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 
 
BUCHAREST 00000082  002.2 OF 002 
 
 
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