European Energy 'at a Critical Point': former Greek Energy Minister

As minister for energy and the environment, Yannis Maniatis helped shape Greece’s energy policy, supported the European Union’s energy union and was instrumental in initiating contacts with other eastern Mediterranean countries to promote cooperation in the energy sector.

Now a professor at Piraeus University, he talks to NGE about energy and European politics.

Professor Maniatis, let’s start with your views on the latest developments in Europe. As an energy minister you grappled with these first-hand and I know you still have strong views.

Global developments in the energy, shipping industry and marine transportation, and global market trends, are vital for Europe’s stability, energy security, competitiveness and sustainability. This is not the time for business as usual. We need to face realities, without illusions – no matter how hard the truth is.

But Europe is currently facing broader challenges and I want to start with these first. 

The European model seems to have lost its appeal. Europe a la carte is starting to take shape. The management of the refugee crisis is a complex matter.  None of us can say where this multi-level crisis will take us. Europe is being destabilized politically, and the extremes are gaining the upper hand.

There are concrete issues that are shaking today’s Europe:

• the lack of leadership and vision
• the multiple and multifaceted crises that have broken out in Europe’s near abroad
• the economic crisis
• the problems of peripheral states
• low growth rates
• Europe’s ageing population 
• London’s recent bids for averting a Brexit
• the severing of very beneficial economic ties with Russia
• the stance of countries of the former Soviet bloc and unbridled anti-Russian sentiment
• and the failure to exercise a unified foreign and defence policy that would give the EU a decisive role in international developments.

At the same time, despite the attempt at institutional deepening, centrifugal forces are developing, and right now there does not appear to be an institution or agency, that can impose discipline on the member states.  

What we see is a gradual return to nationalization of decisions. The de facto overriding of collective decisions creates a negative dynamic of entrenchment.

With European cohesion being tested in a state of affairs where member states are attempting the ‘nationalization’ of many decisions, calling into question the notion of communality, we must at all costs avoid a lapse into ‘less’ Europe. One of the main challenges in this direction, in 2016, is a possible amendment/ suspension of the Schengen Treaty.

Today, the differences among the EU member states over the refugee issue are large; they appear to be unbridgeable.

It is imperative that we find a functional compromise that doesn’t impact our longstanding values and doesn’t involve shifting blame within the European family. This is the only way for us to avoid fragmentation in 2016.

These are issues and concerns that dominate European politics and Brussels today. But what are your views regarding the energy sector within Europe? This is also undergoing profound changes.

In the energy sector, we do have the opportunity, and the choice, to make a difference. Historically, we have seen that energy sources can be either a source of conflict or a source of peace.

Therefore now, it is more urgent than ever, that in responding to new developments, we rise to the challenge and do everything possible to ensure three priorities:

1. That energy sources, and the recent gas discoveries, function as a catalyst for prosperity and stability in Europe’s wider neighborhood.    
2. That we complete the internal energy market and ensure that diversified gas, traded openly with competitive and affordable prices, flows throughout the EU. 
3. That natural gas supports the transition to a more sustainable and lower carbon economy, by expanding the use of this lowest polluting hydrocarbon.

It is Europe’s common interest to tackle energy security collectively, with a spirit of solidarity

This is what the energy union is attempting to achieve. What are your views on the energy union?

Acting together, the EU member states can strengthen their negotiating position with partners abroad and achieve their mutual goals for energy security. In this respect, I fully support the EU’s vision for an energy union.

The vice-president for the energy union, Maros Sefcovic, in his recent speech on the topic described the “5Ds model”.

• Decarbonisation of our economies
• Democratisation into energy production and consumption
• Digitisation to optimise energy use and efficiency
• Diversification of our energy supplies
• Disruption of traditional energy cycles.

Consumers should benefit from new technologies and from more competition and be more active in the market to get these benefits. An unacceptably high percentage (10%) of European households cannot afford to pay their energy bills.

Citizens are no longer passive consumers; they are becoming 'prosumers' – consumers who can also produce energy and supply it into the energy grids. With smart grids in place, a sunny day in Athens should lower energy prices in Lisbon; and a windy day in the Aegean Islands should lower energy prices in Vilnius or even in Kiev! In energy terms the energy union does not stop at the EU borders.

The global oil & gas market is also going through difficult times and profound changes especially in the way gas is traded. EU’s energy union and the more recent energy security package are attempting to address the impact of these developments on Europe. What are your views?

Global gas developments are a challenge and have implications for Europe but they also offer opportunities.

Before the price of oil began falling in 2014, gas traded in hubs was significantly more competitive than gas procured on the basis of oil-indexed contracts. This created a division within the EU.

In north-west Europe, where hub pricing was more developed, wholesale prices were considerably lower – sometimes by 35% -  than those in the less mature markets of central and southeast Europe, which continued to rely on oil-indexed contracts.

But today we see that, due to the fall of oil, this gap has been closing, prices have converged and natural gas prices have become historically low.

In Greece TAP appears to be progressing and the southern gas corridor on the whole is gaining momentum with full EU support. How is Greece benefiting from increasing inter-connectivity?

I wish to stress the importance of TAP, which will transport initially 10 but later up to 20bn m³/yr from the Caspian – Azerbaijan, through Turkey and Greece to Italy. 

Apart from access to more diversified supplies, we expect that this will also bring about a greater influence of hub pricing for gas in Greece.

Through the connection of TAP with the Greek-Bulgarian Interconnector IGB – these benefits will potentially be felt in parts of southeast Europe which today don’t have access to Europe’s major grids or any European hub. To this end, the so called ‘vertical corridor’, which has as first part IGB, constitutes a new promising pipeline for southeastern Europe.

In Europe the new energy security package places major emphasis on LNG and gas storage. How do you think this will benefit Europe and Greece?

Lower oil prices have of course also affected international LNG prices. Both spot LNG prices, as well as LNG procured on oil-indexed contracts, decreased in 2014 and 2015.

Because Europe could not compete with the higher Asian prices, it has not even exploited its existing LNG capacity, utilizing only 22% of its 200 bcm capacity. Under these circumstances, it is not very surprising to read that today, Europe accounts for a poor 13% of the global LNG market; and that only 13% of its imports are covered by LNG.

There are many challenges ahead. I consider that the EU needs to promote, as a priority, an efficient use of already existing LNG terminals by developing further internal connections with reverse flow, which will allow gas to flow where it is needed.

However we are also pleased that the European Commission’s new list of projects of common interest (PCI) promotes LNG terminals in Croatia and Greece. The floating LNG terminal, which is being planned in northern Greece, will provide important added value and greatly facilitate the access of central and southeast Europe to diversified LNG. 

What about the eastern Mediterranean’s gas potential? How can this benefit Europe?

These exciting new developments which are increasing Europe’s prospects for further diversified sources and routes.

In addition to the discoveries of the Tamar, the Leviathan and the Aphrodite gas fields, in offshore Israel and Cyprus, we have Zohr, the super-giant field in Egypt which, is estimated to have 30 trillion ft³.

There are various options for transporting this gas to Europe’s markets. Marine compressed natural gas constitutes one solution for Cyprus. The markets of central and southeast Europe are within the commercially viable range of CNG ships.

I would also like to refer in brief to the eastern Mediterranean pipeline. The Greek company DEPA began exploring the possibility of this pipeline back in 2011. The project is designed to carry at least 8bn m³ of Israeli and Cypriot gas to Europe’s markets. Its off-shore routing starts from the Levantine gas fields towards Cyprus – and from there onwards to Crete and mainland Greece. In Greece it would link-up with the IGI-Poseidon, enabling the gas to reach Italy. Studies have already shown us that this project is technically feasible and may be bankable. 

How can Greece benefit from all these developments in Europe and around it in southeast Europe and the eastern Mediterranean?

Let me stress that Greece’s developments in hydrocarbons, are increasing the potential of the eastern Mediterranean.  For, I can confidently say, that Greece’s prospects are serious, and based on solid parameters. 

Greece is an emerging hub. You may ask how is this going to happen? For two main reasons:

1. Infrastructure policy: EU is supporting as priorities, the development of 12 major projects of common interest in Greece, of which nine are in the gas sector.
2. Shipping: Greece has the biggest tanker fleet in the world…. the world’s largest floating oil and gas pipeline.

You mentioned the shipping sector. This is where Greece excels. How is this faring in the current environment?

The shipping sector is definitely one of the sectors which have experienced substantial changes within the record low oil price environment that we currently live in since last year. 

The steep collapse of the oil prices overall and particularly the big discount of prompt vs. long-term delivery prices – the so called “price contango” phenomenon in market terms – incentivized big players like China to increase their imports in order to allow for stock building of its strategic petroleum reserves.

The second major impact was also a positive one for global demand for seaborne transportation of oil. Refineries across all continents – even including European refineries, whose competitiveness has always been deficient vs. the rest of the world – achieved record high utilization rates in 2015.  

A combination of facts drove profit margins – the so called “refinery margins” – at unusually high levels, allowing for heavy asset utilization. 

The third main change due to cheap oil has affected – again positively – all sectors of marine transportation; this is the steep decline of bunker prices. Marine fuel cost is strongly correlated to global crude oil prices and hence this has also been following the downward trend of oil across the globe. Bunkers represent one of the biggest cost elements for a ship and hence this development has provided support to freight rates both for tankers but also for dry bulk vessels.

However, we are all aware, that this has not been enough to drag dry bulk carriers out of the “red zone” and hence help them to return to profitability.   

A final word?

In a nutshell, I believe that it is up to the governments in the region to realize the high stakes that there are here. 

All these elements can ensure and insure a new prosperous and sustainable European energy future with more gas, more flexible gas-fired power generation units, hence more flexibility and hence more renewables, hence less pollution and a cleaner environment.

Let us then all together open up the window for fresh European air to blow into our neighborhood. Let us also open the door for a bright, new, sustainable energy future in Europe.

Thank you very much, Professor Maniatis.

Dr Charles Ellinas, @CharlesEllinas, nonresident Senior Fellow – Eurasian Energy Futures Initiative - Atlantic Council