VZCZCXRO3088
RR RUEHAG RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ
RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0266/01 0601016
ZNR UUUUU ZZH
R 011016Z MAR 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 5762
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
FHMFISS/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 02 ZAGREB 000266 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON PREL EINV HR
SUBJECT: Croatia considering its geo-strategic 
position in energy sector 
 
 
¶1.  Summary:  Before Gazprom threw the switch on gas 
supplies to Ukraine on New Year's Day 2006, Croatia 
was already considering diversification of supply 
and its position in the regional energy sector. 
Croatia is a net importer of both oil and gas, with 
domestic production steadily declining. The 
government is now seeking ways to take advantage of 
its geographic position to make Croatia a bigger 
player in European oil and gas distribution. 
Proposals for major investments in a liquefied 
natural gas (LNG) terminal and an oil pipeline are 
now being given serious consideration.  End summary. 
 
----------------------------------------- 
Seeking Security of Supply of Natural Gas 
----------------------------------------- 
¶2.  Croatia imports about 1.2 billion cubic meters 
(bcm) of natural gas, 55% of overall consumption, 
all of which comes from Russia.  Recently, Russian 
gas supplies have been cut 10-15%.  However, the 
impact of the reduction has been minimal on 
residential users, as large industrial users, who 
account for 47% of total demand, reduced their gas 
consumption and turned to other energy sources such 
as coal to shift gas supplies to the residential 
market. 
 
¶3.  Although Croatia is not currently facing a 
natural gas crisis, the GOC recognizes that 
Croatia's domestic natural gas supplies are 
declining (by 2030, it is projected that Croatia 
will import 87% of its natural gas) and that it 
needs to diversify supply.  To that end, both PM Ivo 
Sanader and Minister of Economy Branko Vukelic have 
publicly supported the construction of an LNG 
terminal in Croatia.  This fits well into the EU 
plan to increase LNG imports from 80 bcm to 160 bcm 
over the next few years and supports Sanader's goal 
of "gasification" of Dalmatia (an infrastructure 
project he likens as being just as important as 
bringing highways to the region.) 
 
¶4.  Two locations under consideration are Omisalj 
and the port of Ploce in Dalmatia.  Stevo Kolundzic, 
advisor to the chairman of INA, Croatia's state-run 
petroleum and energy company, told econoff that only 
Omisalj, a deepwater port located on the island of 
Krk, is truly of interest since it is a more 
favorable site (Ploce has fault lines) and INA has 
already invested 8 million euro into the site. 
Kolundzic said that the current Adria LNG consortium 
will draft a new shareholding agreement early in 
2006 to accommodate the German company E.ON. 
Current shareholders include Croatia's INA and 
Slovene, Czech, French and Austrian companies 
Geoplin, RWE-Transgas, Total, and OMV.  The expected 
capacity of the terminal would be between 10-13 bcm, 
50% of which would go to E.ON and the rest would be 
divided among other shareholders.  If built, the 
terminal is not expected to be operational before 
¶2011. 
 
¶5.  Although there is support from the GOC and 
interest from industry, the head of Primorsko- 
Goranski County, Zlatko Komadina, opposes building 
an LNG terminal at Omisalj because he sees it as an 
ecological risk that could affect tourism on the 
island of Krk.  Several environmental groups share 
Komadina's position and have started speaking to the 
press about their concerns.  Sanader responded by 
saying that the site of an LNG terminal will be 
based on the decisions of experts and not on local 
whims and that Croatia's energy security is a 
primary concern. 
 
-------------------------------- 
Potential oil pipeline projects 
-------------------------------- 
¶6.  INA currently produces about 40% of domestic oil 
and purchases the rest on the spot market.  Tankers 
deliver oil to Omisalj (about 7.5 million tons per 
year) and about 55% of this oil is then transported 
by pipeline to two refineries in Croatia (Rijeka and 
Sisak).  The rest is transported to refineries in 
Serbia and Montenegro (SaM) and Bosnia and 
Herzegovina (BiH). 
 
¶7.  While technically straightforward, the proposed 
linkage of the Druzba and Adria pipelines (which 
would transport oil from Russia via Belarus, 
Ukraine, Slovakia, the Czech Republic, Hungary and 
 
ZAGREB 00000266  002 OF 002 
 
 
then through Croatia to tankers at Omisalj) has met 
with stiff resistance from environmentalists in 
Croatia and lacks the support of Prime Minister 
Sanader and his government.  An alternative to DA is 
the Pan European Oil Pipeline (PEOP) which Kresimir 
Cerovac, Head of the Energy Department, Ministry of 
Economy, described as "more interesting" for Croatia 
since it would obviate the need to offload oil onto 
tankers in the Adriatic.  Thus far, however, PEOP 
has not received much attention from the government, 
which seems to be more focused on constructing the 
LNG terminal at Omisalj.  According to Davor Matic 
from the Hrvoje Pozar Energy Institute, an oil 
pipeline which transits Croatia is not as 
interesting since the "real power and money" is 
associated with a terminal, not just a pipe. 
 
¶8.  Kolundzic said INA is interested in both DA and 
PEOP, but concedes that, barring an unlikely shift 
in public or government opinion, DA is not likely to 
be built.  Kolundzic thinks the Sanader government 
has not supported DA because they associate it with 
the previous government. He expressed concern that 
the GOC's handling of DA will tarnish Croatia's 
prospects to join other pipeline development 
projects, including PEOP.  Marija Sculac Domac, Head 
of the Energy Sector at the Croatian Chamber of 
Economy, said that the GOC stacked the environmental 
impact assessment committee to ensure a rejection of 
DA, allowing the current government an easy way out 
of a potentially bruising battle with public 
opinion. 
 
 
FRANK