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Greece's New Centrality - and Dilemmas - in Energy

By Defense & Foreign Affairs | Sun, 24 June 2012 00:00 | 5

Greece began assuming a new geopolitical significance in May and June 2012 as the “energy war” — or “pipeline war” — between US and Russian interests took on a new intensity. While, in many respects, Moscow has effectively dominated the competition to this point, the US has begun waging a campaign to ensure that non-Russian options gain ground in the provision of oil and gas to the European markets.

In this regard, the prospect of major gas flows from Eastern Mediterranean offshore fields into Europe, via Greece, give Athens a new leverage in European affairs — and in the thoughts of Washington — which counteracts the economic and political malaise which led up to the June 17, 2012, Parliamentary elections in Greece. The Eastern Mediterranean energy discoveries reaching through Israeli, Cypriot, and Greek waters, and south into Egyptian waters, could mark the strategic turning point for Greece. Equally, Turkey has begun moves to demand a share of the bounty, even as its energy fortunes begin to wane with the reality that the Nabucco pipeline — which would have transited Turkey — was no longer economically or politically viable.

But if Washington has been thwarted by Russia over Nabucco, it has begun [in May and June 2012] applying strong, discreet pressure on Greece and Serbia over the exploitation and transit of Mediterranean gas, in a move to counter Moscow’s pipeline dominance.

The Greek energy firm, Energean Oil & Gas, formerly known as the “Ægean Energy Company”, indicated in June 2012 that it was expanding its investment in oil exploration projects in Greece’s developing offshore fields. The decision was based on the fact that Greek national council for energy policy, in an official report published on May 25, 2008, stated that “production from the oil fields in the Northern Ægean could reach 200,000 barrels per day… Greece is one of the least explored countries in Europe regarding its hydrocarbon potentials.”

During 2009, Energean successfully completed two offshore extended reach wells in the Gulf of Kavala (in Eastern Greece), bringing on stream the Prinos North and Epsilon fields. This resulted in a significant increase of production rates, to 5,000 barrels of oil a day from 1,000 a year earlier.

In addition, the Greek Ministry of Energy recently approved the acquisition by Ægean Energy of a 70 percent interest in the Sea of Thrace offshore concession license. This offshore field, located in the north-eastern Ægean near Turkey, comprises an area covering a total of 1,600 square kilometers. Further, in 2009 Energean also acquired a 2,000 sq.km. 2D Seismic survey for offshore Greece identifying new exploration targets, currently being evaluated. This seismic survey is a geological research product and it shows the indications for hydrocarbon reserves in the specified area.

At the same time, the company has also been investing in Egyptian offshore drilling through its subsidiary, Ægean Energy (Egypt) Limited. Through it, the company has received from Egypt’s Ministry of Petroleum the Deed of Assignment for the transfer to it of a 60 percent net interest in the West Kom Ombo (WKO) Block from Groundstar Resources.

A further 20 percent was expected to be approved through a series of transactions resulting in a final holding of 80 percent for Energean Oil & Gas; moreover, it will be the operator of the Block, with Groundstar retaining a 10 percent net carried interest.

The Egyptian authorities during May and June 2012 granted all of the necessary approvals. The company also scheduled a series of infrastructure projects in WKO.

The contract for drilling was awarded to the Sino Tharwa Drilling Company, while the US Haliburton Company would take care of the project management for drilling. Previous findings by Canada’s Gustavson Associates estimated that recoverable oil in WKO should amount to approximately 570-million barrels.

The estimate by both the company and by Greek energy analysts was that the Prinos “Epsilon” field had approximately 50-million barrels and 17,000 to 20,000 barrels a day could be produced over the next couple of years. A more interesting aspect was the overall potential of all known offshore fields in Greece. Recent scientific and economic conferences have presented figures of approximately 22-billion barrels in the Ionian Sea (off the coast of western Greece) and some four-billion barrels in the northern Ægean Sea. Of these, 10 percent could be exploited and be financially viable.

In early December 2012, drilling equipment was expected to arrive in the Prinos offshore oil field, while existing production at the Epsilon field would be stabilized. Further, new drilling would begin during a second stage- the company discovered (through its previous exploration assessments) that significant recoverable amounts of oil exist there. The current investment planning was estimated at around 20-million euros. Cumulatively, the company’s five year investment plan exceeded 200-million euros.

The Greek Government’s desire to proceed in the exploitation of these oil reserves was highlighted by plans to create, in due course, an organization which would manage the research and exploitation activities. It would also be responsible for attracting prospective investors. The region involved — according to determinations made in late 2007 — has a total surface area of around 62,000 sq. km. (32,447 sq. km. land, and 28,250 sq. km. of sea).

The 2008 findings of Greek Prof. Antonis Foskolos, and earlier by the Canadian geological service, were that “the region has the potential for up to two-billion barrels of oil”. Significantly, the region discussed is not related to the seabed and EEZ confrontation between Greece and Turkey, an issue of importance for the Ægean Sea.

The former Minister of Industry in Greece, Evangelos Kouloumbis, has said since the 1990s that Greece had significant opportunities in this respect. He recently told the newspaper Ethnos that Greece could cover “50 percent its needs with the oil to be found in offshore fields in the Ægean Sea, and the only obstacle to that is the Turkish opposition for an eventual Greek exploitation”.

Turkish opposition is mainly related to the chronic failure to reach an agreement regarding the sovereignty of the seabed between the two countries. As Prof. Theodoros Kario- tis, of Maryland University in the US, explained: “Greece has a lot to gain regarding the oil fields if it signs a deal with Turkey based on a double agreement that will divide both the seabed and the EEZ.”

On the other hand, the ex-minister for energy and an expert on the oil and gas business, Andreas Andrianopoulos, recently made remarks on the issue. At a conference in Athens in November 2010, he stated that “the majority of arguments relating to mass amounts of oil in the Greek territory are based on the so- called ‘assumed fields’, which means that any research and exploration projects may well prove that the amounts discovered are much less than initially estimated, thus bringing no real return on investment, [making them] not financially viable in essence.”

The overall debate within Greece has been heated during the first half of 2012. Strong support for future exploitation was made on well-known Greek television journalist, Kostas Hardavellas, in his show on Alter Channel. The program brought together eminent experts, geologists, and energy analysts, who provided ample data for the existence of significant amounts, not only of oil but also of natural gas, worth potentially hundreds of billions of euros, transforming Greece’s presently straightened economic circumstances.

A major oil and gas find would change dramatically the geopolitical equation in the Eastern Mediterranean region and beyond. To start with, it has promised to transform Israel’s economic and strategic fortunes, in terms of energy independence and security. However, Lebanon contends that part of the gas field lies within its territorial waters, and Washington happens to agree.

Recent discoveries of not just significant, but huge oil and gas reserves in the little-explored Mediterranean Sea between Greece, Turkey, Cyprus, Israel, Syria, and Lebanon suggest that the region could become literally a “new Persian Gulf” in terms of oil and gas riches.

Long-standing Middle East conflicts could soon be paled by new battles over rights to oil and gas resources beneath the eastern Mediterranean in the Levant Basin and Ægean Sea. Here we explore the implications of a gigantic discovery of gas and oil in offshore Israel. It is not improbable to suggest that the Eastern Mediterranean energy prospects have a key impact on US and NATO political intervention in Syria. One key event occurred (April 29, 2008) when Russia and Greece signed on an intergovernmental agreement on cooperation on the construction and operation of the Greek section of the South Stream gas pipeline. Russian officials convinced their Greek counterparts that they would have full support from Russia, and reiterated the theme of Orthodox Christian solidarity. At the same time, Greece ignored US warnings that an agreement with Russia would negatively impact US-Greek relations.

Greece is now in a difficult position.

US Secretary of State Hillary Clinton and Special Envoy for Eurasian Energy, Richard Morningstar, have met with their Greek counterparts to outline to them Washington’s views. What had been key during recent years in this regard was the special rôle in all US negotiation and in the architecture of US policy in Central Asia, the Caucasus, Turkey, Greece, and Cyprus of stridently pro-Turkey former US Ambassador Matthew Bryza, who — fortunately for Greece — left US diplomatic service in March 2012 when the US Senate would not confirm his recess appointment by the Obama White House as Ambassador to Azerbaijan. [Since April 2012, Morningstar has been candidate Ambassador to Azerbaijan, awaiting conformation by the US Senate. Formally he remains the special envoy but in reality he has been fighting Senate enemies.]

According to the new Greek Minister, Prof. Dr Simos Simopoulos, the US has not left many options open to Greece. Washington made it clear that any energy windfalls needed to ensure that national debt needed to be repaid as a primary objective. The natural resources of Greece, the US insists, to be made available to foreign investors. Indeed, the US has said that 60 percent of revenues would go to US and US backed companies, 20 percent to Turkey, and 20 percent for Greece. It is clear that US wants to keep Greece in its own sphere of interest but it is also clear that US wants to reduce or entirely end Turkish dependence of Russian-controlled gas supply.

Turkey is still seen by Washington — despite Turkish actions contrary to US interests in recent years — as the key regional country for the US. The strategic proposal pushed by Washington, under which Turkey would receive 20 percent of Greece’s offshore energy resources would keep Turkey satisfied for its own needs and also — as a quid pro quo — Turkey would not block further exploration of natural gas in Ægean Sea.

At the same time, Turkey as member of NATO, started to play significant rôle in Afghanistan and Central Asia under US guidance and support. During the meeting between US and Greek official it was clearly underlined — by the US — as follows:

1. The US, Greece, and Turkey are NATO allies, so all disputes needed to resolved peacefully in the spirit of good cooperation. In that light, Greece and Turkey needed to agree on several key issues such as joint exploration and pooling of oil from the Ægean Sea and mutual industrial exchange, including the export and import of goods.

2. The Greek Government should freeze cooperation with Moscow on the issue of the South Stream pipeline. Greece and Turkey were encouraged to work on the US-backed TGI [Turkey, Greece, Italy] pipeline. TGI is a project between Turkey and Greece that will deliver Azeri gas to EU markets. Considering Europe’s tremendous need for energy supplies (specifically gas), and in light of Russia’s intimidation-based energy policy towards the EU (as the US perceives Moscow’s stance), access to an alternative source of gas is extremely important. TGI was, US officials claimed, already making real progress, and by the end of 2012 Azerbaijan would start sending small volumes of gas to Greece via TGI. In nine years, Azerbaijan could export one-third of what Russia currently sends to Europe. This significant volume would free the EU to a considerable extent from Moscow’s grip. That would be a perfect and desirable scenario for the EU and the US.

TGI, however, remains a pipedream. There is not enough Azerbaijan-origin gas to sustain it, so the bulk of the gas it would carry in the initial stage would have to come from Russia via the operational Blue Stream pipeline on the Black Sea bed, and the planned Blue Stream 2 upgrade. Even if the gas production in Azerbaijan is fully realized in the coming decade, the existing pipelines via Georgia which are supposed to feed the TGI line are incapable of transporting these quantities of gas. Moreover, the Turkish gas-pipeline system is based on the assumption that large quantities of Iranian gas (highly subsidized for the Turkish market) soon become available due to cancellation of sanctions. Under these circumstances, a growing volume of the Azerbaijani (and most likely Turkmenistani) gas will be exported via Russia using the northward Azerbaijan-Russia pipeline. The only way Azerbaijani (and Turkmenistani) gas can be transported to Turkey in a profitable way is if a new south-track pipeline is constructed along the Iranian border, but such a pipeline could only be built after the resolution of the Nagorno-Karabakh conflict. Russia supports a south-track pipeline because it will markedly reduce the strategic importance of Georgia. The US, however, is beholden to supporting the Armenians due to domestic-political considerations, thus making this pipeline impossible in the foreseeable future.

US Secretary of State Hillary Clinton, during her last visit to Greece, in July 2011, clearly said that all revenue absorbed from oil exploration deals would have to be used to repay Greece’s international debt. Part of the US demand was also a law privatizing many of Greek’s public institutions. Indeed, the law on privatization of public property passed by the Greek Government recently left open the possibility of liquidating assets to creditors of all of Greece’s mineral wealth, including its proven reserves, as well as those which could be discovered in the future and the total potential revenue from them.

The bottom line: The US Obama Administration is trying to help Ankara in whichever way possible in order to embolden Ankara’s support for the various Muslim Brothers and other Islamist movements rising in the Arab world: from Libya and Egypt to the escalating war in Syria.

By. GIS/Defense & Foreign Affairs Balkans Bureau, with additional input from other stations.

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  • Philip Andrews on June 25 2012 said:
    Leaving aside just for one moment the small fact that Greece has an unstable economy and an unstable coaltion to handle it, Turkey is not about to do just what the US wants it to do. Nor is Russia for that matter. Obama is in an election year so his hands atre tied for the foreseeable future.

    In addition, these gas fields are in a sense 'disputed'. Between the instability in Greece and Syria/Lebanon, and Israel's nervousness about its neighbours right now esp. Egypt, Turkey is emerging as a central player, with Russia as her old rival. This means that nothing in terms of energy, gas and pipeklines can be taken for granted, least of all by the US.

    So much in the ME and Europe is shifting and changing that it is ridiculous to speak of Greek political or economic 'centrality'. Greece may have a geographical presence in this area but it is other actors who are calling the shots.

    Greece is more of a transit area over which the interests of Germany, Turkey, Russia, Iran, China and the US ebb and flow. The gas fields issue complicates an already multi-dimensional scenario where everything is 'hanging' ready to land, come down to Earth in Gods knows what evebntual pattern of power relationships.

    Let us not give small unstable countries more power and presence than they deserve or are capable of handling.
  • Nick on June 26 2012 said:
    Mr Phillip Andrews
    "Let us not give small unstable countries more power and presence than they deserve or are capable of handling." Who are we??? Greece is a sovereign country It is also a democracy and still a member of the EU.Its entitled to its EEZ and associated resources as per international law.Any country not respecting international law will have difficulty trading with the EU. The days of wars are over. Any resources belong to Greece and are there for the benefit of Greece and the EU.The only way all these external non EU members could exercise influence is to put their money where their mouth is. So far Germany has done so and will one day be a beneficiary to any oil and gas found and quite rightly so.Greece may not realize it but it does have large and powerful protectors.The EU.As for china and Russia if they wish to do business with Greece why not?????. To date all I see is two large counties offering a helping hand with they cheque book and not many questions asked.Who cares if Washington likes it or not.Greece has its new found resources as leverage and that does give them bargaining power.
  • Rob Berke on June 27 2012 said:
    As Andrews states, the Mediterranean energy issues are far more complicated than the article states. An example, today it was on the heels of Putin's visit to Israel, an agreement was signed for Gazprom's LNG exports from the Israeli offshore Leviathan field to Europe. Following that the media was filled with rumors of Russia cancelling plans for delivery of s-300 missiles to Syria, with much speculation that the Israeli gas deal is a payoff for Russia to step back from support of Assad. Russian energy firms are clearly targeting Cyprus and Greece next. To share in these prizes, Russia needs to also finesse its support of Iran's nuclear claims. The bets are it will if the price is right. The conclusion: Assad is a goner, and Gazprom gains. Putin may be a great chess player, but Obama may even be better.
  • Stephen on August 31 2012 said:
    The above analysis underestimates the potential influence Russia could exert upon Greece in case the financial situation there worsens.
    A likely bankruptcy and subsequent power take over from left-wing parties could easily lead Greece into the hands of Russia considering the cultural, religious and historical ties the people of the two countries share.
    The protracted exercise of greed on behalf of Germany, which has hugely benefited from the fiscal imbalances between north and south, accompanied by the indifference of the US foreign policy, which has underestimated the strategic importance of Greece, could easily change the balance of power in the Aegean Sea!
  • Ginos Vugas on December 10 2012 said:
    Phillip Andrews,
    I bet everything I have that you are a brit.... Pathetic...
    "Let us not give small unstable countries more power and presence than they deserve or are capable of handling."
    Who are you described as "us"?!
    USA?!?! or UK?!?!?!
    Completely pathetic....
    If Greece is "unstable" then you'd better read a lot more.
    Check out especially what happened to your beloved (obviously) "central player" turkey when we were "unstable".
    When it starts, nothing can stop it.

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