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DE RUEHVB #0497/01 2240844
ZNR UUUUU ZZH
O 120844Z AUG 09
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9465
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 ZAGREB 000497 
 
SENSITIVE 
SIPDIS 
 
INR/OPS MICHAEL OWENS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV HR
SUBJECT: RESPONSE TO REQUEST FOR INFORMATION ON CROATIA'S 
ENERGY STRATEGY (C-RE9-00787) 
 
REF: STATE 76695 
 
¶1.  (SBU) Summary.  Progress on Croatia's LNG terminal is 
excruciatingly slow, with LNG project staff at INA, Croatia's 
largest shareholder in the project, sitting idle waiting for 
the final investment decision to be made.  As Croatia's 
domestic gas production slowly declines, its need for new 
sources of energy will become acute if demand projections are 
accurate.  Croatia's national energy strategy, developed last 
year but yet to be passed by parliament, reportedly will not 
include a new nuclear plant which many had advocated. 
Croatia has begun work on projects to connect with Nabucco or 
South Stream to the north, and the Trans Adriatic Pipeline to 
the south, hoping to hedge their bets on future gas supplies. 
 But in the near term, Croatia's dependence on Russia for 
energy will steadily increase.  End Summary. 
 
¶2.  (SBU) The Croatian government energy investment strategy, 
developed in late 2008 with the final draft released in 
January, has not yet been adopted by the Croatian parliament. 
 The reasons for the long delay are unclear, although the 
internal debate over the role of nuclear power, a central 
point of contention, appears to be over.  Officials of the 
energy department of the Ministry of Economy told us that a 
Croatian nuclear plant was now off the table, at least until 
¶2015.  The rest of the draft strategy calls for a combination 
of coal fired power, natural gas, and renewables to satisfy 
Croatia's spiking demand. 
 
¶3.  (SBU) Croatia has not taken a prominent role in the large 
scale regional infrastructure projects under discussion, such 
as South Stream or Nabucco.  Croatia has been more active on 
some of the smaller scale existing and potential gas 
transmission plans under development such as the Trans 
Adriatic Pipeline and the Ionian Adriatic Pipeline.  The 
latter pipeline Croatia hopes to connect to via a planned 
pipeline south through Dalmatia (Note: Dalmatia is currently 
powered largely by hydro plants with little or no gas 
transmission infrastructure).  On Nabucco and South Stream, 
the government has not spoken out strongly in favor of one 
project over another since neither in its current form would 
pass through Croatian territory.  Instead, Croatia is trying 
to position itself to benefit from whichever project comes to 
fruition.  They recently began construction of a gas 
interconnector with Hungary that will terminate at a point in 
Hungary where both the Nabucco and South Stream lines would 
pass. 
 
¶4.  (SBU) While the economics and politics of Nabucco and 
South Stream play themselves out, Croatia is also working to 
diversify its energy supply, albeit slowly.  Croatia only 
recently achieved one milestone towards realization of its 
LNG terminal on the island of Krk by successfully negotiating 
the structure of the Croatian portion of the Adria LNG 
consortium.  The national oil company INA and the national 
power company HEP will have the largest participation, with 
the gas transmission company Plinacro taking a tiny 
percentage as well.  According to an LNG expert at INA, the 
environmental assessment has been completed but it will still 
be months before the structure of the Adria LNG consortium 
can be finalized and a final investment decision made.  She 
indicated that there was still some risk that in the current 
economic environment the consortium could decide not to move 
forward. 
 
¶5.  (SBU) Recognizing that they will at least partially 
depend on Russia for their energy needs for a long time, 
Croatia tries to keep cordial relations with both Russian 
energy companies and the Russian government.  Our INA contact 
told us this dependency is creeping upward as Croatia's 
domestic production slowly declines, making the need for LNG 
increasingly urgent.  She also told us Gasprom has refused to 
increase supplies to Croatia after 2012 within the current 
long-term gas contract.  This will leave Croatia with a 
significant gap in supply if they are unable to realize the 
LNG terminal or other sources. 
 
¶6.  (SBU) Potential new sources of gas are few. Key among the 
new partners is Qatar, which Croatia foresees as the future 
major supplier for the LNG terminal.  Qatar has been 
receptive, but has been frank with the Croatians that it 
cannot realistically provide new supplies of gas until at 
least 2012.  With LNG terminal construction to take several 
years, this might not be a problem, but only if Croatia can 
negotiate contracts relatively soon.  According to our 
contacts at INA, this is largely Croatia's own fault, since 
the LNG project could have progressed much more quickly and 
contracts with Qatar could have been signed years ago. 
Croatia also has attempted to forge a stronger relationship 
 
ZAGREB 00000497  002 OF 002 
 
 
with Algeria as a potential hedge against future gas crises. 
They would like to have contracts in place with Algeria and 
Italy such that Algeria would transport gas to Italy through 
existing infrastructure and Italy would then release an equal 
quantity of gas to Croatia from its Adriatic fields. 
 
¶7.  (SBU) Comment: In all likelihood, the LNG terminal 
project will go forward, but progress is excruciatingly slow. 
 The staff within the office at INA set up to work on the 
project is largely idle, waiting for the key decisions to be 
taken to finally lift the project off the ground.  The 
government's draft energy investment strategy, released late 
last year, was a smart and realistic examination of options 
for the future diversification of energy supplies.  Now, 
eight months later, with the strategy yet to be finalized and 
the country in the middle of an economic crisis, the plan 
seems much less realistic. That leaves Croatia increasingly 
dependent on gas from Russia, a situation Russia is no doubt 
keenly aware of. 
 
 
WALKER