Caspian Energy (CE): How would you evaluate the results of the 3rd Ministerial Meeting of the Southern Gas Corridor (SGC) Advisory Council?
Slaven Dobrović, Minister of Environment and Energy of Croatia: Croatia is not directly involved in the ongoing TANAP and TAP projects, but we are interested in becoming a part of the project through the Ionian Adriatic Pipeline (IAP). We are therefore here because we are dedicated to the security of supply and diversification of the gas market. The Croatian part of IAP, from the City of Split to the border with Montenegro, is 252 kilometres long and its construction is valued at EUR 330 million.
South Eastern Europe is facing the problem of having one dominant supplier, and in the recent past, we were facing serious issues with the price and availability of gas. That is why we are launching the LNG floating unit project on the Island of Krk in the Adriatic Sea, which will also secure an additional gas supply route. Gas is the best possible fossil fuel in terms of its environmental features, namely the purity and quality of combustion. It is therefore going to come in very useful in the energy transition towards the most sustainable future involving a large share of renewables.
CE: Is there any progress in the talks with the Commission on IAP?
Slaven Dobrović: Yes, I believe we have to return it to the PCI (Projects of common interest) list, because this project is not only of interest to Croatia, but also to the entire region, and actually serves as another gateway for gas supply to the European Union. We are thus expecting to receive word of the project being placed back on the PCI list. TAP and IAP connection is planned to be located in Fier. It is an Albanian city, close to the coast of the Adriatic Sea. The IAP project is currently at the development stage. TANAP is around 60% complete and TAP by about 30%.
CE: The decision has been recently taken to allocate EUR 102 million for Croatia to construct an LNG terminal in the northern part of the Adriatic Sea. Could you please tell more about the plans under this project? When do you plan to end construction of the terminal?
Slaven Dobrović: The LNG terminal project on the Island of Krk is one of the most significant energy projects not only at the national but also at the regional and European level, which is proven by the decision on co-financing. EUR 102 million in EU grants have been allocated for the construction of the LNG terminal on the Island of Krk. This project will most certainly boost Croatian economy and industry and will open up the possibility to develop new services, new knowledge and new technologies in the field of LNG. In addition, security of gas supply is without doubt confirmed by the realisation of this project, and we truly believe that the appearance of other supply routes will result in the lowering of gas prices for final customers in Croatia. The project envisages the construction of a floating terminal, and at the moment it is in the phase of final selection of strategic investors and implementation of the obligatory phase of the procedure for capacity lease of terminal. The start of operation of the LNG terminal is expected in 2019. Incidentally, the total value of the project is estimated at around EUR 363 million.
CE: Which new gas sources are you going to rely on?
Slaven Dobrović: There are going to be three markets. We view USA as a possible exporter of gas. There is also Qatar. We are in a good position to be the recipients of gas from different markets. Croatia itself is a producer. Our local production used to be at the level of almost 90%, while now it is about 60%. Since this production is declining, we are going to be increasingly dependent on imports.
Gas and renewable sources secure a good combination
CE: Is it going to be an international or regional hub?
Slaven Dobrović: Croatia has an ambition to become a regional energy hub through the connection to TAP, and with LNG the country could serve as an energy hub in the region. There is a lot of underground gas storage capacity in Croatia, but also in Bosnia, that would be activated by this gas. Gas coupled with renewables is also a good combination, because if you have access to new gas supply sources, you are in a position to fill gas storage facilities. When you have a lot of sustainable renewable energy in the grid, it is not so easy to use it, because in certain situations, when there is too much energy in the grid there is no possibility to store it. While, in the case of gas, we can run compressors and inject gas into underground storage facilities. Thus, gas and renewable sources secure a good combination.
CE: What do you mean when you talk about the free market, is it spot, futures or forward gas trading?
Slaven Dobrović: The free market means competitiveness. We will be able to buy at lower prices. We are aware that certain LNG facilities were built in the Baltic states. Whenever you have an alternative, the price goes down. Therefore, if I am in the position to sell and I know that one can only purchase through my company, I will set a higher price. However, if there is an alternate seller from another region, we have to compete.
It is not good to have political domination
CE: But now the price is not as high as it was 5 or maybe 2 years ago…
Slaven Dobrović: Yes, that is correct. Because we have an ever increasing number of suppliers who offer to purchase gas. Suppliers have to be competitive with others and energy will also have its price. It is not good to have political domination because one is in possession of gas. This is something that should be avoided and that is why these corridors are good.
CE: What is the level of gas demand in your market?
Slaven Dobrović: It is 2.7 billion, but this level used to be much higher, however due to the economic crisis the demand for gas declined significantly. Now it is rising once again. Last year we had an increase in consumption for the first time in seven years. This is excellent. Gas will become more and more important, and we will need to have more gas to secure the energy transition. In addition, we would like to have a greater share of renewable energy sources.
CE: How far have energy exploration and production operations advanced in the shelf area of Croatia? How do you plan to attract investment?
Slaven Dobrović: Croatia has a long history in exploration and production of hydrocarbons onshore and offshore. Croatia's domestic hydrocarbon production accounts for around 20% of total oil demand and around 60% of total gas demand. Industry experts recognized Croatia as a proven working hydrocarbon system with significant geological potential. Since current oil prices are not favourable for further investments in offshore Croatia where currently we are producing gas, our main focus is on Croatia’s onshore. Onshore Croatia has a long–standing tradition of exploration and production of hydrocarbons and significant geological potential that is yet to be fully utilized.
Last year the Croatian Government signed Production Sharing Agreements for five exploration blocks in the eastern part of Croatia and enabled long awaited new investments in exploration activities. Given the successful onshore license round and given the positive feedback we have received from investors where Croatia was recognized as an affordable and reliable partner, we expect to keep this process rolling with new onshore license round this year for the remaining onshore area including the rest of the Pannonian basin and Dinarides. To potential investors we offered licensing terms that are attractive, transparent and simple, based on the best global practices. New investments in hydrocarbons exploration and production will potentially increase the current gas production and decrease energy dependence of the country.
CE: What are the top priorities for the development of Croatia's energy sector under the EU’s Energy Union?
Slaven Dobrović: In the forthcoming period, Croatia is facing a change in the direction of the current energy policy. The main goals that we have set are: increase in the security and the stability of energy supply, promoting advanced energy networks, increase of energy availability, reduction of energy dependence, functional energy market and real prices. The energy sector has to become efficient and in the service of citizens and the industry, as well as promote economic development and creation of new jobs. It is necessary to set up a different market model that will result in a coexistence of renewable and non-renewable energy sources for the purpose of increasing energy independence and the diversification in use of primarily own energy sources.
Croatia possesses a great, unused potential for domestic energy production, including utilisation of renewable energy sources. We see this challenge as a great opportunity to increase own resources, to diversify energy production and develop new technologies that would assist in the development of the Croatian economy. For example, in order to reduce CO2 emissions, a part of the solution is to increase the energy efficiency of buildings, the industry and the existing energy production and distribution systems. Furthermore, we will place a great emphasis on the development of advanced networks by which a better quality linking of energy producers and consumers will be ensured with the aim of increasing the efficiency of the entire system and eliminating a part of the problem related to the inclusion of renewable energy sources in the network. The development of energy efficient, advanced technologies creates an opportunity for the development of Croatian society, from the research institutions all the way up to the production industries.
Although Croatia is dedicated to the increase of the share of renewable and green energy sources in its energy mix, the role of natural gas, as the cleanest and most acceptable fossil fuel that will have a significant part in the transition to a low-carbon society of the future, cannot be ignored. Therefore, Croatia and the European Union will remain firmly focused on gas. The most important project in the gas sector is certainly the construction of the LNG terminal on the Island of Krk. The second important project, which is another proof of high-quality regional cooperation, is the Ionian Adriatic Pipeline.
CE: Which renewables are efficient in Croatia?
Slaven Dobrović: We have a number of wind farms, but we will also develop the solar potential. On windy days, the grid receives about 15% of energy from wind turbines. However, solar capacity is very small.
CE: The EU says that the share of renewables will increase to 30% by 2020...
Slaven Dobrovic: We have the obligation to bring the share of renewablesto 20% by 2020 and we have already reached that level, because we possess biomass. Thus, the current share of renewables in Croatia is around 27%.
Thank you for the interview