Cablegate: Oil and Gas From the East: Romania's Pipeline

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 BUCHAREST 000759

SIPDIS

DEPT FOR EUR/NCE - TERATH, WSILKWORTH, EB/IFD, EB/TPP,
TREASURY FOR STUART
USDOC FOR 4232/ITA/MAC/AUR/OEERIS/CEED/JBURGESS/JKIMBAL L
STATE PASS TO USAID

SENSITIVE

E.O. 12958: N/A
TAGS: ECON ENRG SENV RO
SUBJECT: OIL AND GAS FROM THE EAST: ROMANIA'S PIPELINE
PROJECTS

REF: 04 Bucharest 02676

SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY.

1. (SBU) SUMMARY: Romania's two energy pipeline priorities
continue to be the Constanta-Pancevo-Omisalj-Trieste (CPOT)
oil pipeline and Nabucco natural gas pipeline. The Romanian
Ministry of Economy values the strategic diversification of
energy sourcing that these pipelines would provide. END
SUMMARY.

ROMANIA'S PIPELINE PRIORITIES
-----------------------------
2. (U) EconOff met recently with Corneliu Condrea, Deputy
General Director, Romanian Ministry of Economy and Commerce
(MEC) to discuss oil and gas pipeline projects.

3. (SBU) Condrea informed post that Romania's main energy
pipeline priorities are the Constanta-Pancevo-Omisalj-
Trieste (CPOT) oil pipeline and the Nabucco project for
transit of natural gas from Caspian Sea to Europe through
Romania. Pipeline construction for Romania is potentially
both strategic and lucrative. The GOR gives a high priority
to pipeline projects as alternatives to the importation of
Russian energy resources or oil resources from the Caspian
region via the Turkish straits. Romania currently supplies
approximately 50% of its crude oil and 75% of its natural
gas consumption from domestic production. In the future,
the Ministry predicts internal production of gas will
decrease, and by 2010 Romania will import 50% of its natural
gas. (Note: Condrea could be off on his estimates, given the
U.S. and other foreign producers are actively reworking old
fields with considerable success. End note)

CONSTANTA-PANCEVO-OMISALJ-TRIESTE (CPOT) OIL PIPELINE
--------------------------------------------- --------
4. (SBU) The CPOT pipeline is a major part of the Romanian
energy strategy. Crossing Romania and passing through the
Serbian town of Pancevo (near Belgrade), the 760 mile CPOT
line would connect to an existing branch of the Adria
pipeline which runs across Serbia, Montenegro, Bosnia and
Herzegovina, and Croatia to the port of Omisalj. Capacity
of the pipeline is estimated at a maximum of 90 million tons
per year.

5. (U) In response to Croatia's environmental concerns
regarding possible oil spills in the port of Omisalj, the
only ship to shore operation will be at the Romanian port of
Constanta. The pipeline will still pass through Omisalj,
where it is to connect with the Trans Alpine Pipeline. The
latter fuels Austria, Germany and oil refineries in northern
Italy.

6. (U) The British firm Hill International presented the MEC
an EU-financed technical-economic feasibility study in
February for Romania's part in building the CPOT. This
feasibility study complements an earlier one made by HLP-
Parsons under a U.S. Trade and Development Agency (TDA)
grant. The new study examines technical, financial,
commercial and environmental parameters of the CPOT
pipeline, as well as transportation and investment.

7. (U) Countries interested in CPOT have established an
intergovernmental working group and created a project
management consortium. The main challenge continues to be
financing and finding interested investors in the CPOT
project, which is estimated to cost $ 1 billion. The
Austrian OMV group, the main shareholder in Petrom,
Romania's former state-owned oil company, has indicated an
interest in building CPOT and met with MEC representatives
to discuss the project.

NABUCCO NATURAL GAS PIPELINE
----------------------------
8. (SBU) The purpose of the Nabucco pipeline is
transportation of natural gas from the Caspian Region and
Central Asia through Turkey, Bulgaria, Romania, Hungary, and
Austria for distribution in Europe. Partners in the Nabucco
International consortium are Transgaz (Romania), OMV
(Austria), MOL (Hungary), Bulgargaz (Bulgaria), and Botas
(Turkey). The total length of the pipeline would be
approximately 2,112 miles, of which 310 miles will cross
Romanian territory. The pipeline's estimated transit
capacity is 30 billion cubic meters per year.

9. (SBU) In July 2004, the consortium signed an agreement
with ABN AMRO bank, the consortium's financial advisor, to
develop a financing strategy for the USD 5 billion project.
Nabucco International has retained the London and Brussels
law offices of Freshfields Bruckhaus Derringer as its
international counsel. Subject to the availability of
financing, work is scheduled to begin in 2006, with
completion estimated for 2010. Romania's off-take from the
pipeline is estimated at 5 billion cubic meters per year.

10. (SBU) Romania has already taken some initial steps to in
anticipation of the Nabucco project, including:
-- Development of an interconnecting pipeline between the
Romanian and Hungarian natural gas transmission systems from
Arad (Romania) to Szeged (Hungary), under an agreement
between Transgaz and MOL. 37 miles of the pipeline will lie
on Romanian territory (23 miles built to date) and 28 miles
on Hungarian territory. The pipeline will have a capacity
of 2 billion cubic meters (70.5 billion cubic feet) per
year.
-- A feasibility study is in progress for an interconnection
with Bulgaria from Bechet (Romania) to Koslodui (Bulgaria)
and one is planned for a pipeline from Iasi (Romania) to
Balti (Republic of Moldova).

NO LONG-TERM AGREEMENTS WITH RUSSIA
-----------------------------------
11. (SBU) Romanian officials stated Romania does not have
any long-term contracts with Gazprom. Moreover, there will
be no connection between CPOT and the Druzhba system.
(NOTE: This is also a requirement in the European Energy
Directive. End Note)

FUTURE CONFERENCE ON CPOT?
--------------------------
12. (U) As proposed by the MEC on previous occasions, the
Ministry advanced the idea of an international conference to
review the data in the feasibility study for the CPOT
project and attract investors. It also mentioned it would
invite HLP-Parsons Associates, who conducted the previous
TDA financed study. However, MEC has announced no date.
Since the Hill Associates feasibility study is limited to
Romania and with similar feasibility studies yet to be
accomplished for neighboring countries, holding such a
conference appears premature.

USG POLICY CONVEYED ON IMPORT OF IRANIAN ENERGY
--------------------------------------------- --
13. (U) EconOff stated the USG supports pipeline projects
which provide access to Caspian energy sources and affirmed
the U.S. position on pipelines is that that market forces
should decide their placement. However, he added the caveat
that the U.S. policy opposes projects that would provide
export opportunities for Iranian energy resources. He noted
that Presidential executive orders prohibit any U.S.
companies and/or their foreign subsidiaries from conducting
business with Iran, and bans any contract for financing of
the development of petroleum resources located in Iran.

COMMENT
-------
14. (SBU) Given that Nabucco and CPOT could provide
excellent chances for U.S. business participation and afford
useful diversification of energy sourcing for southeast
Europe, Post will continue to monitor their planning. End
comment.

15. (U) AmEmbassy Bucharest's reporting telegrams are
available on the Bucharest SIPRNet website:
www.state.sgov.gov/p/eur/Bucharest/.

DELARE

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