US embassy cable - 05BUCHAREST759

UNCLAS SECTION 01 OF 02 BUCHAREST 000759 
 
SIPDIS 
 
DEPT FOR EUR/NCE - TERATH, WSILKWORTH, EB/IFD, EB/TPP, 
TREASURY FOR STUART 
USDOC FOR 4232/ITA/MAC/AUR/OEERIS/CEED/JBURGESS/JKIMBAL L 
STATE PASS TO USAID 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, ENRG, SENV, RO 
SUBJECT: OIL AND GAS FROM THE EAST: ROMANIA'S PIPELINE 
PROJECTS 
 
REF:  04 Bucharest 02676 
 
SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY. 
 
1. (SBU) SUMMARY: Romania's two energy pipeline priorities 
continue to be the Constanta-Pancevo-Omisalj-Trieste (CPOT) 
oil pipeline and Nabucco natural gas pipeline.  The Romanian 
Ministry of Economy values the strategic diversification of 
energy sourcing that these pipelines would provide.  END 
SUMMARY. 
 
ROMANIA'S PIPELINE PRIORITIES 
----------------------------- 
2. (U) EconOff met recently with Corneliu Condrea, Deputy 
General Director, Romanian Ministry of Economy and Commerce 
(MEC) to discuss oil and gas pipeline projects. 
 
3. (SBU) Condrea informed post that Romania's main energy 
pipeline priorities are the Constanta-Pancevo-Omisalj- 
Trieste (CPOT) oil pipeline and the Nabucco project for 
transit of natural gas from Caspian Sea to Europe through 
Romania.  Pipeline construction for Romania is potentially 
both strategic and lucrative.  The GOR gives a high priority 
to pipeline projects as alternatives to the importation of 
Russian energy resources or oil resources from the Caspian 
region via the Turkish straits.  Romania currently supplies 
approximately 50% of its crude oil and 75% of its natural 
gas consumption from domestic production.  In the future, 
the Ministry predicts internal production of gas will 
decrease, and by 2010 Romania will import 50% of its natural 
gas. (Note: Condrea could be off on his estimates, given the 
U.S. and other foreign producers are actively reworking old 
fields with considerable success.  End note) 
 
CONSTANTA-PANCEVO-OMISALJ-TRIESTE (CPOT) OIL PIPELINE 
--------------------------------------------- -------- 
4. (SBU) The CPOT pipeline is a major part of the Romanian 
energy strategy.  Crossing Romania and passing through the 
Serbian town of Pancevo (near Belgrade), the 760 mile CPOT 
line would connect to an existing branch of the Adria 
pipeline which runs across Serbia, Montenegro, Bosnia and 
Herzegovina, and Croatia to the port of Omisalj.  Capacity 
of the pipeline is estimated at a maximum of 90 million tons 
per year. 
 
5.  (U) In response to Croatia's environmental concerns 
regarding possible oil spills in the port of Omisalj, the 
only ship to shore operation will be at the Romanian port of 
Constanta.  The pipeline will still pass through Omisalj, 
where it is to connect with the Trans Alpine Pipeline.  The 
latter fuels Austria, Germany and oil refineries in northern 
Italy. 
 
6. (U) The British firm Hill International presented the MEC 
an EU-financed technical-economic feasibility study in 
February for Romania's part in building the CPOT.  This 
feasibility study complements an earlier one made by HLP- 
Parsons under a U.S. Trade and Development Agency (TDA) 
grant.  The new study examines technical, financial, 
commercial and environmental parameters of the CPOT 
pipeline, as well as transportation and investment. 
 
7.  (U) Countries interested in CPOT have established an 
intergovernmental working group and created a project 
management consortium.  The main challenge continues to be 
financing and finding interested investors in the CPOT 
project, which is estimated to cost $ 1 billion.  The 
Austrian OMV group, the main shareholder in Petrom, 
Romania's former state-owned oil company, has indicated an 
interest in building CPOT and met with MEC representatives 
to discuss the project. 
 
NABUCCO NATURAL GAS PIPELINE 
---------------------------- 
8. (SBU) The purpose of the Nabucco pipeline is 
transportation of natural gas from the Caspian Region and 
Central Asia through Turkey, Bulgaria, Romania, Hungary, and 
Austria for distribution in Europe.  Partners in the Nabucco 
International consortium are Transgaz (Romania), OMV 
(Austria), MOL (Hungary), Bulgargaz (Bulgaria), and Botas 
(Turkey).  The total length of the pipeline would be 
approximately 2,112 miles, of which 310 miles will cross 
Romanian territory.  The pipeline's estimated transit 
capacity is 30 billion cubic meters per year. 
 
9. (SBU) In July 2004, the consortium signed an agreement 
with ABN AMRO bank, the consortium's financial advisor, to 
develop a financing strategy for the USD 5 billion project. 
Nabucco International has retained the London and Brussels 
law offices of Freshfields Bruckhaus Derringer as its 
international counsel.  Subject to the availability of 
financing, work is scheduled to begin in 2006, with 
completion estimated for 2010.  Romania's off-take from the 
pipeline is estimated at 5 billion cubic meters per year. 
 
10. (SBU) Romania has already taken some initial steps to in 
anticipation of the Nabucco project, including: 
-- Development of an interconnecting pipeline between the 
Romanian and Hungarian natural gas transmission systems from 
Arad (Romania) to Szeged (Hungary), under an agreement 
between Transgaz and MOL.  37 miles of the pipeline will lie 
on Romanian territory (23 miles built to date) and 28 miles 
on Hungarian territory.  The pipeline will have a capacity 
of 2 billion cubic meters (70.5 billion cubic feet) per 
year. 
-- A feasibility study is in progress for an interconnection 
with Bulgaria from Bechet (Romania) to Koslodui (Bulgaria) 
and one is planned for a pipeline from Iasi (Romania) to 
Balti (Republic of Moldova). 
 
NO LONG-TERM AGREEMENTS WITH RUSSIA 
----------------------------------- 
11. (SBU) Romanian officials stated Romania does not have 
any long-term contracts with Gazprom.  Moreover, there will 
be no connection between CPOT and the Druzhba system. 
(NOTE:  This is also a requirement in the European Energy 
Directive. End Note) 
 
FUTURE CONFERENCE ON CPOT? 
-------------------------- 
12.  (U) As proposed by the MEC on previous occasions, the 
Ministry advanced the idea of an international conference to 
review the data in the feasibility study for the CPOT 
project and attract investors.  It also mentioned it would 
invite HLP-Parsons Associates, who conducted the previous 
TDA financed study.  However, MEC has announced no date. 
Since the Hill Associates feasibility study is limited to 
Romania and with similar feasibility studies yet to be 
accomplished for neighboring countries, holding such a 
conference appears premature. 
 
USG POLICY CONVEYED ON IMPORT OF IRANIAN ENERGY 
--------------------------------------------- -- 
13.  (U) EconOff stated the USG supports pipeline projects 
which provide access to Caspian energy sources and affirmed 
the U.S. position on pipelines is that that market forces 
should decide their placement.  However, he added the caveat 
that the U.S. policy opposes projects that would provide 
export opportunities for Iranian energy resources.  He noted 
that Presidential executive orders prohibit any U.S. 
companies and/or their foreign subsidiaries from conducting 
business with Iran, and bans any contract for financing of 
the development of petroleum resources located in Iran. 
 
COMMENT 
------- 
14. (SBU) Given that Nabucco and CPOT could provide 
excellent chances for U.S. business participation and afford 
useful diversification of energy sourcing for southeast 
Europe, Post will continue to monitor their planning. End 
comment. 
 
15. (U) AmEmbassy Bucharest's reporting telegrams are 
available on the Bucharest SIPRNet website: 
www.state.sgov.gov/p/eur/Bucharest/. 
 
DELARE