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Cablegate: U/S Jeffery and Italian Eni Ceo Scaroni Discuss

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RR RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV RUEHTRO
DE RUEHC #3922/01 1412114
ZNY CCCCC ZZH
R 202105Z MAY 08
FM SECSTATE WASHDC
TO RUEHRO/AMEMBASSY ROME 6395
INFO EU MEMBER STATES COLLECTIVE
IRAN COLLECTIVE
UN SECURITY COUNCIL COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 1158
RUEHAK/AMEMBASSY ANKARA 4396
RUEHAH/AMEMBASSY ASHGABAT 9573
RUEHTA/AMEMBASSY ASTANA 9769
RUEHEK/AMEMBASSY BISHKEK 2989
RUEHDBU/AMEMBASSY DUSHANBE 0875
RUEHKV/AMEMBASSY KYIV 6412
RUEHMO/AMEMBASSY MOSCOW 1006
RUEHNT/AMEMBASSY TASHKENT 0150
RUEHTRO/AMEMBASSY TRIPOLI 0549
RUEAIIA/CIA WASHINGTON DC 3064
RHEHNSC/NSC WASHINGTON DC 0539
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/TREASURY DEPT WASHINGTON DC 9467
RUEHBS/USEU BRUSSELS
RUEHNO/USMISSION USNATO 4601
RUCNDT/USMISSION USUN NEW YORK 1843
RHEHAAA/WHITE HOUSE WASHINGTON DC 3337
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 STATE 053922

SIPDIS

E.O. 12958: DECL: 05/20/2018
TAGS: ENRG EPET ETTC EFIN EUN LY AG TU RS IR IT

SUBJECT: U/S JEFFERY AND ITALIAN ENI CEO SCARONI DISCUSS
IRAN AND RUSSIA/GAZPROM

Classified By: U/S Reuben Jeffery III for reasons 1.4 (b) and (d)

1. (C) Summary. Under Secretary Reuben Jeffery met with
Italian energy firm Eni's CEO Paolo Scaroni on May 6 in
Washington. Scaroni came to Washington seeking U.S. views on
Eni's activities in Iran and to discuss its growing
relationship with Russia's Gazprom. U/S Jeffery pushed back
hard when Scaroni asked how the USG would feel about Eni
conducting a feasibility study for building a pipeline from
Iran's South Pars fields to Turkey. He emphasized such a
project would hurt international efforts to bring Iran to the
table over its nuclear program. Regarding Gazprom, U/S
Jeffery expressed concern about Europe's increasing
dependence on Russian gas. Scaroni explained that Europe
needs Russia to meet its growing demand and that the proposed
Eni-Gazprom South Stream pipeline will not kill other
projects because there is enough demand for all. End summary.


----------------------
IRAN: U/S JEFFERY OPPOSES ENI'S PROPOSED PIPELINE
FEASIBILITY STUDY
----------------------

2. (C) Scaroni began by outlining the company's 50-plus years
of involvement in Iran. He explained that Eni currently has
$3 billion invested in Iran through two production-sharing
agreements (""buy backs"") it won in 2001 with French oil
company Total, and is only now entering the crucial repayment
period. (Comment: The two Eni investments are located in
Darkhovin phases 1/2 and South Pars 4/5. End comment.) As a
result, Scaroni noted that while Eni does not plan to leave
Iran, it is not planning any new investments. He went on to
say, however, that Eni is under ""lots of pressure"" to sign a
new contract to help Iran exploit the South Pars 19/20/21
fields and export the gas in liquefied form. Scaroni
stressed Eni is not ready for new projects in Iran, but is
considering conducting a feasibility study for building a
pipeline from South Pars to Turkey in order to bring gas to
Europe. Europe is ""between a rock and a hard place"" and Iran
is the only alternative to Russia as a major source for gas
supplies. He said the National Iranian Oil Company (NIOC)
had recently proposed the pipeline idea to Eni in Rome.


3. (C) Under Secretary Jeffery was clear: the U.S. would
""discourage in the strongest possible terms"" this feasibility
study or any new investment in Iran. Observing the UNSC
resolutions on Iran, he noted the international community has
decided to make short-term commercial sacrifices to bring
Iran to the table over its nuclear program. Jeffery
emphasized that the U.S. is already ""disappointed"" with
Switzerland over Swiss firm EGL's gas deal signed with Iran
earlier this year. While the U.S. understands Europe's need
for gas, the priority must be to increase the pressure on
Iran to comply with the UN Security Council resolutions.


4. (C) Scaroni countered that Eni's proposal was not an
investment in the energy sector, just a no-obligation study.
As he explained, Eni wants to have a commercial/business
""edge"" for when the world makes peace with Iran and all of
Eni's U.S competitors come into the country, as happened in
Libya. Scaroni asked directly if the feasibility study would
be acceptable to the U.S. His assistant added that, in Eni's
analysis, the study did not violate the Iran Sanctions Act
(ISA). Scaroni reassured U/S Jeffery that Eni wants full
transparency and would keep Washington informed every step of
the way. Downplaying Iran's overall importance to Eni,

STATE 00053922 002 OF 003


Scaroni commented that Eni is ""number one"" in the European
gas market and could easily survive without Iran. Scaroni
also said the ""weakness"" on Iran of the recently departed
Prodi government was a problem for Eni. Eni wants clear
guidance, and the Prodi government's silence made them
""uncomfortable."" Eni is waiting to see what the new
Berlusconi government will do. (Comment: The Italian
government owns 30 percent of Eni. End comment.)


5. (C) U/S Jeffery reiterated that the U.S. would strongly
oppose this study as it would have the same detrimental
effects as the Swiss EGL deal. He warned that the Congress
is looking to pass even tougher legislation against Iran.
Deals like Eni's proposal would only magnify concerns on the
Hill that the U.S. should be more aggressive in its approach,
even if it meant working less in concert with the
international community to stop Iran's nuclear program.


----------------
U/S JEFFERY EXPRESSES CONCERN OVER DEPENDENCY ON RUSSIA;
SCARONI SAYS EUROPE NEEDS RUSSIAN GAS
-----------------

6. (C) When asked by U/S Jeffery why Eni is pursuing the
South Stream pipeline project with Gazprom, Scaroni replied
bluntly that Europe needs Russian gas. According to Eni,
Europe will require 200-300 billion cubic meters (bcm) of
additional gas over the next 10-15 years, and Russia will
provide half of this increase. South Stream is a worthy
project because it is better to obtain gas directly from
Russia and avoid future Russia-Ukraine disputes. Besides,
with Eni's experience building the Blue Stream pipeline with
Gazprom, his company is the only one capable of constructing
South Stream.


7. (C) In response to U/S Jeffery's question about other
pipelines, Scaroni replied that Eni did not get behind
Nabucco because there is not enough gas to supply it. He
said Eni has nothing against Nabucco and denied that South
Steam would damage the prospects for other projects because
it will mostly replace Russian gas currently flowing through
the Friendship Pipeline in Ukraine. (He said Russia has an
""obsession"" with bypassing Ukraine.) Of the 30 bcm to flow
through South Steam, only 10 bcm will be new supply. There
is enough future demand from Europe to fill Nabucco, South
Stream, and more. When asked about the cost of South Stream,
Scaroni said the $15)20 billion price tag is half the cost
of an LNG-equivalent chain. He claimed the cost of a 5 bcm
liquefaction facility was now about $5 billion, not including
the cost of ships and regasification at the delivery end. In
addition, Scaroni observed, the LNG manufacturing and
shipping process consumes 12 percent of any gas involved,
delivering only 88 percent. By contrast, a pipeline only
consumes about 6 percent of its gas, making it more
efficient.


8. (C) U/S Jeffery said that the U.S. is concerned about
Europe's growing dependency on Russia for energy. Scaroni
acknowledged these concerns, admitting: ""The more I know the
Russians, the more I get worried."" But Eni is expanding a
pipeline from Algeria, building one from Libya and seeking to
site LNG facilities in Italy. As to Gazprom as a commercial
partner, Scaroni said Eni's relationship with them was
""perfect."" They are bureaucratic and take a long time to
make decisions, but they are reliable. Scaroni downplayed
concerns about Eni's cooperation with Gazprom in North
Africa. When Eni bought a gas property in Russia under its
strategic agreement with Gazprom, it had to offer to Gazprom
assets outside Russia. He also clarified that the asset swap
is for a share in a Libyan oil field, not gas. Regarding
Algeria, Scaroni said Gazprom and the Algerians are talking

STATE 00053922 003 OF 003


all the time and do not need Eni's help to make a cartel if
they so choose.

9. (C) Comment: This was a cordial but frank meeting.
Scaroni attempted to draw a link between seeing a full return
on its $3 billion investment in Iran and Eni's willingness to
be responsive to Iranian requests, such as the feasibility
study. That said, it is clear Eni does not wish to wind up
on the wrong side of USG sanctions. At the same time,
Scaroni was frank and open about Eni's intention to continue,
or even expand, its business relationship with Gazprom since
Russia will continue to be the primary source for increased
European energy demand. End comment.

10. (U) Participants: Eni (Italy) - CEO Paolo Scaroni,
Leonardo Bellodi, and Enzo Viscusi. USG - U/S Reuben
Jeffery, EEB DAS Douglas Hengel, E staff Robert Winchester
and Thomas Pierce, EUR/WE notetaker Kevin Opstrup.
RICE
"

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