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