NABUCCO: PARTNER NATIONS LOSING PATIENCE WITH ONE

C O N F I D E N T I A L SECTION 01 OF 03 BUDAPEST 000492

EUR FOR DAS BRYZA, EUR/NCE FOR MARC NORDBERG

E.O. 12958: DECL: 05/16/2018
TAGS: ENRG ECON HU
SUBJECT: NABUCCO: PARTNER NATIONS LOSING PATIENCE WITH ONE
ANOTHER

REF: BUDAPEST 00409

Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D).



1. (C) SUMMARY: A gathering of Nabucco Consortium member
countries, together with potential supplier states Azerbaijan
and Iraq, at an Ambassador-hosted luncheon on May 9, revealed
continuing concern on old themes: the ability of Caspian
nations to supply gas; Turkey's intentions, whether transit
or brokerage; and perceived EU inaction in shoring up a
common energy security policy. Hungary's Nabucco Ambassador
Mihaly Bayer -- fresh from his U.S. tour -- followed a
measured approach, noting Nabucco's remaining challenges but
also laying out his ambitious travel schedule and intention
to coordinate a Nabucco intergovernmental agreement (IGA).
Austrian Ambassador Ferdinand Mayrhofer-Grunbuhel and MOL CEO
Zsolt Hernadi traded thinly-veiled jabs on the current and
future leadership of the Nabucco Consortium, with both also
treading carefully to show equal commitment to Gazprom.
Despite Hungarian oil and gas company MOL's stated desire to
lead the Nabucco Consortium, the CEO had little encouraging
to say about the project, prompting the Romanian Ambassador
to ask, "but what are the good points?" The strategic
benefits may be too distant for decision-makers focused on
short-term economic advantage and short-term political
survival. END SUMMARY.

AZERBAIJAN "WILL NOT WAIT FOR NABUCCO"


2. (C) In a performance worthy of the Grand Bazaar, Azeri
Ambassador Hasan Aziz Hasanov warned Nabucco countries that
they "should be in a hurry" to enter supply negotiations.
"We are going to sign new contracts, and we will not wait for
Nabucco." To break Russia's double monopoly -- buying from
Central Asia and selling to Europe -- Hasanov implored EU
countries to engage potential suppliers as a group and to do
so at a high level. (Note: This urging aside, Hasanov
demurred to acknowledge an oral commitment to sell 1 bcma to
Bulgaria.) "You should gather all the countries and ask how
much they will commit. Putin visited Central Asia and sat
personally with Presidents to ask for gas. Who visits from
Europe?" MOL CEO Hernadi sounded a doubtful note in
response: "Azerbaijan's promise of 8 bcm is only theoretical.
The gas is not currently available."


3. (C) Turning to other potential Nabucco suppliers, Iraqi
Charge d'Affaires Amel Al-Shemmari reported on Iraq's
projected extractions (70 bcma) and export capacity (29 bcma)
over the next 5-10 years, including a 10 bcm pipeline to
Turkey, with expected completion in 2009. Al-Shemmari
acknowledged security and gas field development as challenges
to Iraq's gas export aspirations. Bayer reminded the group
"that at least some of the gas" for Nabucco "might come from
Russia, since 50 percent of the capacity will be open to
third party access" and noted, too, OMV's earlier interest in
getting Iranian gas into the pipeline.

TALKING TURKEY ON TRANSIT


4. (C) Hasanov's assertion that "the transit issue with
Turkey must be solved" brought a tepid response from the
newly-arrived Turkish Ambassador to Hungary Oya Tuzcuoglu,
who stated that the focus in the coming months should be on
the supply side -- "the EU can and should elaborate a road
map." Expressing waning patience with Turkey,
Mayrhofer-Grunbuhel and Bayer both reported having "heard
voices that say they will pursue alternates if the road with
Turkey gets too hard."

EU DISINTEREST IN A NABUCCO IGA?


5. (C) In response to Bayer's stated priority of concluding a
Nabucco IGA, Turkey, Romania and Bulgaria reported that they
were circulating Hungary's draft within their governments and
would respond as soon as possible. According to Bayer,
Austria has already responded. Clarifying various IGA
drafts, Bayer explained that companies circulated a first
draft and that a second draft -- initiated by the GOH --
takes into accounts governments' legal obligations. Bayer
also expressed frustration with EU Southern Corridor
Coordinator Jozias van Aartsen, who, he said, had not
followed up on a previous commitment to organize a June
meeting to hammer out final details of a Nabucco IGA. In
addition, Bayer had been unable to secure a single meeting
with van Aartsen since assuming his Nabucco duties, leading
other participants to express general dissatisfaction with
van Aartsen's dual hatting as an EU official and Mayor of The
Hague.

MOL NOT PRIORITIZING NABUCCO


6. (C) When asked to present a corporate update on Nabucco,
Hernadi addressed in detail MOL's current pet projects --
both having to do with regional pipeline interconnectors --
before briefly touching on the need for EU financing for
Nabucco. Reporting on an agreement to build a 10 bcm
connector between Croatia and Hungary, Hernadi assured the
other guests, "I can speak for Croatia." And referring to
the New European Transmission System (NETS),which held its
first meeting in Bucharest in mid-March, Hernadi said the
project "helps the Nabucco philosophy." Karoly Banai,
Foreign Affairs Adviser to the Prime Minister, later added
that "NETS could substitute to a certain extent for Nabucco
infrastructure." (Comment: Given Hernadi's description of
the interconnectors in ref, NETS could be used to Gazprom's
advantage rather than to bolster diversification. According
to recent press reports, MOL is working jointly with Gazprom
on a South Stream feasibility study and has secured a South
Stream-linked storage contract from the Russian firm. End
Comment.)


7. (C) Finally turning to Nabucco, Hernadi said he had spoken
with two European Parliamentarians, who are willing to submit
a proposal to the EU to commit financial resources to the
Nabucco project in the form of loan guarantees.

NEIGHBORS CALL HUNGARY'S APPROACH "INDECENT"


8. (C) Barely harnessing her contempt, Romanian Ambassador
Irina Comaroschi muttered in a sideline that she found
Hungary's approach -- both Hernadi minimizing the project and
the GOH blaming the EU for hurdles -- "indecent." The Dutch
Charge told us subsequently that "blaming the EU is the easy
way out." Similarly, Mayrhofer-Grunbuhel dismissed MOL's
current efforts to seize control of the Consortium, saying,
"it is my understanding that OMV is the head of the Nabucco
Consortium, and we are the only ones with infrastructure to
distribute the gas if the pipeline is built." His disdain
was not reserved for MOL alone. Shaming the GOH, the
Austrian Ambassador told his counterparts that when he
attended the MFA's February 29 briefing on South Stream, he
"heard to my amazement that Austria had signed an agreement
on South Stream. This is not true. We did not sign out of
consideration for Nabucco." However, Mayrhofer-Grunbuhel
followed quickly by noting Austria's interest in South Stream
-- "because we need all modalities possible" -- and asserted
that the Gazprom-backed project could co-exist with Nabucco.
Similarly, he characterized the sale of half of Baumgarten's
shares to Gazprom -- although "Gazprom owns no
infrastructure" -- as a move to ease concerns that Austria
was sidestepping Russia in favor of Nabucco.


9. (C) COMMENT: While we applaud Bayer's seemingly sincere
efforts to catalyze the Nabucco process, he lacks the
authority to set policy. The motives of others in the GOH
and MOL, meanwhile, continue to give us pause. With the full
extent of MOL's involvement in the South Stream project still
unknown, we think it unlikely that MOL would do anything to
damage its chances to cash in on the Gazprom-backed pipeline.
And recent indications -- that MOL intends to use its
interconnectors to ship, and its storage facilities to store,
Gazprom gas -- suggest that MOL perceives its fortunes to lie
far from Nabucco. Meanwhile, the Prime Minister appears
entirely preoccupied with domestic politics and the challenge
of minority government. (According to our Czech
counterparts, the PM discussed only domestic politics, no
foreign policy, in a one-hour meeting with President Vaclav
Klaus last week.) He will likely pursue short-term stability
-- which he equates with Russian energy -- even if it runs
counter to long-term security. END COMMENT.
Foley