VZCZCXRO2254
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHBW #0012/01 0081332
ZNR UUUUU ZZH
R 081332Z JAN 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0835
INFO RUEATRS/DEPT OF TREASURY WASH DC
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 BELGRADE 000012 
 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD SR
SUBJECT: GAS CRISIS BEGINS TO BITE SERBIA 
 
Ref: 08 Belgrade 1333 
 
Summary 
------- 
 
¶1.  With the cutoff of gas supplies from Serbia's sole gas import 
pipeline from Hungary on January 6, Serbia is effectively without 
natural gas until the end of the Russia-Ukraine dispute.  Deliveries 
of gas to Serbia ended on January 6 as an Orthodox Christmas Eve 
present from Moscow.  Most Serbian central heating systems can and 
are switching to fuel oil, but homes and businesses connected to the 
gas grid in Vojvodina and Belgrade must find their own alternatives 
for heat.  Serbia's just signed agreement with Gazprom to sell oil 
firm NIS (reftel) did not provide any additional protection from the 
gas shutoff.  End Summary. 
 
Merry Christmas - Gas Supplies Cut on January 6 
--------------------------------------------- -- 
 
¶2.  Serbia's gas imports from Hungary dried up late in the afternoon 
of January 6, Orthodox Christmas Eve.  The government met in 
emergency session on January 7 after which Prime Minister Cvetkovic 
held a press conference to address public fears about the situation. 
 Cvetkovic told the public that the situation was serious, but not 
yet critical.  Cvetkovic said that most heating plants were capable 
of switching to fuel oil, and Serbia had sufficient fuel oil for at 
least a month. 
 
Most Central Heating Working, Individuals on Own 
--------------------------------------------- --- 
 
¶3.  Dragan Vucur, Executive Director for Commercial Affairs at 
Srbijagas, told us on January 7 that the gas pipes were totally 
empty.  No gas was available for individual households, district 
power plants or industry.  Srbijgas had less than 1 million cubic 
meters of gas daily for urgent needs: 500,000 cubic meters from 
domestic production and just over 400,000 cubic meters from the 
underground gas storage facility at Banatski Dvor that was working 
for the first time.  Gas stocks from Banatski Dvor would be used up 
in a couple of days.  In winter, Serbia traditionally uses gas near 
the maximum import capacity of 10 million cubic meters daily. 
 
¶4.  Aleksandar Antic, Belgrade City Assembly President, told us that 
the situation in Belgrade was stable.  All district heating powers 
plants were working on fuel oil except one small one in an outer 
suburb that could not switch.  Individual households using natural 
gas for heating outside the district heating power plant system were 
on their own. Currently, the electricity system in Belgrade was 
stable and consuming only from domestic production.  On January 6-7, 
electricity generation in Belgrade was 32 million kWh and there was 
capacity to increase to 35-36 million kWh (10-15% more).  Antic said 
he believed the electricity situation was similar in the rest of 
Serbia.  Antic said Srbijagas reps told him that they expected some 
solution between Russia and Ukraine within 72 hours. 
 
Hungary Unable to Provide Interim Supplies 
------------------------------------------ 
 
¶5. The head of Srbijagas went to Hungary on January 7 to discuss 
shipments from Hungary of domestic or stored gas reserves.  He was 
unsuccessful in reaching an agreement to receive gas immediately, 
but received assurances that Hungarian firm MOL would start gas 
delivery as soon as Russia and Ukraine came to an agreement.  This 
would help Serbia get its gas system back up more quickly than 
waiting for the full system to repressurize and for full supplies 
from Russia to come through the system. 
 
¶6.  Milos Milankovic, director of the Serbian transmission system 
operator EMS, told us on January 8 that the electricity generation 
and transmission system was stable and working at full capacity. 
Electricity production in Serbia was at its maximum capacity, but 
the transmission system could handle more electricity with imports 
if necessary.  Currently, Serbia was not importing electricity. 
Milankovic blamed Srbijgas for not extending an agreement with MOL 
that would have provided additional gas deliveries of up to 1.5 
million cubic meters per day beyond Serbia's purchases from Gazprom. 
 Milankovic said that the gas price agreed last year for these 
additional deliveries was 20% higher than the Russian price but that 
this extra cost would have been worth it to ensure additional 
supplies in situations like this.  The current Serbian gas price 
from Russia was $495 for 1,000 cubic meters of gas and almost 10%, 
or $35 to $45, paid for transit through Hungary. 
 
Gas Grid Limited to Vojvodina and Belgrade 
------------------------------------------ 
 
¶6. Zoran Alimpic, Deputy President of the Belgrade Assembly, told us 
on December 24 that Beogradske Elektrane provided central heating to 
half of the 500,000 households in and around Belgrade.  About 15% of 
 
BELGRADE 00000012  002 OF 002 
 
 
households in Belgrade use gas heating.  The rest use electricity, 
fuel oil or wood. 
 
¶7.  Vojvodina and the suburbs of Belgrade are the only areas in 
Serbia where the gas grid is connected directly to households. 
Early reports suggest about 100,000 households are heated with gas. 
These households will have to find alternative heat. 
 
Embassy Housing Still Warm 
-------------------------- 
 
¶8.  The Embassy has its own boiler and a full tank of fuel oil.  The 
tank is sufficient to heat the Embassy for four to six weeks.  Some 
Embassy residences in the suburb of Banovo Brdo have gas heat.  With 
one exception, they all have an oil or electrical back-up system. 
All residences are now on back-up oil or electrical systems.  Oil 
tanks at residences have enough fuel oil for 25-30 days.  Embassy 
apartments downtown are on the city heating system that has switched 
over to fuel oil. 
 
COMMENT 
------- 
 
¶9.  The Serbian Government's self-promotion as a "geostrategic 
partner between the EU and Russia" took a hit with Gazprom's turning 
off the gas tap.  President Tadic said that Serbia was "collateral 
damage" in the dispute, but he did not indicate support for Russia's 
position in the dispute.  With cold temperatures dipping into the 
teens at night for the foreseeable future, some Serbs will struggle 
to keep warm.  The shutdown will also affect Serbia's economy, but 
the economic slowdown and the holiday season meant that many 
industrial gas consumers had already decreased or suspended 
production.  For example, major gas user U.S. Steel had already shut 
down most of its operations due to falling steel demand. 
 
¶10.  Serbia's recent energy deal with Gazprom and Russia did nothing 
to spare it from the consequences of the gas dispute.  Gazprom's 
pressure to sign the NIS sale agreement before the end of December 
may have been a result of the company's recognition that the dispute 
with the Ukraine could affect Serbia.  Serbia has few alternatives 
with only one import pipeline for gas, but with the Russian energy 
agreement Serbia also gave up future control of its nascent gas 
storage facility to Gazprom.  In the unlikely event that they choose 
to recognize it, Serbs now have a clearer picture of how little the 
Russian energy agreement did to increase their energy security; as 
well as Serbia's role as Russia's Balkan pawn.  End Comment. 
 
BRUSH