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Cablegate: Romania: Pursuing an Azeri-Georgian-Romanian Energy

VZCZCXRO5263
PP RUEHIK
DE RUEHBM #0082/01 0480433
ZNR UUUUU ZZH
P 170433Z FEB 10
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 0324
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 BUCHAREST 000082

SENSITIVE

DEPT FOR SEE MORNINGSTAR, EUR/CE ASCHIEBE, EEB/ESC

SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON EINV PGOV RO
SUBJECT: ROMANIA: PURSUING AN AZERI-GEORGIAN-ROMANIAN ENERGY
INTERCONNECTOR

BUCHAREST 00000082 001.2 OF 002


Sensitive but Unclassified; not for Internet distribution.

SUMMARY

1. (SBU) Although the Government of Romania (GOR) insists publicly
that the Nabucco pipeline project is still its top energy security
priority, the GOR is actively pursuing alternative sources and
routes for natural gas imports. It has signed bilateral energy
cooperation agreements with Azerbaijan, Turkmenistan, Georgia and
Armenia. Following a recent "breakthrough" visit to Baku and
Tbilisi, Romanian officials are now promoting an
Azerbaijan-Georgia-Romania Interconnector (AGRI) project to bring
Azeri gas to Europe via Romania. The Romanians aspire to become a
regional hub for transit of Caspian gas, but recognize that the AGRI
initiative will essentially compete for the same Azeri gas as
Nabucco. End Summary.

THE AGRI PROJECT

2. (SBU) In a February 11 meeting with EconCouns, a visibly pleased
State Secretary Tudor Serban of the Ministry of Economy (MOE)
outlined the results of his recent official visit to Baku and
Tbilisi. Serban said that while he was sharing the information with
the U.S. "in confidence" and that significant follow-up work
remained, the visit constituted a "breakthrough" in energy ties with
the Caspian region. During the trip Serban signed bilateral
Memoranda of Understanding (MOU) with both countries for cooperation
on a trilateral "interconnector" (AGRI) project to bring Azeri gas
across the Black Sea to the port of Constanta in the form of
liquefied natural gas (LNG). Romania had wanted specific prices and
quantities of gas stipulated in its MOU with Azerbaijan, but
succeeded only in reaching a verbal agreement on delivery of five to
eight billion cubic meters (bcm) of gas and no agreement on price.
Romania's MOU with Georgia allows for shipments of gas through
Georgian pipelines and calls for construction of a gas liquefaction
terminal in a Georgian port, either Batumi (Georgia's preference) or
Kulevi (Romania's preference).

3. (SBU) While the project is at an early stage, Romania hopes that
AGRI will become operational within two-three years. Based on the
initial MOUs, the three countries are seeking to conclude a
trilateral intergovernmental agreement (IGA) within the next two
months. Under the proposed IGA, the countries will jointly
establish a new company (the "study company") to carry out a
comprehensive feasibility study for the LNG project. The study
company will include Romanian natural gas producer Romgaz and gas
carrier Transgaz, Azeri state energy company Socar, and the Georgian
Oil and Gas Company. Serban said Romania also intends to include a
major West European energy company to play a "pivotal role" in the
project; while not revealing who that would be, Serban intimated
that Romanian officials have already approached the company in
question.

4. (SBU) Based on the outcome of the feasibility study, the parties
will then transform the study company into an AGRI project company.
Serban expressed interest in attracting the participation of other
American and international energy firms in this company but was not
specific on how this will happen. The final investment decision
will depend on the study findings, he said. Still, if AGRI proceeds
to actual implementation, the company will operate in an "openly
commercial" manner, Serban claimed. Serban also said Romania has
had preliminary discussions with Turkmenistan about the AGRI
concept, and believes the Turkmen will take an active interest if
the project gets off the ground.

FOCUSING ON LNG

5. (SBU) When asked whether the agreements with Georgia and
Azerbaijan contemplated transport of gas in any forms other than
LNG, Serban responded that submarine pipelines would be too costly,
and compressed natural gas (CNG) would only allow a much lower
quantity of gas per shipment. Initial estimates show that the cost
of an 1800 km submarine pipeline across the Black Sea would be twice
as high as the AGRI concept, he claimed. On CNG versus LNG, the
expansion factor is 1:600 for LNG, and only 1:40 for CNG, which in
his view makes LNG shipments more efficient. MOE is eagerly
awaiting the outcome, due later this year, of the USTDA-financed
feasibility study for a Constanta LNG terminal. Romania plans to
use the market analysis, technology and infrastructure
recommendations from that study as a starting point for the AGRI
study. Romania would build internal pipelines to connect the
Constanta terminal to the national grid.

NABUCCO - TOO MUCH TALK, TOO LITTLE PROGRESS

6. (SBU) While reaffirming that Nabucco is still Romania's top
energy security priority, Serban said the GOR privately has growing

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concerns that the Nabucco project is not making progress in securing
the gas to fill it. He pointed to the gas purchase contracts that
China and Russia have concluded with Azerbaijan to argue that
Azerbaijan has only eight billion cubic meters (bcm) of additional
gas available. Whatever project comes first will take this gas, he
believes, and that is a driving force behind the AGRI initiative.
Serban expressed doubts about Iraq being technically able to supply
gas for Nabucco, and added that Iranian gas is, for now, "not an
option." Moreover, in bilateral meetings the Azeris have voiced
discontent to Romania over the lack of EU initiative in engaging
Azerbaijan for its gas, he added.

SEEKING U.S. SUPPORT

7. (SBU) In light of Nabucco's troubles, Romania sees AGRI as an
innovative way to reduce long-term energy dependency on Russia while
also avoiding the gas transit problems already experienced via
pipelines across Ukraine, or that loom in getting gas across Turkey
(Nabucco) or through the Bosporus in LNG form. Romania aspires to
become a regional energy hub by retaining some LNG for domestic
consumption and exporting the balance to other parts of Europe.
Serban said the GOR hoped for U.S. support for this initiative,
anticipating that the other AGRI member countries might be subject
to "negative external pressures;" he voiced particular concerns over
Georgia's level of commitment.

COMMENT

8. (SBU) It is apparent from this and other recent discussions
that, while Romania's public line on Nabucco has not changed, the
GOR is increasingly frustrated with Nabucco's limited progress and
fears being left out of other regional energy projects. By
promoting AGRI, Romania is actively seeking new alternatives for
moving Caspian gas to Europe, while at the same time reassuring
Azerbaijan of European interest and positioning Romania as a vital
energy bridge between the Caspian and the EU. AGRI could
potentially compete with Nabucco for Azeri gas, although Azerbaijan
has not yet committed specific amounts of gas for AGRI and has made
clear to Romanian officials that the decision will be primarily
based on profitability. The involvement of private investors in the
project will also be essential if AGRI is to succeed. Still,
Romania's determined pursuit of better ties with Caspian states,
especially Azerbaijan -- led by President Traian Basescu's personal
friendship with Azeri President Aliyev -- appears to be bearing
tangible fruit. End Comment.

GITENSTEIN

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