Besides the Greek governments haste to explore alternative means to alleviate the country’s worsening economic situation; energy has been a dominant theme in the discourse between Greece and Russia. It is no secret that discussions have included the potential for reduction in gas prices (reported to be 16% cut), the privatisation of state owned assets, Russian participation in Greece’s second offshore international licensing round and Turkish Stream’s European interface.
In the build-up to Miller’s visit to Athens, Der Spiegel reported that Russia was ready to offer Greece €5 billion although the rationale behind this substantial gesture was unclear. Financing for Hellenic Stream? An advance on transit fees? Reports in Europe suggested that Greece was yet again looking to attract financing from Russia – no matter what the cost - in order to use that as leverage in negotiations with international creditors. Contrary to the doomsday narrative surrounding Greece’s debt sustainability, Greece’s flirt with Russia is not about economics, but geopolitics.
Energy dimension and key players: building expectations through pipedreams
On April 8th, Russian President Putin categorically denied that Greece had asked Russia for economic assistance. Following suit, Gazprom’s CEO left Athens without any public offerings of assistance to aid the cash-strapped Greek economy. Furthermore, despite widespread speculation about a big Greece-Russia deal on Turkish Stream, Greece’s news agencies reported sobering headlines that the government and Gazprom 'agreed to agree' on the extension of Turkish Stream: the so-called Hellenic Stream or Greek Stream. Nevertheless, Miller reiterated that Gazprom could guarantee annual shipments of 47bcm of gas to EU energy markets via Greece, adding that Greece would benefit from the pipeline through jobs in construction and transit fees once operational, although EU legislation strictly prohibits transit fees. The most intriguing, however, of all the references Miller made was to a consortium of Russian and European companies that would build the Greek stretch of pipeline.
According to initial reports, the construction of the pipeline would generate 2,000 jobs and would cost approximately €2 billion to build. Using the recently signed Budapest Declaration on energy cooperation as a reference point, one can assume that Hellenic Stream would extend through to FYROM, Serbia and Hungary (some are calling this Balkans Stream). Given the proximity of the Central European Gas Hub in Baumgarten (Austria) to Hungary, it is also likely that OMV could be an interested party to join the shareholding structure of the consortium that Miller alluded to. OMV’s involvement in this project could make up for the loss of Nabucco, a project OMV backed strongly. One can also assume the involvement of Edison and DEPA in this consortium given the history of the Interconnector Turkey-Greece-Italy. It’s worth reminding that Gazprom had promised gas quantities to Austria, Hungary, Serbia, Italy and Greece through South Stream.
Wider implications of playing the geopolitical gambit
Russia’s initial move to cancel South Stream suggested that Russia ‘called quits’ on its dispute with the EU on enforcement of the Third Energy Package. Since the announcement on Turkish Stream, Gazprom was clear that the EU needed to build infrastructure to take the gas from the Turkish side of the Greek-Turkish border. It would sell gas at the border and the EU had to find a way to take it to market. Russian involvement in the building of the pipeline on Greek territory represents another twist in the saga, putting Greece in the spotlight yet again. Russian involvement in the ownership of the pipeline reopens the polemic issue of the Third Energy Package, not to mention more potential complications for Greece’s transmission systems operator (DESFA), as Russia would control supply of Turkish Stream gas and be implicated in the distribution of the gas. A decision on the privatization of DESFA to the State Oil Company of Azerbaijan (SOCAR) has been put on hold by the European Commission since late January when it 'stopped the clock' on its formal review period.
While Greece and its international creditors delay in finding a sustainable solution to Greece’s debt problem, the Greek government has chosen to play what is possibly the only card it has left: the geostrategic one. The geopolitical dimension of the Greek case has yet to become an important consideration for EU leaders and Greece’s inexperienced new government wants to demonstrate this dimension, albeit in a manner that is being met with great scepticism by the west. As talks of Grexit begin to re-emerge and the standoff between Greece and the EU’s largest economies continues, Greece’s identity is undergoing its own transformation; from a country that has been deeply rooted in the NATO alliance since 1952 and the EU since 1981, to a country confronted with an increasingly uncertain future.
The role of the United States of America (US)
The US and Greece are traditional allies and throughout the Eurozone debt crisis, the US has advocated strongly in favour of a solution to Greece’s debt sustainability; to the point that it has irritated some EU member states. The US is wary of the consequences of a Greek default both in terms of risk to the global economy but also with respect to geopolitical ramifications. The rekindling of Greek-Russian relations has ruffled feathers in Washington, as the US sees Russia stamping its footprint both in Greece and Turkey, two critical countries in the Southern Gas Corridor value chain.
Greece’s Foreign Minister Kotzias visited Washington last week for meetings with his US counterpart, John Kerry, as well as meetings in the Congress and the Senate. The above mentioned issues were sure to be among the topics discussed between the two Foreign Ministers although no concrete details were revealed, except that the US Special Envoy and Coordinator for International Energy Affairs, Amos Hochstein, will be visiting Athens this week. Kotzias characteristically stated that Greece welcomes US proposals during his visit. Hochstein is likely to remind Greece that it is a valued partner in the transatlantic alliance and strongly underline the importance of focusing on the completion of the Southern Gas Corridor through the realisation of the Trans Adriatic Pipeline as well as the Interconnector Greece-Bulgaria (IGB). Hochstein will no doubt welcome the recent signing of a memorandum of understanding on vertical corridors between Greece, Bulgaria and Romania. Moreover, given the planned increase in LNG capacity in Greece, Hochstein might also use US LNG exports as a diplomatic tool to engage the interest of Greek policy makers; an element that can contribute further to diversification of supply sources and gas-to-gas competition.
While the Eurozone crisis evokes a complicated game of geopolitical poker, Greece continues to drive a ‘multifaceted foreign policy’. Throughout the Eurozone crisis, the decision to route the Southern Gas Corridor through Greece has been the only real signal of investor confidence in Greece over the past years. Greece has both contractual and moral obligation to repay this confidence without ambiguity. The Southern Gas Corridor and Turkish Stream are both geopolitical and economic projects, but one of them is a reality and the other is not. Greece has a right to explore alternative options and use its geographic position to its advantage but the government should clearly distinguish reality from mythology.
Constantine Levoyannis is Deputy Head of the Greek Energy Forum in Brussels. The opinions expressed in the article are personal and do not reflect the views of the entire forum or the company that employs the author. Follow Greek Energy Forum on Twitter at @GrEnergyForum and Constantine at @clevo275
This article is part of the knowledge partnership between European Energy Review and the Greek Energy Forum a group of energy professionals sharing common interest in the broader energy industry in Greece and South-eastern Europe.