Greece: An Emerging Energy Player in the East Mediterranean
Head of Middle East Unit
Institute for Security and Defense Analysis, Greece
The discovery of natural gas resources in the East Mediterranean promise important benefits of energy security and economic gains. A 2010 US geological survey showed that the Levantine Basin – offshore Israel, Gaza, Lebanon, Syria and Cyprus – could hold as much as 120 trillion cubic feet of gas, thus securing supply of energy not only for the countries of the region, but also for Europe.
Regional countries are currently at various stages of exploration and development, which are however fraught by political risks and policy dilemmas. Thus, cooperation, conflict resolution and the creation of interdependency structures are prerequisites to unlock the potential of the region and safeguard the unimpeded flow of future gas production.
It is in this geopolitical context that Greece has emerged as a new gas player, who looks eager to develop own indigenous as well as regional gas resources.
Greece’s oil and gas exploration efforts have accelerated with the launching of tenders, following express of interest by oil majors, for blocks south of Crete and one block in the Ionian Sea. In late October, a consortium led by French Total and with members Hellenic Petroleum and Italy’s Edison signed a lease agreement for one block in the Ionian Sea. The agreement, however, has be ratified in parliament before exploration activities can start. It has to be noted at this point, that French Total has moved to Greece and together with Hellenic Petroleum in a consortium led by U.S. oil Major Exxon Mobil, has also expressed interest for two blocks in the south of Crete in southern Greece, following major East Mediterranean gas findings off Israel and Egypt.
Key challenges however remain in place when it comes to oil and gas exploration in Greece, such as the complex geology and the high cost of exploration and drilling activities in ultra-deep and deep waters, Exclusive Economic Zone (EEZ) delimitation boundaries with neighboring Turkey, delays in the evaluation of tenders, and low oil prices that have so far discouraged potential investors.
We have to admit that two Greek energy companies have been pioneers in oil and gas exploration activities in Greece: the first is Hellenic Petroleum and the second is Energean Oil & Gas. Hellenic Petroleum has explored as operator 26 areas in Greece in the past and has thus has acquired extensive knowledge when it comes to the geology of the country, that is enhanced by activities in the upstream sector in the greater Middle East region, and specifically in Egypt, Libya, Albania, and Montenegro.
Hellenic Petroleum has participated in three licensing rounds and has already been awarded exclusive exploration and production rights – alone or in coordination with international partners – in the blocks of west Patraikos Gulf, and in north-west Peloponnese and Arta-Preveza onshore blocks whose lease agreements were signed a few months ago with the Hellenic Ministry of Environment and Energy.
At the same time, the other Greek energy company, Energean Oil & Gas has emerged as a smart investor, as it has managed to acquire two new licenses in Western Greece and two in Israel during the low part of the cycle of the upstream industry. The Greek company has a powerful shareholder basis, such as petroleum engineers, ship owners, the US-based Third Point fund and a long term off-take lease agreement with BP, while it is supported by financial institutions like the European Bank for Reconstruction and Development. Energean has initiated a $200 million investment plan for the period of 2015-2018 with the aim to raise production for the Prinos field in the north Aegean Greece to 10,000 barrels of oil per day. This is a significant increase from today’s 3,000 barrels. There is also a recent decision of Energean Oil and Gas to farm out a 60% interest to Spain’s Repsol for its onshore Blocks in Western Greece, that was driven by the latter’s expertise that can lead to new discoveries. In the existence of new discoveries, of exploitable hydrocarbons, Greece will get tangible benefits not only for its national economy, but also for the local communities.
Greece has been also pivotal, as I said before, in the development of regional gas fields in the East Mediterranean, having as flagship Energean, because the Greek energy company has secured full ownership of the Israeli Tanin and Karis gas fields, aiming to deliver 88 billion cubic meters (bcm) of natural gas and over 20 million barrels of light oil to the Israeli market in the next forty years, facilitating Israeli competition in line with the lately revised regulatory framework in Israel. The company has already presented a Field Development Plan (FDP) that has been approved by the Government of Israel, so that first gas is produced in 2020, and has secured sales agreements for more than 3 bcm annually at a 20% price discount compared to Leviathan partners’ pricing to Israeli power provider Dalia Power Energies and its sister company Or Power Energies. And I reiterate that this arrangement has set the stage for competition in the Israeli market that will benefit the consumers and the Israeli economy.
With this, Israel has facilitated Greek energy interests, which can help Europe diversify supply of energy resources. It is in fact the first presence of Greek interests in the significant gas findings located at the East Mediterranean that can help shape a new regional map.
The value of Greece as a gateway for regional gas supplies to Europe cannot be ignored. The Trans Adriatic Pipeline (TAP) route, as part of the Southern Gas Corridor, for example, will run through 13 provinces in Northern Greece and is expected to create 10,000 direct and indirect jobs. Another project that will help Greece become a gateway for regional gas supplies to Europe is the floating storage and re-gasification unit in Alexandroupolis in northern Greece, with the aim to receive ships full of LNG, even from the United States, that can be funneled not only to Europe but also to the Balkans. In addition, the expansion of the Revithoussa LNG terminal in the south paves the way for the creation of infrastructure to bring new natural gas to Europe.
To grasp energy opportunities in the national and regional setting, Greece should motivate foreign companies to get involved in oil and gas exploration and production activities in Greece and in partnerships, of course, as a means of helping Greek energy companies build capacity and knowledge. Athens should also encourage cooperation with Israel on joint development of regional infrastructure for the transportation and marketing of gas, like the East Med pipeline, as a potential route for the Israeli gas to Europe, via Cyprus, Crete, continental Greece and Italy. The Greek government should also proceed with the appointment of specialized personnel at the Greek Hydrocarbon Management Company, as these appointments will make tender procedures more transparent and attractive to potential energy companies that wish for Greek gas and oil exploration and production. The government of Greece should also speedily proceed with plans to supply American LNG to the Balkans, through the Greek Revithoussa LNG terminal, that not only will establish the US as an alternative source of supply, but will also bolster Greece’s geostrategic stand.
Evidently, Greece is offered the golden opportunity not only to develop indigenous and regional gas resources, but also to provide energy security to Europe. It is an opportunity that must not be missed, because as it is aptly highlighted in a famous proverb, “three things come not back: the spoken word, the sped arrow and the neglected opportunity”. It is in this spirit that Greece coordinates energy policies with regional countries so that the opportunity is not missed.