Black Sea to Bulgaria
and Italy would carry Central Asian as well as Russian gas
and maintained the alternative Nabucco pipeline would not be
able to find the gas it needs to make it economically viable.
He laid out three needs for any transport project -- gas, a
market, and an understanding between the parties involved.
He suggested Nabucco lacks at least two of these essentials
as Turkey has no gas and no contracts, and Azerbaijan "does
not have enough gas to supply its local market and meet its
export commitments."

6. (SBU) Medvedev bluntly stated that only Russia, Iran, and
Qatar have the gas to meet increased future global demand.
Gas from Iran is politically unacceptable to Europe and the
United States; gas deliveries from Qatar are limited by LNG
production; and Turkmenistan and Azerbaijan are
overcommitted. Thus, Russia is the sole potential supplier
of increased gas supplies to Europe. "We have the gas, we
have contracts, and the market is there."

7. (SBU) Dismissing analyses that Russia has underinvested in
upstream gas, Medvedev suggested "the IEA analyst who wrote
that should be fired." Without providing any specifics, he
said Gazprom is investing adequately, and that gas price
liberalization in Russia is underappreciated and would lead
to dampened demand and increased supply.

8. (SBU) Medvedev admitted that human capital is a long-term
problem for Gazprom, as it is for other Russian companies.
He said Gazprom has a long-term education plan for its
employees and that many foreigners now work for Gazprom in
Russia -- a situation he described as almost unimaginable in
the past.

This cable has been cleared by U/S Jeffrey.
BURNS

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