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249082 2/17/2010 4:33 10BUCHAREST82 Embassy Bucharest UNCLASSIFIED//FOR OFFICIAL USE ONLY 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

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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

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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