Cablegate: Croatia Unprepared for Another Gas Crisis

VZCZCXRO1497
OO RUEHIK
DE RUEHVB #0718 3431454
ZNR UUUUU ZZH
O 091454Z DEC 09
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9712
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS ZAGREB 000718

SIPDIS
SENSITIVE

DEPARTMENT FOR EEB/ESC AND EUR/SCE; TREASURY FOR
INTERNATIONAL AFFAIRS LARRY NORTON

E.O. 12958: N/A
TAGS: ENRG ECON HR
SUBJECT: CROATIA UNPREPARED FOR ANOTHER GAS CRISIS
ACCORDING TO INA OFFICIAL

1. (SBU) Stevo Kolundzic, senior advisor to the board of
directors of INA, Croatia's largest energy company, told
econoff on December 7 that owing to existing Croatian gas
supplies and market conditions, Croatia is ill-equipped to
deal with another gas cutoff from Russia, or even a cold snap
that would drive up domestic demand. According to Kolundzic,
Croatia's single underground gas storage facility south of
Zagreb, which was a critical buffer during the cutoff of
Russian gas last January, is currently less than half full.
He said INA has explored emergency gas delivery options with
Italy, either purchasing some of the production of Italy's
Adriatic fields, or leasing pipeline space from Slovenia to
import gas from elsewhere in western Europe. However,
Croatia is burdened by a price control mechanism that has not
been altered since 2004. Under this system, INA is forced to
import gas at market prices and sell at a significant loss,
resulting in a much-publicized 300 million euro debt. INA has
been under increasing political pressure to pay its
obligations, making the prospect of significant new imports
extremely difficult.

2. (SBU) Croatia imports just under half its domestic natural
gas needs from Russia. Croatia's domestic production
accounts for much of the rest, but with no new fields in
development, that production is stable and will begin to fall
within the next few years. INA currently has large
investments in Syrian natural gas fields and the company
hopes to make up the shortfall in domestic supplies over the
next decade with new production from Syria. A planned LNG
terminal on the Adriatic island of Krk would add an
additional 1 bcm/year or so for the domestic market, but not
until 2014 at the earliest. Until then, Croatia will be
highly vulnerable to supply disruptions (although, unlike
some of its neighbors, the advantage of domestic production
will continue to be a buffer, making any externally-provoked
gas crisis somewhat less acute. But this production is not
enough to completely mitigate crisis, especially if is
sparked by both internal demand problems and external supply
problems hitting at the same time). The price control
mechanism is a significant drag on any flexibility they might
have, but it is unlikely to change in a period of cold
temperatures and economic crisis.
FOLEY

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