EU Signs Grant for Krk LNG Terminal (Update from Project CEO)
[Update with comments from LNG Croatia's CEO at the end]
The European Union has signed a €101.4mn investment grant for the LNG Croatia floating terminal
The EU committed to make the grant ten months ago towards the estimated €383.6mn cost of the project to be sited on Krk island, and this week’s formal signing of the grant at the December 18 EU energy ministerial council in Brussels was witnessed by Croatian and Hungarian energy ministers. Construction of the LNG terminal, which will first operate as an offshore floating storage and regasification unit (FSRU) with at least 2bn m3/yr capacity, will increase the security of gas supply in Central and South Eastern Europe, the European Commission said.
“This investment will not only allow for the supply of natural gas to Croatia and Hungary: it will also increase the diversification of energy sources of central and southeastern Europe, and give an economic lift to the region,” said EU climate and energy commissioner Miguel Arias Canete.
Although some experts claimed that high transmission tariffs in Croatia and the poor state of the gas infrastructure in central and eastern Europe might prevent the region benefiting from the current LNG glut, the signing of the investment agreement represents a major boost for the halted and previously viewed as uneconomic Krk LNG project.
Despite the difficulties, the project has advanced in recent months. In October, state-owned project company LNG Croatia said that a total of 12 companies tendered for the provision of a FSRU at the Krk terminal, and that selection of the FSRU provider is envisaged in 1Q2018.
A boost in two-way gas flows between Croatia and Hungary and the development of the Krk LNG terminal would lift economic and political relations, which have been limited in the last some years.
Croatian prime minister Andrej Plenkovic said that his Hungarian counterpart Viktor Orban after their late November meeting had expressed willingness to negotiate the sale-back of a 49.1% stake in Croatia’s leading oil company INA that is owned by Hungarian oil and gas producer Mol. If effected, that could further improve bilateral relations. However the Hungarian state owns only a 25.2% stake in Mol, with remaining shares in that company held by various institutional and private investors.
Update December 19, 6pm: LNG Croatia chief executive Goran Francic has said that activities related to procurement of FSRU, construction of the jetty and pipeline to the transportation system are "underway" adding: "We are trying to close the financial structure of the project in order to make the final investment decision." Commenting on the project's financial structure December 19, Francic said that Croatian state electricity utility HEP and gas network operator Plinacro as current owners of LNG Croatia, or else new owners after the announced recapitalisation, will invest part of their own funds in the amount of about 30%, that the EU grant represents about one-third of overall project cost, while the remainder [implicitly 37%] would be funded through project financing. "LNG Croatia expects that all construction work on jetty, pipeline and auxiliary facilities should be finalised by the end of 2019, and the release of the first gas from the terminal to the system is expected in early 2020," he added.