Wikileaks - MCXLVI

171161 9/23/2008 14:11 08BUCHAREST754 Embassy Bucharest CONFIDENTIAL 08BUCHAREST564 VZCZCXRO9525 PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHBM #0754/01 2671411 ZNY CCCCC ZZH P 231411Z SEP 08 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC PRIORITY 8734 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000754

SIPDIS

STATE FOR EUR: ASCHIEBE AND MBRYZA, EEB: SMANN STATE PLEASE PASS TO USTDA: DSTEIN, JMERRIMAN

E.O. 12958: DECL: 09/23/2018 TAGS: ENRG, ECON, EPET, PGOV, PREL, RO SUBJECT: ROMANIA: NABUCCO IS BEST, LNG IS GOOD, BUT SOUTH STREAM IS OUT

REF: A) BUCHAREST 564

Classified By: Classified by DCM Jeri Guthrie-Corn for reasons 1.4 (b) and (d).

1. (C) Summary. Visiting U.S. Trade and Development Agency (USTDA) Director Larry Walther and Director for European and Eurasian Affairs Dan Stein heard a strong message of Romanian support for the Nabucco pipeline project in separate meetings at the Ministry of Foreign Affairs (MFA) and Ministry of Economy and Finance (MEF). In the meeting with Stein, MEF State Secretary Viorel Palasca strongly downplayed any rumors that his Ministry was even considering South Stream as a viable possibility. Palasca clearly indicated that, while the Government of Romania (GOR) would be happy to listen to arguments in favor of this or any other project, the GOR was unlikely to be swayed from its firm opposition to South Stream. This message reaffirmed the MFA position, expressed by Director General for Economic Diplomacy Radu Serban in a meeting with Walther and Stein after the signing ceremony for a USTDA-sponsored feasibility study of a liquefied natural gas (LNG) terminal at the port of Constanta. Both the MFA and MEF see LNG as a preferable solution to reliance on Russia if Nabucco does not make progress. End Summary.

2. (C) USTDA Director Walther visited Bucharest on September 16 to sign a grant award of USD 1,061,975 to state-owned natural gas company Romgaz to study the feasibility of constructing an LNG terminal in Constanta. As envisioned, the plant would receive 3-4 bcm of LNG per year from existing LNG suppliers through the Bosporus Straits, or alternatively from the Caucasus region if a corresponding liquefaction plant is eventually built on the east side of the Black Sea. The study has high-level Romanian Government backing, with Minister of Economy and Finance Varujan Vosganian -- not usually known as a strong U.S. supporter -- giving an extended speech at the signing ceremony. On a policy level, the GOR is anxious to complete the feasibility study. Officials here fear that, if Nabucco stalls while Romanian domestic gas production continues its current steady decline, Romania's dependence on Russian gas will deepen with possibly significant economic and strategic consequences. LNG is seen as a hedge against this possibility, ensuring Romania of an alternate source of gas that does not rely on Russia.

3. (C) The GOR, however, recognizes that LNG is a costly and imperfect solution to Romania's energy security needs, and the better option is to complete the Nabucco pipeline. The MFA and MEF both told USTDA that Romania has already engaged with Azerbaijan and Turkmenistan as potential suppliers, but observed that EU efforts on this project are lacking. Both Radu Serban's Deputy, Mihai Harbic, and State Secretary Palasca pushed USTDA on the question of gas supplies for Nabucco. Romania is worried that insufficient gas exists, at present, in Azerbaijan to supply other Nabucco partners, meet Romania's own long-term requirements for 5 BCM of imported gas/year, and still provide enough gas to the Baumgarten hub to make the project commercially viable. Accordingly, they floated the idea of bringing gas in from other countries, such as Iraq, Iran, Syria, and Russia. Stein responded that including Russia would allow them an opening to take over the project, while Syrian and Iranian gas presented political problems for the U.S. Instead, he emphasized that Azerbaijan probably has sufficient reserves, but that the Azeris haven't yet shown the will to fully develop them, and that convincing them to do more will require outreach efforts on the part of both the EU and the Nabucco partners. Stein encouraged a diplomatic focus on encouraging Azerbaijan and Turkmenistan to set up a Caspian Sea interconnector which could feed into Nabucco.

4. (C) Concerning other projects, the Romanians indicated that on a policy level they are not opposed to some version of the White Stream project, but a hard look at the economics has convinced them that LNG is more feasible. Palasca's assistant and technical expert, Cornel Zeveleanu, concurred with Dan Stein that trying to pipe gas under the Black Sea would be hugely expensive and deliver disappointing final volumes to Romania. Other White Stream routes -- through the Crimea, for example -- don't seem to fully solve the energy security problem, leaving LNG as the only viable alternative. However, Palasca did indicate that if the situation in Georgia stabilizes over the medium term, a liquefaction plant there could go a long way toward meeting Romania's energy needs by providing an outlet for the export of Caucasus-origin gas over the Black Sea in LNG tankers. At the MFA, Radu Serban admitted that Romania has no agreement yet with Turkey for LNG tanker transit through the Bosporus

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Straits, but concurred with Dan Stein that it is premature to be worried about potential Turkish intransigence given the long lead time before any LNG terminal could be built. The only project which the Romanians ruled out entirely was South Stream, with both the MFA and MEF concurring that it would do nothing to diversify energy supplies and would only increase Romania's dependency on Russia if it were built instead of Nabucco.

5. (C) Comment. Romania's parliamentary elections are coming up, and there is always the possibility that a new government may take a different policy approach on energy issues, particularly vis--vis Russia -- which of necessity will remain Romania's sole foreign supplier of natural gas until an alternative like Nabucco or an LNG terminal is actually completed. Despite this hard reality, however, Romania's current policymakers remain committed to energy diversity as a necessary condition for energy security; they also recognize with considerable frustration that more cooperation at the EU level is going to be crucial if Europe's long term energy security is to be assured. The GOR clearly appreciates U.S. engagement on energy issues, and see us as the only available antidote to foot dragging on the part of their European partners. End Comment.

6. (U) USTDA did not have an opportunity to clear this cable. TAUBMAN