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Cablegate: Ambassador's Brazil-Bolivia-Venezuela Gas Discussions In

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FM AMCONSUL RIO DE JANEIRO
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INFO RUEHBR/AMEMBASSY BRASILIA 9196
RUEHRG/AMCONSUL RECIFE 2614
RUEHSO/AMCONSUL SAO PAULO 4232
RUEHSG/AMEMBASSY SANTIAGO 0157
RUEHBU/AMEMBASSY BUENOS AIRES 0475
RUEHAC/AMEMBASSY ASUNCION 0311
RUEHMN/AMEMBASSY MONTEVIDEO 0318
RUEHQT/AMEMBASSY QUITO 0111
RUEHPE/AMEMBASSY LIMA 0111
RUEHLP/AMEMBASSY LA PAZ 0294
RUEHCV/AMEMBASSY CARACAS 0305
RUEHBO/AMEMBASSY BOGOTA 0135
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC
RHEBAAA/USDOE WASHDC

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000446

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USAID FOR LAC
STATE PASS OPIC
NSC FOR FEARS
TREASURY FOR OASIA - J.HOEK
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA
DOE FOR WARD/LADISLAW

E.O. 12958: N/A
TAGS: EPET PGOV PREL EINV BR
SUBJECT: AMBASSADOR'S BRAZIL-BOLIVIA-VENEZUELA GAS DISCUSSIONS IN
RIO

REF: A) Rio de Janeiro 00234 B) La Paz 02216

This cable is sensitive but unclassified, please protect
accordingly.

1. (SBU) Summary: Petrobras CEO Sergio Gabrielli and Shell Brazil
CEO Vasco Dias told Ambassador Sobel in meetings on August 22 that
Brazil's priority in upcoming negotiations over gas supplies from
Bolivia was to ensure continuity of supply. Despite its unhelpful
role in Bolivia, the CEOs did not see Venezuela's PDVSA as a true
threat. While Shell's Dias discounted the commercial viability of
Venezuela's proposed South America gas pipeline, Gabrielli, who is
appointed by the GoB, stuck to the party line and said the project
might be profitable in the longer term. Despite Gabrielli's
statement, most experts would question the assertion that Petrobras
is really convinced of the project's viability. End Summary.

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2. (U) Background: Ambassador Sobel visited Rio de Janeiro August
21-22 and had three separate meetings with energy companies
headquartered here. First he met with Shell Brazil CEO Vasco Dias
followed by a roundtable on investment issues with U.S. energy
companies. Finally, he met with Petrobras CEO Sergio Gabrielli.
This cable focuses on these interlocutors' comments on Bolivia and
Venezuela gas. Septel addresses bio-fuels, Petrobras and the
investment climate in the oil and gas sector.

3. (SBU) Shell Brazil CEO Dias related to the Ambassador in an
August 21 meeting that President Lula's Chief of Staff, Dilma
Rousseff, has told him the GoB recently sent a message to Bolivia
that its nationalization of Petrobras assets and unilateral threats
to increase gas prices had gone too far. In reality, Dias
continued, despite Venezuela's offer of assistance, Bolivia lacks
the technology and know-how to process their gas. Brazil is
concerned, he stated, about a potential gas shortfall in the near
future, since bringing additional domestic gas production online
will be a lengthy, complex and expensive process. In an August 22
meeting, Petrobras President Gabrielli explained to the Ambassador
that there are four different Brazilian/Bolivian teams currently
discussing gas prices, production, and operations, and that a new
meeting with the Bolivian government is scheduled for September 14.
He was somewhat confident that a solution for the gas impasse could
be reached by December.

4. (SBU) Gabrielli noted that the GoB is playing an important role
in the negotiations by creating an environment for Petrobras to
negotiate with Bolivia on technical grounds. He stated that
Petrobras is most concerned with maintaining a daily flow of gas of
up to 30 million cubic meters. Both sides are negotiating the new
price for future volumes for Bolivian gas exports to Brazil. In the
meantime, Brazil is moving forward with increased investments in the
domestic gas market. Soon there will be an open gas tender to
attract FDI to open additional exploration in Brazil. Petrobras
also plans to build two liquefied natural gas (LNG) plants in
northeastern Brazil using floating storage re-gasification units to
guarantee gas in the event its thermal power plants need to dispatch
power.

Venezuela's role: Petrobras vs. PDVSA
-------------------------------------

5. (SBU) During the August 21 roundtable discussion,
representatives of several U.S. energy companies noted to the
Ambassador that the Venezuelan presence in Bolivia is not considered
a threat by the Brazilians because they do not consider PDVSA to be
in the same class as Petrobras. While both companies are

RIO DE JAN 00000446 002 OF 002


state-owned, Petrobras is regarded as a top-notch, professionally
managed, company, they said, while PDVSA is not. The relationship
between the two companies is kept publicly friendly for political
reasons, but the private relationship is reportedly less amicable.
Petrobras CEO Gabrielli noted that Venezuela's rhetoric outpaces its
ability to perform.

6. (SBU) Shell's Dias said that President Chavez's proposal to
create a regional state-owned energy conglomerate, Petrosul, and to
construct a gas pipeline from Venezuela to Brazil and Argentina was
more for political propaganda than a realistic proposal. There was
not much buy in on the Brazilian side, Dias said. By contrast, and
despite the bad blood between Petrobras and PDVSA, Petrobras
President Gabrielli told the Ambassador he believes that the
proposed $20 billion Venezuela-Argentina-Brazil pipeline makes sense
when looked at in terms of long-term returns. He pointed out that
South America could become a large gas exporter in the future, and
an alternative means of gas distribution would have to be developed
given that the market for gas in Brazil alone is growing 17 percent
each year. Various obstacles need to be overcome to make it happen,
however, including: a complex regulatory environment, the pricing
system, technological and environmental issues, and border issues.
Also, the various stakeholders will need to decide who will invest,
and who will be responsible for each part of the project, which will
take two to three years to design and 10 to 15 years to build.

7. (SBU) Comment: We believe Gabrielli, who is appointed by the
GoB, was simply echoing the party line on the Venezuela gas
pipeline. Other contacts with Petrobras (ref A) suggest there
remain significant doubts as to its viability. While Gabrielli and
Dias' comments do not break new ground, it is interesting that the
Brazilians do not seem to believe that PDVSA has the capacity to
fill the void left by Petrobras in Bolivia. It is as yet unclear
whether or not this judgment is clouded by hubris. End Comment

8. (U) This cable was cleared by Ambassador Sobel and Embassy
Brasilia.

MARTINEZ

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