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Cablegate: Romania, Hungary to Interconnect Gas Networks

VZCZCXRO7875
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHBM #0571 1980533
ZNR UUUUU ZZH
P 160533Z JUL 08
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 8494
RUEHUP/AMEMBASSY BUDAPEST PRIORITY 1304
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS BUCHAREST 000571

DEPT FOR SPECIAL ENVOY CBGRAY, EUR/FO:MBRYZA, EEB:SMANN
DEPT ALSO FOR EUR/NCE:KSOLERA AND EUR/ERA:EMCCONAHA
DOE FOR TTILLER

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON ETRD HU RO
SUBJECT: ROMANIA, HUNGARY TO INTERCONNECT GAS NETWORKS

Sensitive but Unclassified; not for Internet Distribution.

1. (U) A long-postponed project to link Romanian and Hungarian
natural gas networks through a cross-border connection took an
important step forward on July 2 with the signing of a Joint
Development Agreement between firms MOL of Hungary and Transgaz of
Romania. The 109 km connector pipeline will run from Szeged
(Hungary) to Arad (Romania), carrying up to 4.4 billion cubic meters
(bcm) of gas per year from Hungary to Romania. At full capacity it
would account for one quarter of Romania's current annual gas
consumption. Several major steps remain before a pipeline can
actually be built, including completion of an operation agreement, a
transportation tariff agreement, and a capacity allocation
agreement. These must be approved by the respective national energy
regulatory agencies. However, the goal of both countries is to
complete these agreements quickly and have the pipeline commissioned
by mid-2010. The project will contribute to regional energy
security by creating a direct link between Romania and Central
Europe that is not dependent on a third country such as Ukraine.

2. (U) MOL subsidiary FGSZ Natural Gas Transmission Company, the
owner and operator of the Hungarian natural gas pipeline system, and
Transgaz, the operator of the Romanian gas transmission system, will
each finance and build their respective national portions of the
pipeline. Estimated costs are $61.5 million for the 47 km on the
Hungarian side, and $23.6 million for the 26 km still to be built on
Romanian territory. (Note: Romania began construction on its
portion several years ago in anticipation of an agreement and a 2004
commissioning, but the project has been repeatedly delayed.)

3. (U) According to Transgaz, the initial source of gas would be
either the Algyo gas field in Hungary or Russian/Central Asian gas
imported via the Baumgarten gas terminal in Austria or through
Ukraine. Eleven companies, including Gaz de France and E.ON, which
own significant distribution networks in Romania, have announced
their interest in importing gas via the new pipeline. The parties
will continue to discuss the possibility of reversing the gas flow
at a later stage so that gas could also be exported from Romania to
Hungary.

4. (SBU) Comment: With the signing of a joint development
agreement, it appears that sufficient will now exists on both sides
to move forward on this project. Assuming that the remaining
agreements are negotiated in due course, the project has a good
likelihood of being realized. When complete, the Arad-Szeged
pipeline project will be an important link in the creation of an
integrated gas network in Southeastern Europe. It supports the EU
policy goal of interconnecting energy grids in order to better
balance the system. While the project enhances diversification of
routes, it does not address the need for new natural gas sources.
Diversification of supply remains the essential component for
achieving genuine energy security in Europe. End Comment.
TAUBMAN

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