LNG TERMINAL AN APPEALING PROSPECT AS ROMANIA

C O N F I D E N T I A L SECTION 01 OF 03 BUCHAREST 000088

SIPDIS

SIPDIS

DEPT FOR EUR - JGARBER, MBRYZA
DEPT FOR EEB - SMANN, SGALLOGLY
NSC FOR LCATIPON
STATE PASS TO USTDA DSTEIN
USDOC FOR ITA/EUR/OEERIS/CEED/KNAJDI
ENERGY FOR TTILLER

E.O. 12958: DECL: 01/29/2018
TAGS: ENRG ECON EINV EFIN PREL RO
SUBJECT: LNG TERMINAL AN APPEALING PROSPECT AS ROMANIA
RE-THINKS ITS ENERGY STRATEGY


Classified By: DCM Mark Taplin for reasons 1.5(b) and (d)


1. (C) SUMMARY. A team of U.S. investors led by ETG
International (www.etgint.com),a natural gas transport
company and UGI (www.ugicorp.com),a natural gas marketing
and distribution company, hope to construct an LPG and LNG
terminal at the port of Constanta on Romania's Black Sea
Coast. Project consultant Adrian Basora, a former U.S.
Ambassador to the Czech Republic, met with EUR A/S Dan Fried
and DAS Matt Bryza last summer to discuss the proposal. The
development team is interested in securing USTDA assistance
for a feasibility study. USTDA's Dan Stein met with
Government of Romania (GOR) officials on January 23 to
discuss the project. Project developers have expressed an
interest in announcing the project in conjunction with the
April 2008 NATO Summit in Bucharest. One potentially
difficult question that must be addressed is the willingness
of Turkish authorities to allow transit of liquefied natural
gas through the Bosporus. Still, Romanian officials
expressed a strong interest in the project and the potential
to enhance Romania's energy security by diversifying sources
of supply. The GOR is clearly unsettled by Gazprom's
aggressive deal-making in the region and is actively
re-assessing Romania's energy diplomacy, especially vis-a-vis
Russia. END SUMMARY.

LNG ON THE BLACK SEA
--------------

2. (SBU) During a January 21-24 Bucharest trip, USTDA
Regional Director Dan Stein met with GOR officials to discuss
a proposed grant to conduct a feasibility study for the
construction of an LPG and LNG terminal at the Port of
Constanta. Stein met with representatives of the Port,
state-owned natural gas producer Romgaz, and senior GOR
officials from the Ministry of Economy and Finance and the
Office of the Prime Minister. Port officials confirmed that
adequate space is available at the Port for construction of
LPG and LNG facilities. All parties indicated the support of
the Government of Romania for such a project, emphasizing the
project's importance to Romania's goal of diversifying
sources of natural gas supply, as elicited in the country's
National Energy Strategy. Romania currently imports 40
percent of its natural gas demand, all of it from Russia.
Romania currently pays $350 per 1000 cubic meters, one of the
highest prices in Europe.


3. (SBU) USTDA plans to send an independent consultant in
February to assess the viability of the LPG/LNG terminal
project, its budget and terms of reference. The consultant's
travel will be timed so as to complete a similar assessment
for a potential LNG terminal in Lithuania. The USTDA board
will then review the assessment and, if approved, would sign
a Grant Agreement with the Romanian grant recipient. The
U.S. project promoters had indicated a desire to announce the
feasibility study in conjunction with the April 2 NATO Summit
in Bucharest. Stein clarified that USTDA's timeline is not
necessarily driven by the NATO Summit and that concluding an
Agreement by then may not be realistic.


4. (SBU) Stein commented that there was a general feeling of
support within the USG for the project, but that several
questions would need to be addressed in the approval stage
and, if approved, during the feasibility study. The focus of
the project would need to be addressed, for one. While an
investment in an LPG facility may be justified strictly from
an economic point of view, it would not address the broader
Romanian energy security question. USTDA would want to feel
comfortable that LNG is a realistic component of the project.


5. (SBU) A close examination of the role of Turkey in the
success of the project will also need careful consideration,
Stein said. Working out the project details with the Turkish
government could take some time, and the approach would have

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to be handled in the right manner and in coordination with
the GOR. While Stein felt that Turkey might not have a legal
basis to prevent LPG/LNG shipments through the Bosporus, it
could find ways to thwart the investment if it so chose.

PURSUING ROMANIA'S ENERGY SECURITY POLICY
--------------

6. (SBU) Ministry of Economy State Secretary Viorel Palasca,
responsible for Romanian oil and natural gas policy, affirmed
that Romania is actively seeking new sources of natural gas
and is interested in any project that would meet that aim.
The Ministry considers the LPG/LNG terminal project to fit
this category and therefore supports the completion of a
feasibility study financed by USTDA. Palasca noted that
recent events, particularly Gazprom's South Stream deal with
Bulgaria and acquisition of Serbian state energy company NIS,
are forcing Romania to change its approach to diversifying
sources of natural gas. The Ministry believes Nabucco and
South Stream are compatible in the long run, but that that
compatibility may be 15-20 years in the future based on
European market demand. Romania's own timeframe for
diversifying gas sources is five years, he said. As such,
other projects such as the LPG/LNG terminal and the White
Stream pipeline project are increasingly attractive. Romania
is also pursuing a pipeline connection to Hungary at
Arad-Szegad that would connect it to the Baumgarten-based gas
hub and the broader Western European network. However,
Palasca acknowledged that this would largely be another route
for Russian-origin gas.


7. (SBU) Romania is also examining gas supply from Central
Asia as a future option. Palasca visited Kazakhstan and
Azerbaijan late last year, and plans to visit Turkmenistan in
early February. He commented that the MFA and the PM's
office are currently demarching Central Asian states to
obtain a clearer picture on the region's potential to supply
gas to Romania. Constantin Ciupagea, the Prime Minister's
economic counselor, noted that Romania has invited
Azerbaijan, Georgia, Kazakhstan and Turkmenistan to a
summit-level discussion on energy issues and is seeking a
more active role in the region. This is one of the few
issues where President Traian Basescu and Prime Minister
Calin Tariceanu see eye-to-eye, he added.


8. (SBU) Dan Stein noted the general view that there is
probably insufficient gas available in Kazakhstan at this
time to support a pipeline. Stein suggested Romania support
a U.S. proposal to Turkmenistan, backed by Azerbaijan, that
it build a short under-sea connection from its offshore
deposits to Azerbaijan's offshore network. Such a
construction would avoid the debate over littoral-states'
rights that have surrounded a Trans-Caspian pipeline, and
would provide Turkmenistan with the option of shipping gas to
Europe via existing routes through Azerbaijan, Georgia and
Turkey. The Turkmen have in the past indicated they would
not consider the project or the possibility of USTDA
assistance until they had resolved a maritime boundary
demarcation dispute with Azerbaijan. Stein suggested Palasca
meet with Embassy Ashgabat during his Turkmen visit,
scheduled for February 10, to further understand the U.S.
approach to Turkmen gas development.

WHITE STREAM
--------------

9. (SBU) Stein and Palasca discussed the White Stream
Pipeline project, a potential gas route from the Caspian to
Europe that would bypass both Russia and Turkey by crossing
under the Black Sea directly from Georgia to Romania or via
Ukraine (Crimea) to Romania. Stein noted that Azeri
state-owned gas company SOCAR had indicated its interest in
principle in White Stream based on the attraction of avoiding
two possibly contentious transit countries. Apparently the
EU is financing a small feasibility study on the project, he

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said. Stein posited potential synergy with the ETG project
if White Stream were to ship gas from Georgia to Constanta
via tanker from a theoretical gasification plant in Georgia
rather than a sub-sea pipeline, as the distance is at the
level where LNG begins to make commercial sense.

COMMENT
--------------

10. (C) We expect the Romanians will remain steadfast
supporters of the Nabucco Pipeline for economic, historical
and geopolitical reasons. However, recent events in Bulgaria
and Serbia have led key players in the GOR to hedge their
bets, and LNG is one option. Even careful, experienced
professionals like Prime Minister Tariceanu's chief of staff
-- soon to be named a special envoy for energy matters --
sound a bit flustered by the successive Russian moves since
the beginning of the year. On a potential LNG terminal, the
GOR understands the importance of Turkey to the success of
the project. They feel, however, that relations with Turkey
are strong enough to secure its cooperation, not least due to
Romania's continued vocal support for keeping Turkey on a
path to EU accession. Cooperation with Turkey in the energy
sphere has advanced of late, with the two countries pursuing
an undersea electricity trunk line. The LPG/LNG project
developers have averred a strong relationship with the Koc
Group in Turkey, and Turkish commercial participation is a
possibility. One constant expressed by both the project
developers and the GOR is the importance of USG support in
the dialogue with Turkey if the project is to be a success.
Their hope is to see strong USG backing for their dialogue
with Turkey on Bosporus passage.


11. (C) More broadly, many countries in this region seem to
be facing critical decisions about how to best secure their
long-term energy needs. We need to find ways now to reassure
even close partners like Romania that the game is not over,
and that we are serious about supporting regional energy
projects that bolster rather than diminish diversity of
supply. End comment.
TAUBMAN