SERBIA: GAS RESERVE FACILITY NOT YET READY FOR

UNCLAS BELGRADE 000834 C O R R E C T E D COPY - TEXT SENSITIVE SIPDIS USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH E.O. 12958: N/A TAGS: ECON ENRG ETRD SR SUBJECT: SERBIA: GAS RESERVE FACILITY NOT YET READY FOR WINTER AND FOR POSSIBLE SHORTAGES REF: BELGRADE 51; 08 BELGRADE 1333; BELGRADE 801 Summary -------------- ¶1. (SBU) For 25 years, Serbia has been working to expand its sole underground gas storage facility, Banatski Dvor, to serve as a precaution against gas supply disruptions. The director of Serbia's state gas firm, Srbijagas, Dusan Bajatovic (of the Socialist Party SPS),publicly insists that the initial phase of the expanded facility is close to completion and should be ready by November 2009. Further expansion will depend upon Russian assistance. Despite his optimism, Srbijagas is hedging its bets by seeking storage space in neighboring countries. Given the project's financial and technical limitations, it is unlikely the facility will be ready by early winter, leaving Serbia vulnerable once again if there were another Russian-Ukraine gas dispute, during which the Serbians would be left out in the cold. End Summary. Banatski Dvor: Ready by November 2009? -------------- ¶2. (SBU) The expansion of Serbia's sole underground gas storage facility, Banatski Dvor, located in Serbia's northern province of Vojvodina would be ready for the 2009-2010 winter season Dusan Bajatovic, director of state-owned gas company Srbijgas, told us on July 23. Bajatovic said Srbijagas was improving the facility's connections to the Srbijagas regional network, increasing the facility's pressure, and purchasing gas to fill the facility, which currently has a capacity of 300 million cubic meters (cm). ¶3. (SBU) Since July 1, Srbijagas has been pumping one million cm of gas daily into Banatski Dvor, slowly filling the facility, said Bajatovic. Prior to beginning the July operations, Banatski Dvor already had 150 million cm of gas and Bajatovic hoped to have the facility filled with 300 million cm by November 2009. According to Bajatovic, when the facility was filled and the upgrades were complete, the facility would cover Serbia's critical needs for 60 days in case of a gas shortage. Main Challenge - Equipping Banatski Dvor -------------- ¶4. (SBU) Despite Bajatovic's optimism, Srbijagas still has significant technical issues to resolve. Milutin Prodanovic, Assistant Minister for Public Companies at the Energy Ministry, told us on July 20 that pumping gas into Banatski Dvor was not the problem but the challenge was pumping out a sufficient amount of gas during the winter. Prodanovic said that Serbia consumed on average 11.5 million cm of gas per day during the winter. Currently, Banatski Dvor had an output of only 400,000 cm per day, which was not enough to cover even Serbia's critical winter needs, estimated at 5 million cm per day. Bajatovic said that the figure of five million cm assumed that district heating plants would switch from gas to fuel oil and did not account for Serbia's industrial needs. ¶5. (SBU) To increase output from the facility, Srbijagas signed in May 2009 a contract with the Austrian firm Hit for a new production line that should enable Srbijagas to pump five million cm of gas per day into the gas network. According to the contract, the production line also should be finished by November 2009. Srdjan Kostovic, Bajatovic's Advisor for Investments, told us on July 24 that realistically, the new line probably would not be finished until December 2009 or January 2010. ¶6. (SBU) Prodanovic listed several other technical prerequisites necessary for Banatski Dvor to be operational by the winter including: finishing a two-line local gas pipeline that would connect Banatski Dvor with Srbijagas' regional network; buying another compressor in order to pump in more gas into storage; and equipping Banatski Dvor with four to five additional drills to maintain pressure. Prodanovic thought that although all of this was possible to complete by November, Bajatovic's timeframe was too optimistic. Rent Elsewhere Just in Case -------------- ¶7. (SBU) Although he said Banatski Dvor would be ready by winter, Bajatovic said that Srbijagas was also in talks with Russian energy company Gazprom and German EON to lease an additional 200 to 300 million cm of gas from Hungarian gas storage facilities. This gas could be tapped to meet urgent industrial needs if there were another Russia-Ukraine dispute this winter (ref A),which Bajatovic expected could easily happen. Growing Bigger with Gazprom -------------- ¶8. (SBU) In order to expand Banatski Dvor beyond its current 300 million cm capacity, outside investment would be necessary. Bajatovic said Srbijagas was completing negotiations with Gazprom to form a 49:51 (for Gazprom) joint venture company which would expand Banatski Dvor to 800 million cm by 2012. This joint venture was initially envisioned as part of the broader energy deal signed between Serbia and Russia in December 2008(ref B). Bajatovic said negotiations were proceeding but that Serbia's property ownership issues needed to be resolved before both sides could form the joint venture (ref C). (Likely, both sides will try to finalize the details of the joint venture before the visit of Russian President Medvedev to Serbia scheduled for October 2009.) Under such an arrangement, Gazprom would supply an estimated 300 to 350 million cm of gas that would serve as so called "cushion gas," which would permanently stay in the storage to provide adequate pressure.(This cushion gas would be in addition to the 800 million cm capacity.) Bajatovic said that Srbijagas was dealing with the Russians on a strictly business level and that cooperation with other countries would be welcome. (As an example, he asked for our assistance in locating an American-made compressor for the facility, a request we are pursuing.) Potential Storage Capacity in the Billions -------------- ¶9. (SBU) While Srbijagas'immediate focus is on Banatski Dvor, Bajatovic said Serbia had two other potential gas storage facilities eyed for future development. These facilities, made of drier sandstone, had a potential capacity of one billion cm of gas each. Bajatovic optimistically stated that Serbia's potential total gas storage capacity could be up to seven billion cm. Comment -------------- ¶10. (SBU) In comparison to directors before him, Bajatovic has publicly promised that Srbijagas will keep the gas flowing. Bajatovic, who runs Srbijagas as a one man show with plenty of media exposure, may be able to conclude negotiations with Gazprom, but it is unlikely that Srbijagas has the technical and managerial capability to deliver Banatski Dvor on this tight timeframe. If Srbijagas fails to keep the gas on this winter it would be a failure for the government, as well as Bajatovic's own personal failure. End Comment. BRUSH