Greece Gradually Entering Global Energy Networks

Ioannis Michaletos, Athens, Greece, December 13, 2007

Greece and Turkey inaugurated a gas pipeline to the Caspian Sea in November. (Photo: Anatolian News Agency / AFP-Getty Images)

Greece is unique in its geoeconomic placement. The Middle East, North Africa, and the Caspian region produce a great share of the world's energy, while the Aegean Sea and the Eastern Mediterranean are used to transfer it. Greece itself is a small- to middle-sized producer and consumer and an expanding energy hub between the East and the West.

Currently, Greece imports more than 70 percent of its energy needs. The only reliable domestic energy source is lignite, which accounts for some 85 percent of its internal electricity production. Over the past few years, the incumbent administration has relayed its plans to exploit renewable energy sources, such as solar and wind power.

Its plans for solar power are expected to draw investments worth 5 billion euros by 2020, according to information provided by the Ministry of Development. Foreign companies that specialize in this field—mostly from Germany—have already set up offices in order to take advantage of the new market that is to be created. Overall, 7 percent of the country's energy needs could be sustained over the next decade by solar energy, although over the next few decades this percentage might exceed 30 percent due to its ample year-round sunshine, which in the south exceeds 3,000 hours a year.

Wind energy can fulfill another 15 percent, and wind parks are being constructed in various suitable locations. If one adds biofuel, geothermic, and wave energy, Greece has the ability to become a fully independent energy producer by the middle of the 21st century, freeing itself from the strain of energy imports and helping itself to withstand the perils of desertification and environmental degradation.

The oil factor is a very important one, since it represents some 60 percent of Greece's yearly energy consumption and is imported, bar some minimum amounts being produced in the Kavala offshore oil field in northern Greece. Natural gas is a fast expanding commodity, but for the time being its contribution is a mere 7 percent.

Window of Opportunities

Greece's oil production is just 6,500 barrels per day; consumption, 450,000 barrels a day. This makes it impossible for Greece to form an energy strategy related to domestic production. Thus, Greece has reached the point where it needs to rely on ventures with foreign corporations and countries to make its territory a transit route for the emerging energy networks of the 21st century.

The March 15 Burgas-Alexandroupoli pipeline agreement was a crucial first step toward that aim. With a transport capacity of 30 million tons per annum (initially, 50 million later), this particular pipeline greatly elevates Greece's natural geoeconomic role in the wider southeastern European region. The pipeline effectively bypasses the Bosporus Strait, easing the export of Eurasian oil to Western Europe. Therefore, Greece will become important to European energy security, a factor that translates into political clout (to an extent) in the modern world.

Russia, which owns 51 percent of the shares of the pipeline, through the corporation Lucoil, is interested in investing in refinery capabilities in Greece. Lucoil already operates a facility in Burgas and its plans as outlined in the Greek press show an interest in either constructing an industry in Alexandroupoli or buying a share in Motor Oil (Hellas), which operates the second-largest refinery in Greece. The pipeline seems to have sparked wider commercial energy interest in the Greek market, and consequently transformed the role of Greece from that of a sole importer to a regional energy point.

Greece imports 80 percent of its natural gas from Russia and the rest from Algeria, through a series of bilateral agreements signed over the past 15 years. Currently, the gas is being imported from Russia by the Bulgarian network and from Algeria by liquid natural gas vessels. A recent development in that field was the inauguration of the Greek-Turkish gas pipeline in late November, which transports Turkish gas with an initial capacity of 124 billion cubic feet and has a total capability of some 406 billion cubic feet. A quarter of this capacity will be available for the Greek market, while the rest will be exported to Italy via another underwater pipeline. The gas flowing through the pipeline is bought by the Turkish company BOTAS and is assumed to be a mixture of Azeri, Iranian, and Russian gas. In this case, Greece extends its indirect geoeconomic influence into a wider geographical spectrum.

The South Stream agreement that was signed in late June signals a major political and economic culmination. Russia's Gazprom and Italy's ENI agreed to invest $15 billion in the construction of a pipeline stretching from the Russian Black Sea coast to Bulgaria, Greece, and ending to Otrando, Italy. Should the pipeline be completed in 2012, it will bypass United States-leaning countries such as Ukraine and cause a major rift in American and Russian geopolitical interests.

From a financial point of view, the investment is ambitious so as to provide satisfactory returns to investors. As far as Greece is concerned, a gas pipeline that will meet Italian and European needs is another beneficial development since it secures a steady flow of gas to the country for decades to come and adds to its expanding energy posture.

Another smaller pipeline that is operational transfers oil from Thesalloniki to the OKTA oil refinery in Skopje, the capital of the former Yugoslav republic of Macedonia. It has been Greek-owned since 2002 and virtually meets the needs of Macedonia.

A scheme under consideration by corporations and supported by Russia, is a connection between the Greek natural gas network and Albania. Albania faces a severe energy deficiency since no real investments took place over the past generation. Albania will probably confirm its objective of joining Greece's gas network over the coming year. A Swiss multinational consortium, EGL, is the main applicant for this project.

Two major European energy giants, France's EDF and Germany's RWE, have signed agreements with Greece's Mytilineos Inc. and the Public Electricity Company (DEI), in order to explore investments to Romania, Serbia, and Bulgaria. That includes acquisition of electricity factories and modernization schemes. In parallel, DEI, along with American and Italian capital, has applied for the privatization of Kosovo's electricity market and has already connected its network with all the surrounding states, by which it exports-imports electricity on a regular basis.

The ELPE Corp., which is the national oil organization, currently invests in oil exploration in Libya and Egypt, along with an international venture, and the findings are for the time being satisfactory. Since the late 1990's, the same company has established a commercial presence in Bulgaria, Serbia, Albania, Georgia, and Montenegro and has also applied for the privatization of the Serbian energy company, NIS, one of the largest in the Balkans, even though Russia's Lucoil seems to be the favorite due to political reasons and the backup Moscow is providing to Belgrade on the status of Kosovo.

A recent development is the Emir of Qatar's intention to invest in the Greek energy market via the construction of a gas factory in northern Greece, with an aim to export this commodity to Western Europe or to Arab states with limited energy production and rising needs, such as Lebanon.

Should all of these gas deals be implemented, Greece will have a considerable excess that will have to be exported. This is one of the main topics to be discussed when the prime minister of Greece visits Qatar in January.

High Hopes

Optimism about Greece's energy related future has been bolstered by these latest developments. Nevertheless, it should be noted that quite a few of these projects are inexorably related to wider geopolitical advances and concentrated between the triangle formed by Russian-American-Islamic relations and conflicts. The Greek administration has ample choices in exercising its influence in order to extract benefits and at the same time help end the country's energy dependency. The future seems bright but political initiatives that will secure the deals are a priority. Otherwise, the beginning of the first decade if the 21st century might end up being one that provided high hopes for Greece in return for negligible practical results.

2008 will be a crucial year since any credible investor who can enter the market quick enough will be able to exploit the opportunities presented by the completion of the pipelines, the liberalization of the market and the fulfillment of the rising needs of southeastern Europe.