Greece Forms a Regional Hub Creation Strategy

The Greek government is gradually revealing its cards regarding the eventual establishment of a regional gas hub based on different proposed gas routes, some of those of a competitive nature.

The proposed Turkish Stream project seems to be headed towards the eventual inclusion of Athens, based on numerous assurances by Energy Minister Panayiotis Lafazanis and Prime Minister Alexis Tsipras' recent, separate trips to Moscow. Although no official document has been signed, the Greek government has relayed confidently that an agreement of an intergovernmental nature is currently being prepared and should be materialized by May 2015.

Greek Foreign Minister Nikos Kotzias said on Friday that  meetings will be held in May to discuss financing and logistics for a pipeline that passes through Turkey, Greece, the Former Yugoslav Republic of Macedonia, Serbia and then into Hungary and perhaps include Austria. Kotzias said that an investment in the Greek portion of the pipeline could be between $2 billion and $2.5 billion, according to figues presented by the Russian side.

In the meantime, Greece, Bulgaria and Romania are boosting joint efforts to develop the Vertical Gas Corridor, proposed by the EU's Commission over the past year as a diversification tool.

In late 2014, Energy Ministers from the respective countries declared their affirmation to support the project whilst a tripartite meeting for further discussions is planned for late April in Sofia. Talks are also being held at a bureaucratic level between the three governments with Brussels extending the invitation to Hungary, which is proposed to be the terminal point for this route. The Greek Foreign Minister Nikos Kotzias held bilateral talks with his Hungarian counterpart where it was unofficially agreed to have both the Vertical route and the Turk Stream as joint projects that will link the Balkans with Central Europe.

In basic terms, the Vertical route is to be a link between the gas transmission systems of the three countries with a set of interconnections, capable of ameliorating any gas shortages, thus satisfying vital need for energy security. Those mainly include the Interconnector Greece-Bulgaria (IGB), the Bulgaria-Romania link, the interlink between the Trans-Adriatic Pipeline (TAP) with IGB and the establishment of an LNG facility in Greece, linked with all the above.

The Vertical route will essentially have an annual capacity flow of new gas sources no more than 5 bcm, which does not constitute a major breakthrough from today’s energy architecture in the region. Nevertheless, they will play a role into facilitating the creation of a virtual gas hub for the first time in the Balkans. The IGB in particular, which plays a crucial role into getting this route started, is scheduled to commence construction in early 2016, after a series of delays since 2012 to present. By 2019 it should have reached a capacity of 3 bcm per year, to be managed by the Bulgaria BEH Company and the Greek-Italian consortium of DEPA-Edison via their joint company, Poseidon.

Regarding the Turkish Stream project, Greek Stream has already become a catchphrase in Athens in governmental circles as the name of the route that will pass from the Greek-Turkish borders, traversing the whole of Northern Greece, before it passes via FYROM, Serbia to end up in Hungary of a bit further to the West in Austria and in the Baumgarten gas hub in particular.

The cost for the Greek part of the route is estimated at €3 billion, whilst negotiations are underway by Athens to achieve a 10 year prepayment of its calculated €300 million per year it aims to receive from transfer fees. That is a €3 billion credit that Greece expects to receive from Gazprom that will also relieve pressure on the Greek economy from its Troika of lenders over the past few months. Conversely, the Russian side seems hesitant to invest in such a substantial amount before all proposed countries in the gas route agree on binding intergovernmental agreements. Moreover, the stance of the EU plays also its role as the countries involved so far in the scheme are also bound by the EU's Third Energy Package or those who are not members, by the Energy Community rules.

In short, it is quite premature for Athens to achieve its strategy of becoming the unquestionable gas hub in the region by having TAP, Turkish Stream and LNG interconnected routes, at the same time. The multitude of geopolitical issues involved, along with a heavy agenda concerning Greece's debt issue, leaves little room for maneuvering and a need for fast decision-making.