VZCZCXRO0362
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHBW #0834 2231359
ZNR UUUUU ZZH ZDS
R 111357Z AUG 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC
INFO EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBW/AMEMBASSY BELGRADE

UNCLAS BELGRADE 000834 
 
C O R R E C T E D COPY - TEXT 
 
SENSITIVE 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD SR
SUBJECT: SERBIA: GAS RESERVE FACILITY NOT YET READY FOR 
WINTER AND FOR POSSIBLE SHORTAGES 
 
REF: BELGRADE 51; 08 BELGRADE 1333; BELGRADE 801 
 
Summary 
------- 
 
¶1.  (SBU) For 25 years, Serbia has been working to expand 
its sole underground gas storage facility, Banatski Dvor, 
to serve as a precaution against gas supply disruptions. The 
director of Serbia's state gas firm, Srbijagas, Dusan Bajatovic 
(of the Socialist Party SPS), publicly insists that the initial 
phase of the expanded facility is close to completion and should 
be ready by November 2009.  Further expansion will depend upon 
Russian assistance. Despite his optimism, Srbijagas is hedging 
its bets by seeking storage space in neighboring countries. Given 
the project's financial and technical limitations, it is unlikely 
the facility will be ready by early winter, leaving Serbia 
vulnerable once again if there were another Russian-Ukraine gas 
dispute, during which the Serbians would be left out in the cold. 
End Summary. 
 
Banatski Dvor: Ready by November 2009? 
-------------------------------------- 
 
¶2.  (SBU) The expansion of Serbia's sole underground gas storage 
facility, Banatski Dvor, located in Serbia's northern province of 
Vojvodina would be ready for the 2009-2010 winter season Dusan 
Bajatovic, director of state-owned gas company Srbijgas, told us 
on July 23. Bajatovic said Srbijagas was improving the facility's 
connections to the Srbijagas regional network, increasing the 
facility's pressure, and purchasing gas to fill the facility, 
which currently has a capacity of 300 million cubic meters (cm). 
 
¶3.  (SBU) Since July 1, Srbijagas has been pumping one million cm 
of gas daily into Banatski Dvor, slowly filling the facility, said 
Bajatovic.  Prior to beginning the July operations, Banatski Dvor 
already had 150 million cm of gas and Bajatovic hoped to have the 
facility filled with 300 million cm by November 2009. According to 
Bajatovic, when the facility was filled and the upgrades were 
complete, the facility would cover Serbia's critical needs for 
60 days in case of a gas shortage. 
 
Main Challenge - Equipping Banatski Dvor 
---------------------------------------- 
 
¶4.  (SBU) Despite Bajatovic's optimism, Srbijagas still has 
significant technical issues to resolve.  Milutin Prodanovic, 
Assistant Minister for Public Companies at the Energy Ministry, 
told us on July 20 that pumping gas into Banatski Dvor was not 
the problem but the challenge was pumping out a sufficient amount 
of gas during the winter.  Prodanovic said that Serbia consumed on 
average 11.5 million cm of gas per day during the winter. Currently, 
Banatski Dvor had an output of only 400,000 cm per day, which was 
not enough to cover even Serbia's critical winter needs, estimated 
at 5 million cm per day. Bajatovic said that the figure of five 
million cm assumed that district heating plants would switch from gas 
to fuel oil and did not account for Serbia's industrial needs. 
 
¶5.  (SBU) To increase output from the facility, Srbijagas signed 
in May 2009 a contract with the Austrian firm Hit for a new production 
line that should enable Srbijagas to pump five million cm of gas per 
day into the gas network. According to the contract, the production 
line also should be finished by November 2009. Srdjan Kostovic, 
Bajatovic's Advisor for Investments, told us on July 24 that 
realistically, the new line probably would not be finished until 
December 2009 or January 2010. 
 
¶6.  (SBU) Prodanovic listed several other technical prerequisites 
necessary for Banatski Dvor to be operational by the winter including: 
finishing a two-line local gas pipeline that would connect Banatski 
Dvor with Srbijagas' regional network; buying another compressor in 
order to pump in more gas into storage; and equipping Banatski Dvor 
with four to five additional drills to maintain pressure. Prodanovic 
thought that although all of this was possible to complete by November, 
Bajatovic's timeframe was too optimistic. 
 
Rent Elsewhere Just in Case 
--------------------------- 
 
¶7.  (SBU) Although he said Banatski Dvor would be ready by winter, 
Bajatovic said that Srbijagas was also in talks with Russian energy 
company Gazprom and German EON to lease an additional 200 to 300 
million cm of gas from Hungarian gas storage facilities. This gas 
could be tapped to meet urgent industrial needs if there were another 
Russia-Ukraine dispute this winter (ref A), which Bajatovic expected 
could easily happen. 
 
Growing Bigger with Gazprom 
--------------------------- 
 
¶8.  (SBU) In order to expand Banatski Dvor beyond its current 300 
million cm capacity, outside investment would be necessary. Bajatovic 
said Srbijagas was completing negotiations with Gazprom to form a 49:51 
(for Gazprom) joint venture company which would expand Banatski Dvor 
to 800 million cm by 2012. This joint venture was initially envisioned 
as part of the broader energy deal signed between Serbia and Russia in 
December 2008(ref B). Bajatovic said negotiations were proceeding but 
that Serbia's property ownership issues needed to be resolved before 
both sides could form the joint venture (ref C). (Likely, both sides 
will try to finalize the details of the joint venture before the visit 
of Russian President Medvedev to Serbia scheduled for October 2009.) 
Under such an arrangement, Gazprom would supply an estimated 300 to 350 
million cm of gas that would serve as so called "cushion gas," which 
would permanently stay in the storage to provide adequate pressure.(This 
cushion gas would be in addition to the 800 million cm capacity.) 
Bajatovic said that Srbijagas was dealing with the Russians on a strictly 
business level and that cooperation with other countries would be welcome. 
(As an example, he asked for our assistance in locating an American-made 
compressor for the facility, a request we are pursuing.) 
 
Potential Storage Capacity in the Billions 
------------------------------------------ 
 
¶9.  (SBU) While Srbijagas'immediate focus is on Banatski Dvor, 
Bajatovic said Serbia had two other potential gas storage facilities 
eyed for future development. These facilities, made of drier sandstone, 
had a potential capacity of one billion cm of gas each.  Bajatovic 
optimistically stated that Serbia's potential total gas storage 
capacity could be up to seven billion cm. 
 
Comment 
------- 
 
¶10.  (SBU) In comparison to directors before him, Bajatovic has 
publicly promised that Srbijagas will keep the gas flowing. Bajatovic, 
who runs Srbijagas as a one man show with plenty of media exposure, 
may be able to conclude negotiations with Gazprom, but it is unlikely 
that Srbijagas has the technical and managerial capability to deliver 
Banatski Dvor on this tight timeframe. If Srbijagas fails to keep the 
gas on this winter it would be a failure for the government, as well 
as Bajatovic's own personal failure. End Comment. 
BRUSH