UPDATE 1-Russian gas cut may spur Croatia LNG project

Tue Jan 20, 2009 4:28pm GMT

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(Adds PM Sanader's comment, para 4)

By Igor Ilic

ZAGREB Jan 20 (Reuters) - The Russian gas supply crisis should spur support in Croatia for the Adriatic liquefied natural gas (LNG) import project, which has been repeatedly delayed by environmental concerns and political inaction.

The Balkans were severely affected by the halt in gas supplies arising from Moscow's dispute with Kiev and Croatian Prime Minister Ivo Sanader said last week Zagreb saw the LNG terminal as crucial for diversifying energy supplies.

The terminal, planned by a consortium of Croatian and European energy firms, should also improve supply security for the wider region as it will be able to process more gas than Croatia needs.

"I expect to meet representatives of all the partners in the consortium in the next two weeks when we would agree on the quick start of the project's implementation," Sanader told reporters after a meeting a European Commission energy official in Zagreb.

Adria LNG's foreign partners are keen to get it built before nearby projects in Italy are completed.

"The race for the gas market is open and tough and the later the (Croatian) terminal is built, the smaller will be its market share," an industry source close to one of the local investors said. "The government should keep that in mind."

A government source close to the project also said it was time Croatia took concrete steps to get the project going.

"Croatian companies should as soon as possible sign an agreement with foreign partners and I believe the government will decide on it by the end of the first quarter at the latest," the government source said.

LNG is natural gas cooled to liquid for transport in tankers. It is regasified at terminals for transport through pipelines, offering greater flexibility on sources than gas supplied directly through pipelines.

After considering the location of the terminal for two years, Zagreb settled on the town of Omisalj on the northern Adriatic island of Krk last September.

REGIONAL IMPORTANCE

The investment is estimated at 800 million euros ($1.04 billion). The terminal is planned to have an initial capacity of about 10 billion cubic metres (bcm) of gas per year, with the possibility of increasing this to 15 bcm later on. Croatia consumes some 3.2 bcm annually.

"It makes the terminal important for the whole region, including Italy, Austria, Hungary, Romania and Slovenia," Michael Mertl, head of the Adria LNG consortium, told Reuters.

The consortium now comprises Germany's E.ON-Ruhrgas EONG.DE, Austria's OMV (OMVV.VI), Total (TOTF.PA) from France, German utility RWE's subsidiary Transgas (RWEG.DE) and Slovenia's Geoplin gas company.

The Croatian partners, with a 25-percent stake, are expected to include state power board HEP, state gas pipeline operator Plinacro and oil and gas group INA INA.ZA HINAq.L, which is 48-percent owned by Hungary's MOL (MOLB.BU) with 44 percent held by the Croatian state.

The Adria LNG consortium plans to get a location permit after the government approves an environmental impact study, a key condition for building to start in 2010 and end by 2014.

"We aim to do everything we can to make sure the study is well prepared and comprehensive," Adria LNG said in a statement.

The investors are cautious after the Druzhba-Adria oil pipeline project, aimed for the export of Russian oil through the Adriatic, was blocked several years ago by environmentalists worried over potential pollution of the pristine coast.

This time, experts expect a smoother ride.

"The discussions so far seem to show that environmentalists are now readier to accept the project, if environment protection is properly taken care of," the industry source said. (Editing by Zoran Radosavljevic and Daniel Fineren)

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