There's a growing sense that…
Crude prices have fallen significantly…
The Greek private limited company Gastrade, owned by the Greek conglomerate Coupelouzos Group, has been licensed to develop a floating storage and regasification unit (FSRU), which would allow for the import of liquefied natural gas (LNG) from various sources, including the United States, to northeastern Greece (Energypress.gr, December 22, 2016). Located off the coast of Alexandroupolis, the FSRU system is linked to a 29 kilometer subsea and onshore pipeline (25 km offshore and 4 km onshore), with a daily capacity of 16.8 million cubic meters of gas per day. Gastrade plans to import LNG through this project into the country, whereas the Monaco-registered LNG ship-owner GasLog will be responsible for shipping the gas.
According to current plans, the imported LNG will be regasified at Alexandroupolis and transported onward via the so-called Vertical Corridor, which will extend all the way to the Bulgarian market. From there, those volumes could supply other countries in Central and Eastern Europe or even Turkey, assuming that proves to be economically viable. But if that happens, those LNG imports might end up competing in the Bulgarian and Turkish markets with future gas volumes from Azerbaijan’s offshore Shah Deniz Stage 2 production project. The FSRU in Alexandroupolis is included on the European Union’s list of Projects of Common Interest (PCI), which means that this project is eligible to be financed (340 million euros, equivalent to $367 million) by the European Investment Bank (EIB) between 2016 and 2018 (Eib.org, accessed January 11, 2017).
It bears pointing out that Gastrade’s parent company, Coupelozos Group, had earlier also founded Prometheus Gas, a joint company parity (50-50) owned by Coupelozos and GazpromExport (100 percent subsidiary of Gazprom). The main scope of Prometheus Gas S.A. is the import and marketing of Russian natural gas on the Greek market. The entity is Coupelozos Group’s sole gas import arm (Copelouzos.gr, accessed January 30).
Related: Has Big Oil Bought Into The Oil Price Recovery?
Gastrade is one of six companies—including Greek DEPA, the State Oil Company of Azerbaijan Republic (SOCAR), as well as Edison and Noble, both based in the United States (Ekathimerini.com, April 1, 2016)—that have already booked capacity in the Interconnector Greece-Bulgaria (IGB) pipeline to transport the imported LNG from the Alexandroupolis FSRU north to the Bulgarian market. The Texas firm Cheniere Energy’s possible investment in this project and acquisition of a stake to participate in the LNG value chain had long been under discussion. The matter first publicly came up in September 2015, when then–Secretary of State John Kerry visited Greece. However, nothing came of this idea given current market conditions. Instead, another company, GasLog agreed to buy a 20 percent stake in Gastrade to develop the FSRU terminal (Naturalgasworld.com, December 23, 2016).
The IGB pipeline’s Final Investment Decision (FID) is largely dependent on the full (first phase, 3 billion cubic meters—bcm—per year) capacity booking by the potential shippers, and thus on the materialization of the FSRU. The LNG storage and regasification unit would bring additional volumes of gas to be transported through the IGB, possibly working at full capacity (second phase, 5 bcm per year), and making it commercially viable. SOCAR booked a negligible capacity in the IGB to bring natural gas from its own gas portfolio—but not gas from the Shah Deniz 2 project, which will be transported to the region via the planned Trans-Adriatic Pipeline (TAP), as this gas belongs to the Shah Deniz consortium. Bulgargaz is responsible to offtake a contracted 0.94 bcm per year at the delivery point—that is, at the Bulgarian border—through the IGB pipeline. The condition is that if the IGB pipeline is not built by 2018, Bulgargaz will lose its contracted gas from Shah Deniz 2. Due to the lack of firm capacity booking in the IGB so far (during the current Open Season, only 1.57 bcm has been booked firmly), the deadline for firm capacity booking has been extended a number of times. Consequently, the important decisions on funding and construction by shareholders are being delayed. One way around these economic limitations would be for the European Commission to proclaim the IGB pipeline “regulated infrastructure,” which would remove this project’s dependence on economics and booked capacity (Naturalgasworld.com, December 23, 2016).
Related: The Newest Wind Energy Innovation: Flappy Leaves On Fake Trees
The fact that Gazprom has an indirect link to Gastrade (through its owner Coupelouzos Group’s joint venture with GazpromExport) implies that Gastrade’s Alexandroupolis project could have a difficult time attracting truly diversified supply sources of LNG—which is supposed to be the utmost aim of this FSRU terminal. Indeed, as alluded to above, Gastrade’s sister company Prometheus Gas—Coupelouzos Group’s only gas import arm—is half owned by Russian energy giant Gazprom. As such, Gazprom may end up being able to put pressure on Gastrade, in terms of volumes and price, through direct influence on Coupelozos Group thanks to the close business partnership the two companies have in sharing ownership of Prometheus Gas.
If Gazprom is ultimately given wide access to the Alexandroupolis FSRU, it could create artificial competition in the regional markets for Shah Deniz gas from Azerbaijan. Russian could try to flood Greece with relatively cheaper LNG shipped to Gastrade’s FSRU terminal. Moreover, this cheap Russian gas could then be sold to Bulgaria and other countries in Southeastern Europe. Gazprom has the advantage of being a low-cost producer, and it can reduce its prices below that of the available competitors. Shah Deniz gas, which is planned for delivery to the region via the Southern Gas Corridor (of which TAP is a key link), is still considered competitive vis-à-vis the existing gas prices in the market. But if the local market becomes flooded with low-price Russian LNG, it would seriously impact the profitability of this strategic energy corridor project that had been spearheaded by Baku. Gazprom’s attempts to purchase shares in the FSRU project in the future also should not be ruled out. In fact, such a situation would be in compliance with the Third Party Access directive of the EU’s Third Energy Package. Gazprom’s direct involvement in this way would further secure and increase Russia’s market share in Greece—the strategically important gateway to Southeastern Europe.
By Gulmira Rzayeva via Jamestown.org
More Top Reads From Oilprice.com:
Founded in 1984, The Jamestown Foundation is an independent, non-partisan research institution dedicated to providing timely information concerning critical political and strategic developments in China,…