While Western Europe has diversified supply routes and has developed infrastructure, Southeastern Europe lacks interconnection with a bi-directional flow and access to the LNG market
Its national markets are small and transmission networks unharmonised, both technically and legally. “So, realising the set goals under such conditions is a complex and time consuming process,” Pavao Vujnovac, owner and CEO of the Board at Prvo plinarsko društvo, the leading natural gas supplier in Croatia and Energia naturalis, says. “The region also depends on one source of gas – Russia,” he adds.
The liberalisation process in the Croatian gas market began in the second half of the 2000s and is ongoing. “There was a de-facto monopoly situation, but it disappeared when two key requirements were achieved: the construction and commissioning of the second Croatian interconnector with Hungary (Drávaszerdahely) and the further development of a regulatory framework which removed the existing problems of legal provisions in real situations,” Vujnovac says.
“It was our experience that market deregulation in Croatia allowed competition in the open market, introduced new knowledge, created new jobs, contributed to further business growth, allowed Croatian companies to enter the European energy markets, lowered prices and improved the contractual conditions for customers (new products were introduced into the market).”
The Croatian gas market still faces challenges, for example a lack of daily consumption diagrams and low level of technical development in certain distribution systems, which present a barrier to full market liberalisation.
“These challenges point to the inevitable question — is the current number of suppliers/distributors sustainable when existing problems in the gas market are already resulting in potential bankruptcies which are leaving the stability of the gas supply vulnerable?” Vujnovac asks.
“We can state that energy regulations in Croatia, and up to a certain point in the region, did manage to achieve the primary aim — compliance with the Third Energy Package,” he adds.
Observers say investment in distribution systems and natural gas transport (bi-directional flow) is needed to develop gas markets in neighbouring countries.
Gas consumption is steadily decreasing which has led to falling revenues. “Besides these real operative challenges, the Croatian market also suffers from the absence of a strategic national energy framework,” Vujnovac says, adding that such a framework should manage the shortage of a key infrastructure, as well as the lack of ability to reach the desirable level of a stable gas supply.
New world, old world
The LNG market creates new demand for the US shale gas and also allows the EU to take the next step towards greater energy source diversification, with a floating LNG terminal on Croatia’s Krk Island often cited as a key point.
Targeting completion in 2018, the new terminal would become the gas hub for all CSE countries.
When combined with the infrastructure of a CSE North-South Energy Corridor, it would provide a source of gas to the Baltic and Balkan states, Moldova, Romania, Bulgaria, Austria, Greece, Turkey and Ukraine.
In the case of the US, LNG exports to CSE have lost their initial market price advantage against continued imports from Russia. Gazprom plans to maintain gas export levels to Europe of approximately 160 billion cubic meters through 2018, ensuring that lower prices are maintained.
Russia has not specifically used this lever of influence for some time, but holds de-facto control over the Caspian Sea, owed to its military actions in Syria. This control all but ensures any effort to bypass Russia with the proposed Trans-Caspian Pipeline will be stymied, making this alternative for CSE LNG source diversification less likely.
These geopolitical factors leave the development of the LNG terminal on Krk island perhaps the most promising new avenue for market-driven supply diversification for the CSE states.