Greece as an Energy Hub? There is the Rub!
It is no big secret that Greece has all the prerequisites to assume the role of a regional energy hub, predominantly in respect of pipeline gas and LNG, and act as a gateway to South East Europe.
This relatively immodest ambition received thumbs up from the visiting Vice-President Maroš Šefčovič in charge of energy issues in the EU. His upbeat statements made in Athens could not but please and embolden, and the skies of tomorrow would look uncloudy were it not for the arguments in support of such a bright future.
Nothing can make Greece underestimate the support and encouragement of the European Commission to continue to diversify the sources of energy imports. VP Šefčovič specifically mentioned the three sources of covering Greece’s and SE Europe’s demand for natural gas: Trans-Adriatic Pipeline (TAP), LNG supplies, evidently referring to the shipment of American LNG, which has already been launched, and the East-Mediterranean “gas options”, most probably offshore gas in the Levant basin, that is around Cyprus and in the Israeli exclusive economic zone.
The three sources of the future energy flows might look good on paper and sound convincing when pronounced from the rostrum. Yet, it makes sense to review them for what they are really worth.
True, TAP is at a mature stage of development. In early March, the EU regulators have given a go-ahead for the deal between Greece and TAP consortium. No more bureaucratic hurdles. Earlier, the European Commission has granted TAP a 25-year tax holiday concession, empowering it with a robust competitive edge.
In the case of TAP, all are set and ready to run. Yet, it makes sense to look at the upstream potential. TAP is designed to bring gas from Azerbaijan to Europe via Greece and with Greece as one of the potential customers once the flow reaches the full capacity. So far, only 10bcam of gas from the Shah Deniz 2 field on the Caspian seabed is earmarked for delivery to European clients. More gas is expected to be set aside for exports, in the distant future.
However, monitoring reports on the state of play in Azerbaijan’s gas industry raises a number of questions relevant to the security of supply linked to the EU-prioritized Southern Gas Corridor.
Last September, Azerbaijan Methanol Company signed a Supply and Purchase Agreement with Gazprom to source up to 2 billion cubic meters of gas per year. These volumes will cover 100% of the demand of the Azeri company, which strangely shied away from contracting locally produced gas.
Later in 2015, Rovnag Abdullayev, President of the State Oil Company of the Azerbaijan Republic (SOCAR), held talks with Gazprom CEO discussing an increase in Russian gas supplies in order to meet the potential consumption growth.
Finally, at the end of March it came to pass that Azerbaijan is conducting “regular talks” with the Russians to surge purchase of Gazprom’s gas to 3,0 bcma, as disclosed by Azeri Foreign Minister Elmar Mammadyarov. Reportedly, negotiations are kept low profile because Baku is apprehensive of the reaction of the European Commission to the awkward admission of gas relative shortages.
Athens cannot but take into due account the prevailing uncertainty over the actual capability of Azerbaijan to deliver on its promises to use to the full throughput capacity of the new infrastructure, TANAP and TAP, and, more importantly, avoid interruptions that happen with monotonous regularity while sourcing gas to Turkey.
The bet on American LNG seems to be safer. And yet, according to energy experts, the viability of the expansion of the Revithoussa LNG Terminal and the planned terminal in Alexandropouli are questionable due to the price benchmark on US company Cheniere’s LNG that Greek DEPA has assessed as unacceptably high.
Finally, the “other options” meaning the offshore finds in the East Med remain largely terra incognita. The initial ambitions of Cyprus were down-sized by the proper assessment of the proven and recoverable reserves at the Aphrodite field, and by the intransigence of the Turkish government which has not backed off with its pre-conditions for non-interference in un-tapping the off-shore gas reservoirs around the partitioned island.
In Israel, the prospect of the giant Leviathan field coming on stream and boosting the export potential is pending on the settlement between the government and the Supreme Court over a legal clause guaranteeing 10 years of regulatory stability to be included into its current framework proposal for gas development. Should this attempt fail, the main foreign investor in the Leviathan, US Noble Energy, might pull out and, in the worst-case scenario, seek damages for incurred costs and derailed commitment.
Apart from offshore fields of Cyprus and Israel, and Egypt's Zohr field with its gas to be consumed mostly at home, no other resource base in the vicinity with a sufficient export potential is detected.
Where does it leave Greece with its revived ambition to become a regional energy hub? “Stuck in limbo” would be a politically incorrect answer but does anyone have a better description?
The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of ESCP Business School.
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Start date : 06 May 2016
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If you are interested in joining our postgraduate MSc in Energy Management (MEM), Executive Master in Energy Management (EMEM), or postgraduate Master in Agribusiness Management (MAM), we would like to invite you to join our online Q&A session on 6th May.
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