Main developments in Serbian energy sector

By Ioannis Michaletos | Serbian energy sector is steadily increasing its presence in the Southeastern European market, characterized mainly by trans-border infrastructure projects and the use of Serbia’s geo-economic position to interlink the mostly fragmented regional energy space.

Serbia is mostly an energy importer of oil and natural gas which along with coal products constitute around 90% of its yearly energy consumption.

Although it produced oil and gas in small quantities since the mid-50’s, it is heavily reliant in imports, which mostly are from Russia. On Mach 2013 a long-term deal was signed with Gazprom to extend gas imports of more than 2.5 billion cubic meters up to 2021 with a 13% reduction for present prices.

The Russian -Serbian natural gas collaboration extends to a number of fields, the most important being the South Stream project that aims to bypass Ukraine and essentially create an alternative route from the Black Sea to Italy and Central Europe. In 2008 Serbia was officially included in the project which is due to commence construction in the country in early 2013. An underground gas storage facility will also be established in the Banatski Dvor, close to the borders with Romania, Croatia and Hungary. The pipeline would be operational by late 2016 carrying 10 bcm of natural gas through Serbia and bring about 100 million Dollars annual transfer fees to the state budget. This pipeline project will bring accumulate investments of around 2 billion Dollars in the local economy.

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Concurrently in 2008 Belgrade sold the majority of the state shares in the NIS energy company for 580 million Dollars plus 500 million Dollars in investment from the Gazpromneft oil company. In that sense Serbia’s energy sector is firmly under the influence of Moscow state companies.

NIS itself with Russian finance backing has started an ambitious regional expansion plans that includes drilling for new oil fields both domestically and in Romania, Hungary and Bosnia. A total of 450 million Dollars will be spent in the coming 4 years, along with an expansion in the consumer market of gasoline oil stations in the aforementioned countries. A significant project at works is the proposed pipeline from Kostanja -Romania to the NIS’s oil refinery in Pancevo. The aim is to transfer within the shortest route Russian oil to the refinery unit which will be used as a vehicle for exports of mostly Diesel type fuels to the neighboring markets of Bosnia, Montenegro, Albania, Croatia and Slovenia which currently face a deficit in these products and have a rising demand.

It is also a part of an earlier proposal of the so-called Pane-European oil pipeline that would link Romania to Italy in Trieste. Despite having being decided in 2007, it was latter on abandoned by Slovenia and Croatia. Local energy experts speculate that should economic revival in the EU oil market prevails then the establishment of this pipeline could be a certainty since it will be linked with the Trans-Alpine pipeline and will bring about better oil supply to Central and Western Europe as well. The stagnant EU economies for the time being prohibit such a project.

In the sector of Natural gas it is interesting to note that the Interconnector Bulgaria-Serbia (IBS) has been progressing and should be completed by 2015. It will enable both countries to exchange amounts of gas of up to 1.8 bcm capacity per year and decrease Serbia’s dependency from Russia, since the Bulgarian part is supposed to be linked with the overall Trans-Adriatic Pipeline (TAP) running in Greece but planned to be linked to the Bulgarian system through the Interconnector Greece-Bulgaria (IGB). The project is of 150 million Dollars and being supported by the EU with assured finances for its construction.

Furthermore the South Stream itself is planned to have spurs to Bosnia and Croatia, who are also included to the Ionian Adriatic Pipeline (IAP) a project which aims to link TAP from Albania to Croatia and from then on to Hungary. Thus the creation of a natural gas hub is on its way in the Balkans with a mixture of Russian and Azeri gas (to a lesser extent) whilst any LNG terminals to be either constructed or upgraded (such as in Croatia and Greece) will further add Algerian and possibly Qatari gas in the mix. In the mid to long-term gas prices should at least stabilize or drop, consequently providing a boost to the local industries.

The future energy architecture in Serbia will be concluded by a series of electricity interconnectors, mostly with its Western Balkans neighbors in order to facilitate the region’s entrance into the EU energy market. Due to the country’s favorable position these links will be eventually coupled with further connections towards the Black Sea and to Ukraine.