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The Greek Energy Sector: Developments and Opportunities

January 25, 2008


By Ioannis Michaletos in Athens

Greece‘s unique geo-economic location between the energy producers of the Middle East, North Africa and the Caspian, as well as the vital transport routes of the Aegean Sea and Eastern Mediterranean, define it as an expanding energy hub between East and West. Several ongoing or new projects in the energy sphere attest to Athens’s commitment to developing the energy sector as something vital to both economic growth and national security. On the three major fronts of alternative energy, oil and gas Greece has made several initiatives, projects and proposed projects; the outcome of these efforts will determine Greece’s stature as an international energy power well into the 21st century.

Alternative Energy

Currently Greece imports more than 70 percent of its energy needs. The only reliable domestic source is lignite, which accounts for some 85 percent of internal electricity production. Over the past few years, the incumbent administration has relayed plans for exploiting renewable energy sources such as solar and wind power, as the sunny, maritime country could excel in exploiting these abundant energy sources. The former is expected to draw investments worth 5 billion euros by 2020, according to information provided by the Ministry of Development. Foreign companies specialized in this field – mostly from Germany – have already set up offices in order to take advantage of the new market to be created.

On average, it is estimated that seven percent of the country’s electricity needs could be sustained over the next decade by this form of energy, though looking further into the future this percentage might exceed 30 percent eventually, due to Greece’s ample sunshine throughout the year. Wind energy can fulfill another 15 percent, and wind parks are already being constructed in various suitable location. If one adds biofuel, geothermic and wave energy to the equation, it becomes clear that Greece has the ability to become a fully independent energy producer by the mid-21st century and relieve itself from the strain of energy imports.

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


Currently, Greek oil production is just 6,500 barrels per day and consumption, some 450,000. It is thus impossible, regardless of any level of investment, to form a strategy that is going to be related with domestic production. Thus Greece has reached the point at which it needs to rely on ventures with foreign corporations and states so as to use its territory as a transit route for the emerging energy networks of the 21st century. The Burgas-Alexandroupoli pipeline agreement on the 15th of March was a first crucial step towards that aim. With a transport capacity of 30 million tons per annum (initially) reaching 50 million, this particular pipeline greatly elevates Greece’s natural geoeconomic role in the wider Southeastern European region. Firstly, it effectively bypasses the Turkish Bosporus Straits and eases the exports of Eurasian oil to Western Europe. Therefore, through it Greece becomes an important country for European energy security, a factor that would seem to translate into some degree of political clout in the modern world. The Russian side, which owns 51 percent of pipeline shares through Lukoil, is interested in investing in refinery capabilities in Greece. Already it operates a similar facility in the Bulgarian port city of Burgas and, according to reports in the Greek press, has an interest in similar construction in the Greek northeastern Aegean port of Alexandroupoli, or buying a share in the Motor Oil industry which functions the second-largest refinery in Greece. In any case, the pipeline seems to ignite wider commercial interest in the Greek energy market, and consequently transforms the role of Greece from that of a sole importer to a regional energy point.

Recent developments regarding the B-A pipeline and its reception around European capitals show both progress and tension, however. The final agreement of the shareholders, signed by the trilateral committee of Russia-Bulgaria and Greece during Vladimir Putin’s visit to Sofia on the 18th of January 2008, stipulates the creation of a company to be based in the Netherlands that will seek funds from the international banking system. It is estimated that all technical and feasibility studies will be completed by the end of 2008, and the pipeline will begin its operations by late 2011.

It should be noted, however, that the EU seems to have different priorities in relation to the energy corridors of the Balkans region. According to recent report by the Bulgarian daily Standard, “among the EU priority energy projects are the Nabucco gas pipeline and the oil pipelines Constanta-Trieste and AMBO [Albania-Macedonia-Bulgaria], but not Burgas-Alexandroupolis.” The Bulgarian information service Focus added to this that “analysts say this means that Bulgaria, although a member of the EU, is still highly dependent on the Kremlin when it comes to energy supply and Burgas-Alexandroupolis project is a noose Russia tightens around the neck of the EU.” Indeed, a project as large and as complex as the B-A pipeline naturally stirs up tensions regarding the geopolitical balance in Europe, and it is likely that quite a few politically-charged comments will be made over the coming months by officials from both the supporting and opposing sides.

Another, smaller pipeline which is operational is the one transferring oil from Thessaloniki to the OKTA oil refinery in Skopje. The industry has been Greek-owned since a controversial privatization in 1999, and means the needs of the energy market in the country are largely met by Greece, which continues to view the proposed AMBO (Albania-Macedonia-Bulgaria Oil) pipeline as competitive with Burgas-Alexandroupoli and harmful to its geo-strategic interests.

Finally, and most recently, a Swiss corporation named EGL has drafted a plan for providing Iranian oil to Albania and Italy through Greece, with the Trans-Adriatic pipeline as it is termed. For the time being discussions are being held between all interested sides.

Natural Gas

Natural gas is another vital resource by which Greece is seeking to enhance its energy-supplier reputation. Currently, Greece import 80 percent of its natural gas from Russia and the rest from Algeria, through a series of bilateral agreements. Currently the Russian gas is being imported by Bulgaria, and the Algerian via LNG vessels. A recent development in that field was the beginning of operations of the Greek-Turkish gas pipeline that was inaugurated in late November 2007. It transports Turkish-owned 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 amount will be available for the Greek market, whilst the rest will be exported to Italy via another underwater pipeline. The gas flowing through the pipeline will be bought by the Turkish BOTAS company and it is assumed that it will be a mixture of Azeri, Iranian and Russian gas. With this project, Greece will extend its geo-economic influence, albeit indirectly, across a wider geographical spectrum.

The South Stream agreement, signed in late June 2007, signals the culmination of a major political and economic process. The Russian Gazprom and the Italian ENI agreed to invest $15 billion in order to construct a pipeline stretching from the Russian Black Sea coast to Bulgaria, Greece and ending in Otranto, Italy. The pipeline should be constructed by 2011; however, as it will bypass certain countries leaning towards America, such as Ukraine, it may exacerbate the rift between American and Russian geopolitical interests. From a financial point of view, this investment seems very ambitious, in order to provide satisfactory returns to the investors. As far as Greece is concerned, a pipeline transferring gas that will meet Italian and European needs is another beneficial development since it will secure for decades to come a steady flow of gas to Greece, and it will add to the expanding energy prominence of the country.

Finally, a scheme which is under consideration by corporations and is supported by the Russian side is the connection between the Greek natural gas network and the exportation to Albania. The latter faces a severe energy deficiency, since no real investments have taken place over the past generation and it seems probable that it will confirm its objective of joining Greece’s gas network over the coming year.

High Hopes

The optimism for Greece’s energy-related future endeavors is surely being justified by the latest developments. Nevertheless, as has been noted, quite a few of these projects are inexorably related to wider geopolitical moves, and in particular are concentrated between the tripartite relations, and conflicts, between Russia, the USA and the Islamic world. The Greek Karamanlis administration has ample choices in exercising its influence between these major players, in order to extract benefits and at the same time assist towards ending Greece’s foreign energy dependency.

While the future seems bright, ensuring success through political initiatives that will secure the deals signed are seen as the uttermost priority for Greek diplomats. Their successes or failures will determine the country’s future role as a player in the Southeast European energy game.

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