Capital Athens
Time Zone EET (GMT+2)
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Population 11.3 million
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After Two Years of Undersea Surveying, Greece Readies for Marathon of Hydrocarbons Exploration

By Ioannis Michaletos

In a December 2010 article that was widely read by energy professionals worldwide, a glimpse into what lays ahead in terms of potential hydrocarbon explorations in the country was offered. The article concluded by noting that:

“certainly, in the financially dire straits that the Greek economy finds itself nowadays, the energy sector in the country, and specifically hydrocarbons research, may well provide an exciting source of investment activity, since it may provide a great boost for the troubled Greek economy.”

It seems that after almost four years, the exploration and research projects in that energy sector are about to become a reality, clearly validating both the article and the necessities for such actions. More specifically, the Greek energy ministry has recently announced that 10 ‘sea blocks’ are about to be handed out in a licensing round to prospective investors in July 2014. The extracted hydrocarbons from these blocks can potentially deliver to $150 billion into the Greek state’s coffers.

Norwegian Maritime Seismic Surveys Completed

Almost two years of two-dimensional seismic surveys have now been conducted by the Norwegian PGS company. The maritime zone the company investigated is a vast one, stretching from Corfu to Southern Crete, including Ionian Sea areas along the western mainland and Peloponnese. The scene has thus been set for research drilling to commence. Nevertheless no practical results should be expected before late 2016, due to the technical difficulties, Greek bureaucrats and corporate presentations state.

By mid-June 2014, the energy ministry, headed by Ioannis Maniatis, an engineer by training, will receive the final results of the survey from PGS, a survey which encompassed 31,000 km in total of offshore seismic researched lines. This constitutes the largest research project of its kind ever conducted in Greek waters.

By the end of June the environmental viability research findings ordered by the Greek state should have been concluded in order to specifically mention several offshore locations that should not be drilled due to eventual harm to the aquatic ecosystem; most of these are expected to be located close to the shores of western Greece.

Concurrently the exact positions of the sea blocks will be announced to the public, and a week later international and domestic investors will be called to submit their proposals. This does not give the public much time to react to the results, and it is certain that whatever the government announces, pro-environment NGOs and political parties will protest any new drilling plans.

By mid-September 2014, three onshore blocks in Aitoloakarnania and Preveza should also be receiving submissions of interest. Here, the Italian ENEL has already declared its willingness to commit to such research. If all goes smoothly, exploration drilling could commence by spring 2015, depending on which barges are ready to be shipped to Greece, along with recruitment of mostly international professional personnel specialized in such projects.

Magic Numbers, Leaked Locations

The Greek government often repeats its ‘magic number’ of $150 billion, a figure based on the assumptions that the aforementioned blocks contain three billion barrels of oil. At today’s world price index, these blocks are estimated to produce $330 billion.

Already, Greek scientists have been providing, through Op-Eds in popular Greek newspapers, the exact locations where mass amounts of oil are believed to be located. These include the region of northwestern Ileia in the Peloponnese and the area north of Corfu-Paxoi islands. This is significant for international affairs because this reaches the maritime borders with Albania, while at the same time just inland a geological formation stretches up through Epiros, and close to the Albania land border. Further, the so-called ‘Epirot Riviera’ is also the location of coming Russian- and Arab-sponsored resort ventures. Further, the emir of Qatar, Hamad bin Khalifa Al Thani paid €8.5 million for six private islands in the Ionian Sea opposite, in 2013.

Energean in Action

In previous handouts of exploration licenses the Greek Energean company (which currently produces around 2,000 barrels per day in the Prinos reserve in Kavala offshore region in Northern Greece) has teamed up with the UK’s Trajan Oil and Gas for the Katakolo area. Back in the early 1980’s the then-state Greek oil company had estimated that around three million barrels of oil could be found in the exact same spot which was deemed as too little to be involved with. Energean executives are confident of finding large amounts of oil, however, as they are using techniques which were not available in the 1980s.

Energean has also appeared with the Canadian Petra Petroleum, carrying out onshore research in the aforementioned Epiros region close to Albania, where from time to time estimations of even 80 million barrels have been claimed. However, the area is rough and mountainous, partly comprised of an important national park, and this geology makes drilling here difficult.

Furthermore, in the Patra Gulf, close to one of Greece’s largest ports, the Greek semi-state company ELPE, along with the Italian Edison and the Irish Petro Celtic, are betting on a 200-million barrel reserve, which if validated will be the largest ever found in Greece. (The Prinos discovery was 150 million barrels, and extraction here has been going on since the mid-1970’s). Energean is betting on a $250 million short-term investment project to recover more offshore reserves near Prinos, with reliable estimations indicating that an additional 100 million barrels is to be recovered.

At the same time, the company seeks a license in the upcoming Montenegro offshore licensing round, collaborating with the British company Mediterranean Oil & Gas. Montenegro, like Greece, is betting a lot on its future economic development in finding any hydrocarbons reserves.

Possible Problems and Technical Issues

Offshore explorations have very significant hurdles, a detail that has been overlooked for purely political reasons by Greek policy makers, electoral satisfaction notwithstanding. They require high capital expenditure, highly-specialized and costly scientific and technical personnel, stringent environmental protection procedures and expensive logistics facilities.

In that respect even if oil is found it will not be extracted unless the quantities are sufficient to enable a serious endeavor. There are plenty of other offshore locations around the world where oil has been definitely found – or at least estimated – but where plans have not been carried out due to these reasons.

With today’s prices (Brent-priced oil is at $110 per barrel), offshore drilling in Greece could be just feasible and viable in economic terms. However, a business plan in such projects requires at least a decade of either stable or even upward price indexing in order to remain on track. The quality of oil is another factor to be assessed. Enough oil that is high on sulfur or contains unwanted extra ingredients is priced much cheaper than sweet or light oil.

Furthermore, tax issues, state paperwork and legal framework have to be addressed neatly well before any serious investment project is accomplished. Also to be assessed are political or currency risks involved, although one can speculate that if Greece is indeed a major oil power, the international energy interests would surely like the country to drop the ‘hard’ Euro and revert to the ‘cheap”\’ Drachma so as to make extraction cheap, whilst reaping the benefits of selling it on the world market in dollars. In that sense taxes and dues to the Greek states, as well as, worker’s wages would be paid in a depreciated Greek currency, while export profits would be received in international currencies. On the other hand, in such a case Greece would be able to overcome the unpleasant aspects of an exit from the Euro in having a steady demand for its currency, backed by powerful corporate interests. Certainly, Greece leaving the Euro now is an unlikely scenario, but the possible ramifications of currency on oil investment are still important factors for the larger analysis.

Lastly, the psychological factor has to be assessed. The public’s likely uplifted sentiment over the coming months could boost somewhat the shaky governmental coalition of the ND-PASOK parties, which is being battered by strong challenges from both Right-wing and Left-wing parties, Golden Dawn and SYRIZA, respectively. In that sense, the longer the exploration process drags on, the better it is for the governing politicians, who can continue to present an optimistic storyline to the electorate, depicting hydrocarbons investment as the likely way to triumph over years of austerity measures still being implemented. The influx of necessary capital for the research drilling stage would certainly boost local economies in the Ionian islands and the nearby regions, which are relatively poor outside of tourist season, while foreign funders will likely inject much needed capital into infrastructure work or buy up shares of the companies involved.

However, as previously said, another psychological factor to keep in mind is public association of foreign companies and oil exploration with a kind of social and environmental exploitation, brought on by the bailout. Depending on the success of leftist parties in communicating their message, this factor may continue to spark a debate in the country. Greeks are fiercely proud of their country and its natural beauty, which is a key factor in preserving the all-important tourism industry, and any industrial activities that threaten to endanger this existence will arouse public ire. Indeed, it is interesting to note that among the splintering and new prominence of the Leftist parties in Greece today, more and more of them have the environment as one of their fundamental party issues.

Finally, the upcoming exploration rounds will also be the focus of finance professionals who deal with the Greek economy, since they represent a parameter of both economic and political value and play a part in the overall dynamics of the Greek economy.