The Southern Gas Corridor and the Adriatic Countries

The future implementation of the Trans-Adriatic Pipeline (TAP) has revitalized the geopolitical relevance of the Balkan region as a transit energy corridor. Although TAP will be delivering Azerbaijani gas in the westward direction (from Greece through Albania to Italy), its connection with the proposed Ionian Adriatic Pipeline (IAP) could better achieve the purpose of the strategic EU-backed Southern Gas Corridor in diversifying energy routes and supply. 

Conceived as a northward-oriented corridor, the Ionian Adriatic Pipeline would involve Croatia and Montenegro in a relevant infrastructure aimed to enhance EU energy security. At the same time, IAP will be a strategic pipeline for the Adriatic countries, promoting the gasification of Montenegro and reinforcing Croatia’s ambition to play the role of a regional energy hub, especially as a member of the EU as well as enhancing their domestic energy security.

Focusing on the domestic energy situation in Montenegro, Croatia and Slovenia, we can observe a  different contribution of energy sources (gas, oil, nuclear, renewable) in their own national energy mix: mainly the use of nuclear and hydroelectric energy sources highlight the possibility to diversify options for the respective national energy policies.  

Montenegro has no oil and gas reserves, but it can cover its energy needs by exploiting its coal reserves and the country’s vast potential of hydroelectric energy. Montenegro is currently fully dependent on imported oil products, mostly imported from Greece through the Adriatic port of Bar. There are currently no gas market or related infrastructure in Montenegro: however, a potential gasification of the country in the future could be an attractive option to pursue, in order to diversify the energy mix by reducing the share of coal and oil.

Slovenia has no oil and gas reserves, and its coal reserves are not large enough to meet domestic consumption: consequently, Slovenia must import hydrocarbons. However, Slovenia's import dependence is low - it was equal to 49 percent of the domestic energy needs in 2010 - and the national energy mix is among the most diversified in the EU. Unlike most of the Balkan countries, Ljubljana has been able to achieve this balance by using nuclear power produced by the Krško nuclear power plant. Slovenia is entirely reliant on gas deliveries from abroad and Russia is the main gas supplier even if the national market is among the smallest in Europe, with an annual consumption of around 865 million cubic meters.

Unlike Slovenia and Montenegro, Croatia holds 24 billion cubic meters (bcm) of proven natural gas reserves, located in 17 onshore and nine offshore fields. National gas production - which ranges between 1.9–2.5 bcm annually - allows Zagreb to cover 65–70 percent of the total internal demand, while imports cover the remaining one-third. Since 2011 Croatia has been able to cut its dependence on Russian gas imports, following the construction of the Hungarian–Croatian interconnector (which has a capacity of 6.5 bcm of gas, although only about 1.5 percent of its total capacity is used).

Although the domestic demand for natural gas is limited, compared to other European markets, the inclusion of Croatia, Slovenia and Montenegro in the Southern Gas Corridor has a strategic relevance for the Western Balkans. It will allow the region to achieve several strategic goals and enhance its role in the international arena. Consequently, participation in regional and pan-European energy infrastructure projects has become a strategic priority in both foreign and energy policies of the Balkan countries. 

Given their geographic position, the Adriatic countries could become a transit corridor connecting Caspian (and potentially Mediterranean) energy supply to the European energy markets, strengthening political relations and energy cooperation with the EU. The potential involvement of the Adriatic countries in the Southern Gas Corridor could support their efforts to achieve energy security, lessen dependence on Russian imports (mainly for Slovenia) and diversify their energy mix by using natural gas (mainly for Montenegro).

In order to pave the way for this strategic energy cooperation, it will be necessary to expand the existing infrastructure, improve domestic and regional interconnections and build new facilities (storage facilities and pipelines). 

Among various projects, the Ionian Adriatic Pipeline project is one of the most important, potentially involving all three Adriatic countries. IAP could achieve all internal, regional and international goals: securing energy diversification and economic development of the Western Balkans and enhancing the integration in the European Union framework. IAP should link TAP in Albania to the gas network of Croatia via Montenegro: in this way, Azerbaijani gas from the Shah Deniz Phase II will be delivered from Albania to Italy (westward direction) and potentially to the Balkans and Central Europe (northward direction). The IAP section from Feri in Albania to Split in Croatia will be 516 km long (320 miles) and have an annual capacity of five bcm of gas. This quantity would be allocated in the following way: for Albania one bcm/y, for Montenegro 0.5 bcm/y, for Bosnia and Herzegovina one bcm/y and for Croatia and neighboring countries 2.5 bcm/y.

The project will supply natural gas to the participating countries and transport the surplus to other markets in Europe, highlighting the role of the Balkans as a strategic transit region for energy corridors to the EU. Furthermore, IAP will provide for a two-way gas flow, which will enable Balkan and EU markets to receive natural gas supplies from other sources, notably from an LNG terminal to be built on the northern Adriatic island of Krk and other potential Adriatic sources that are being explored. Gas should start flowing through IAP in 2020.  

The realization of IAP represents a top priority for the Croatian government: IAP will boost the European Union’s diversification efforts, enhance the role of Zagreb in the EU and help Croatia in its goal to become a regional energy hub.

However, the IAP project is only one of the pillars of the medium-term energy strategy, backed by the Croatian government, together with the planned LNG projects (LNG terminal on Krk island and the project to realize a LNG regasification vessel) and a potential increase in domestic gas production coming from offshore Adriatic fields. As a matter of fact, Croatia is also engaged in developing its domestic energy reserves by promoting exploration activities and trying to involve international actors. On January 2, 2015, the Croatian Government granted ten licenses for exploration and exploitation of hydrocarbons in the Adriatic. According to some ambitious estimates, Croatia’s potential oil reserves should amount to 747 million tons.

The realization of these energy infrastructure projects and their connection to both the domestic and regional gas grid would allow Croatia to become a strategic energy hub in the trans-regional market, linking the Baltic, Adriatic and Mediterranean seas and offering a viable new route of gas import to the EU.

In fact, the strategy of the Croatian government aims to link the IAP project to TAP pipeline in a gas corridor connecting EU Central and Southeastern European markets, fuelled by gas coming from different sources (Azerbaijan, Qatar, US shale gas and potentially Croatia) and different routes (pipeline and LNG). Given its strategic geographic position and its direct access to the Adriatic Sea, Croatia can successfully develop LNG facilities and infrastructure, attracting LNG gas supply and delivering them to markets in Central and Southeastern Europe. 

 This proposed Balkan energy route  will be an essential branch of the envisaged North–South Gas Corridor—running from the Oewinoujoecie LNG terminal in Poland to the Adria LNG terminal on the Croatian island of Krk and thus linking the Baltic and Adriatic seas. Such corridor could allow the EU to ensure energy supply to countries strongly dependent on Russian imports (Poland, the Czech Republic, Slovakia and Hungary, as well as possibly Austria and Croatia). The Croatian–Hungarian interconnector completed in 2011 was the first element of this planned North–South gas corridor.

The potential opening of an Adriatic energy corridor conceived as a combination of TAP and IAP projects will represent a development, which Russia is determined to hinder. 

At the same time,  the “Adriatic energy route” also represents a strategic option for Russia: the proposal to involve Adriatic and Balkan countries in the South Stream project was the geopolitical tool, which Moscow promoted to preserve its energy influence on the EU markets.

Moscow sought to implement its own gas pipeline project - the South Stream natural gas pipeline, later replaced with the so-called Turkish Stream - in order to preserve its energy influence in the region. In fact, Slovenia is highly dependent on Russian gas imports while the plan to extend South Stream to Croatia aimed to attract Zagreb in Moscow's sphere of energy influence. Russia would like to attract Croatia in its sphere of energy influence in order to hinder EU plans to develop an additional energy corridor crossing the Balkans or the envisaged North–South corridor between Poland and Croatia aimed to supply EU markets with non-Russian gas.  Furthermore, Croatia - like Serbia - is one of the leading regional energy markets, with an expected rising gas demand, an integrated domestic grid and promising offshore energy reserves to exploit. Russia’s courting of Croatia is evidently a recognition of the country’s emerging role as an energy hub in Southeastern Europe, but its purpose is to preserve Russian interests in the region. 

Slovenia was the second Western Balkan country (after Serbia) to support South Stream: as an EU member (since 2004), the government in Ljubljana signed an intergovernmental agreement with Russia in 2009. Slovenia strongly depends on Russian gas imports and its participation in South Stream intended to ensure additional gas volumes, lucrative transit fees and financial investments to improve and boost the national energy sector.

In conclusion, waiting for the potential realization of the Turkish Stream, the Russian geopolitical and energy strategies toward Balkan region appear currently frozen

In the Balkan and EU perspectives, TAP and IAP projects must inevitably work together: the development of a profitable synergy between the Ionian Adriatic Pipeline and the Trans-Adriatic Pipeline represents a priority, considering that these two projects are profoundly interlinked in the framework of the Southern Gas Corridor. The implementation of both projects will bring political and economic benefits to the region by promoting regional integration beyond the construction of gas infrastructure and gas market development. For the EU, opening a Balkan route within the SGC will mean to develop an additional supply energy route, further diversifying the strategy of diversification.

Fabio Indeo