President calls for Croatia to take lead in EU energy security

By bne IntelliNews May 29, 2014

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Croatia can “lead by example” in Europe by enhancing its own energy self-sufficiency and become a regional centre for energy in the wake of the Ukraine crisis, the country’s president, Ivo Josipovic, tells bne in exclusive comments.

Despite a breakdown in relations between the EU and Russia over Ukraine, which has led to the worst tensions since the Cold War, Josipovic emphasises that the two will remain interdependent, while urging Brussels to support the development of domestic resources to promote energy security.

Croatia is seeking multi-billion investments in its energy sector. The country recently launched its first-ever tender for offshore oil and gas exploration, and is also looking to develop a liquefied natural gas (LNG) terminal on its Adriatic coast and play a leading role in the Trans-Adriatic gas Pipeline (TAP), which will bring Azerbaijani gas into Europe without crossing Russian soil. All could help reduce Europe’s dependence on Russian imports.

“Croatia’s role in term of EU-wide energy policy is to lead by example – by developing both internal capacities in the Adriatic Sea, an LNG terminal and an interconnector to TAP, Croatia could become the best example of how diversification of supply and even self-sufficiency can be accomplished,” Josipovic tells bne. “Leading by example is often the best practice. At the same time, Croatia would also play an important role as an energy hub for all of these resources in the context of its neighbouring countries. Alternative supply routes and sources are important for increasing long-term security of supply in Eastern Europe.”

Josipovic’s main focus is on broadening gas supply. He adds that renewables must continue to be a central plank of the EU’s energy policy, even if economic concerns have led to some countries backing away from green energy in recent years, but that this will go hand-in-hand with the growth of gas.

Driven by Ukraine

Josipovic was speaking after the publication of an op-ed in the Financial Times in April in which he said that the Ukraine crisis had underlined how vulnerable many eastern members of the EU are to “energy supply disruptions and price increases that harm competitiveness and energy security throughout the region.” 

The situation in Ukraine has once again raised the prospect of shortages of gas in Central and Eastern Europe, where many countries are heavily reliant on Russian imports, much of it transiting via Ukraine. Several times in recent years – in 2006, 2008 and 2009 – Russia’s Gazprom has shut off the gas supply to Ukraine, leaving countries like Bulgaria, Hungary, Serbia and Greece in the lurch. Josipovic foresees a future in which Europe continues to buy Russian (and Norwegian) gas, but will have a more diversified range of energy sources to boost competitiveness and energy security. “Europe and Russia are and will continue to depend on each other in the energy sector – and both Europe and Russia are aware of this interdependency,” he tells bne. “However, short-term supply interruptions such as the one of 2006 may occur again, and this is why more supply alternatives are necessary.

In Croatia’s case, this would come both from domestic sources (offshore oil and gas) and imported (via LNG and TAP). All could help the wider region.

One expert on the Western Balkans, who asked not to be named, said that Josipovic’s FT piece should be seen in the context of Croatia’s attempts to promote the oil and gas exploration licensing round that it launched in April. The government hopes that the concessions for 29 blocks over 36,823 square kilometres will draw in $2.5bn in investment in the next five years. A survey by Spectrum, a Norwegian seismic-imaging company, has estimated that Croatia could have reserves of up to 3bn barrels of crude oil offshore - though some analysts are sceptical, and Croatian officials will only say that the prospects are promising. Croatia already has substantial proven oil and gas reserves, but until now most exploration and extraction has been done by the ailing domestic player, INA Group.

Domestic supply

Josipovic says he hopes the EU would support eastern member states to develop their own energy reserves – including Poland’s shale gas. “Most importantly for Croatia, Poland and other countries with potential resources of their own, the EU must help the development of infrastructure that will support and make investments in exploration and production more attractive to investors, as economic viability of each such project is the only assurance of its sustainability,” he says.

The Ukraine crisis has increased the volume of lobbying for shale development. However, fracking for Polish shale gas is even more controversial than Adriatic oil and gas exploration. France’s Total recently pulled out of shale exploration in the country.

Another regional security and energy analyst tells bne that Poland and Croatia are two of the most crucial players in energy diversification in CEE, not only because of domestic resources, but because of LNG supply. Poland already has a terminal under construction on its Baltic coast. “LNG is a proven solution to such short-term disruptions and today, there is a network of LNG terminals that are being constructed throughout Europe that will improve its position in this regard,” says Josipovic.

A Croatian LNG regasification terminal, to be located on the tourist-hotspot island of Krk, has long been mooted, but is some years from becoming a reality. In April, Economy Minister Ivan Vrdoljak said that Croatia would push ahead with the project, with a view to completing it in 2016 and supplying Hungary, Slovakia, Romania and even Poland. 


The third prong of Josipovic’s diversification strategy, TAP, is also some way from completion, with gas only expected to flow in 2019, Laurent Ruseckas, senior advisor for global gas at IHS Energy, says.

The main route of TAP, which would be supplied by gas from Azerbaijan’s Shah Deniz II field, runs from Turkey to the Albanian coast and under the Adriatic to Italy. Croatia would be supplied via a proposed pipeline along the Adriatic coast. With proposed capacity of 10bn to 20bn cubic metres (cm) – compared with the 115bn cm that Russia supplied to Europe last year – TAP will not have a huge volumetric impact on the continent’s gas supply, but in conjunction with LNG, shale and Adriatic and Black Sea gas, it could still help loosen Russia’s grip, says the security and energy expert.

Josipovic’s clarion call receives a mixed response. Statements about the need to diversify are not new – and action on them has been slow. The projects he champions will take years to implement, even if all parties are in agreement.

The first analyst is sceptical, given that even within CEE “countries have variety of different problems and don't have much in common.” She highlights the environmental risks of further oil and gas exploration along Croatia’s coast (the heart of its crucial tourist industry), and adds that Croatia might be better off addressing its own problems in the electricity sector and reducing energy usage.

Ruseckas agrees with the president that Europe and Russia will remain interdependent “unless Europe takes some rather bold steps,” but that this is not news. He expects that, “the EU will be the main forum where the various views and ideas about Europe’s future energy security get discussed by policymakers,” though countries will move ahead at different speeds. Josipovic, of course, would like Croatia to be one of the trailblazers.

The security and energy analyst tells bne that Croatia certainly has a central role to play in the region. And the future of INA, currently the subject of a dispute between the two major shareholders, the Croatian government and Hungary’s part state-owned energy company MOL, could be an important factor. “Energy security is indeed imperative for CEE,” he says. “It is timely that the comment comes from the Croatian president because Mol is trying to sell its stake in INA and Gazprom and Rosneft are keen to buy it, and no-one else seems keen to. Given Croatia’s strategic importance both for LNG and for gas pipelines, if the Russians were to acquire INA from MOL, it would be a severe blow to Europe’s energy security. While the Hungarians have publically shown enthusiasm for selling to the Russians, in the current situation it’s practically impossible that such a deal could go ahead. This nevertheless leaves a strategically important company in a vacuum.“

The case for European energy diversification has been made many times before, and as Josipovic notes, should not become less relevant even as the Ukraine crisis fades. The Croatian President highlights practical projects with his country as a central player that, if not utterly transformative on a continental level, can make an impact regionally. The task now will be to implement them.

An orginal post of this article said the minister of the economy was Radimir Cacic. However, Cacic is the previous minister of economy. The current minister is Ivan Vrdoljak, and the article has been corrected to reflect that.


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