Oil Report

UPDATE 1-Hungary, Croatia to build new gas transit pipeline

* Hungary, Croatia to build new gas transit pipeline

* pipeline to have annual capacity of 6.5 bln cubic metres

* Croatia says pipeline to be reversible, also to ship LNG

(Adds Croatian comments, background)

By Krisztina Than

BUDAPEST, March 2 (Reuters) - Hungary and Croatia plan to build a new gas transit pipeline by mid-2011 which would ship gas from Hungary to Croatia, but would also allow two-way shipments later, MOL's MOLB.BU gas transmission arm said.

The company, FGSZ Zrt, told Reuters in a reply to emailed questions on Monday that the new pipeline would have an annual capacity of around 6.5 billion cubic metres.

The heads of Plinacro, the gas arm of Croatian INA INA.ZAHINAq.L, and FGSZ will sign a joint development agreement on Tuesday, aimed at connecting the pipeline networks of Hungary and Croatia, a Plinacro official told Reuters.

“It’s a truly historic moment for Croatia, as for the first time since independence, we will be getting a new supply route,” the official said.

She said the pipeline will be reversible, which means once a planned liquefied natural gas (LNG) terminal is built on the island of Krk in Croatia’s northern Adriatic, “We will be able to transport gas from the LNG to Hungary and on to Europe”.

This also means that Croatia will be able to connect to any of the major international pipelines that may be built in the future, like Nabucco or Southstream, she said.

FGSZ will build the 206-km Hungarian section of the pipeline, while Croatia will cover the costs of the 88 km stretch in Croatia, the Hungarian firm said.

The pipeline will connect the village of Varosfold in Hungary with Slobodnica in Croatia.

The Balkans were severely affected by the halt in gas supplies arising from Moscow’s dispute with Kiev earlier this year and Croatian Prime Minister Ivo Sanader said Zagreb saw the LNG terminal as crucial for diversifying energy supplies.

Hungary, which also heavily relies on Russian gas imports but has sufficient reserves and also domestic production, shipped gas to Croatia, Bosnia and Serbia during the gas crisis in January.

The LNG terminal, planned by a consortium of Croatian and European energy firms, should also improve supply security for the wider region as it will be able to process more gas than Croatia needs.