ROMANIA, HUNGARY TO INTERCONNECT GAS NETWORKS

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