European University of St. Petersburg

Department of International Programs

Master program of Energy Politics in Eurasia

An assessment of Greeces energy security in the sphere of natural

gas since 2004

Sylaidi Athina

ENERPO, August 2014

1

Table of Contents

List of figures and tables ....................................................................................................... 3

Acknowledgements ............................................................................................................ 5

Abstract .............................................................................................................................. 6

Introduction ............................................................................................................................ 7

Chapter One: Literature review and key concepts ................................................................. 9

1.1. Defining energy security ............................................................................................ 9

1.2. Literature on energy security .................................................................................... 10

1.3. Literature on Greek energy policy ............................................................................ 13

Chapter Two: The Greek Energy Sector .............................................................................. 16

2.1. Introduction .............................................................................................................. 16

2.2. The role of natural gas in Greeces energy sector and economy .............................. 17

2.2.1. Primary energy mix 2004-2014 ...................................................................... 17

2.2.2. The share of natural gas in energy consumption by sector ............................ 21

2.3. Import dependency and Greek energy security ........................................................ 23

2.3.1. Greek domestic energy production 2004-2014 .............................................. 23

2.3.2. Greek energy import dependency 2004-2014 ................................................ 24

2.4. Key players in the Greek gas sector ......................................................................... 27

2.4.1. The role of DEFSA, DEPA, EPAs, and other energy companies .................. 27

2.5. The Consortium of the Greek Gas Company ........................................................... 30

2.6. Conclusion ................................................................................................................ 33

Chapter Three: Security of supply ....................................................................................... 35

3.1. Introduction .............................................................................................................. 35

3.2. Transit routes for Greeces gas imports .................................................................... 36

3.3. Ukraine, Romania, and Bulgaria as a transit route for gas imports from Russia ...... 37

3.3.1. Supply disruptions via Ukraine in 2006 and 2009 ......................................... 38

3.4. The Southern Corridor and attempts by the Greek government to diversify the sources

and transit routes of Greeces gas imports....................................................................... 43

3.4.1. South Stream .................................................................................................. 43

3.4.2. TANAP ........................................................................................................... 45

3.4.3. TAP................................................................................................................. 46

3.4.3.1. Greek Government perception .................................................................... 48

3.4.3.2. About the Greek economy and entrepreneurship ........................................ 48

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3.4.3.3. Objections & Oppositions of other political and social parties ................... 49

3.5. A possible Greek participation in South Stream project .......................................... 51

3.6. Conclusion ................................................................................................................ 53

Chapter Four: The competitiveness of Greeces gas imports .............................................. 56

4.1. Introduction .............................................................................................................. 56

4.2. The price of Greeces wholesale gas imports in the context of European gas prices

2004-2014 ........................................................................................................................ 57

4.2.1. The price of pipeline gas imports ................................................................... 57

4.2.2. The price of LNG imports .............................................................................. 60

4.2.3. Context of rising European oil-indexed gas prices 2004-2009, brief fall, and

then rising prices 2011-2014 .................................................................................... 66

4.2.4. Context of European spot gas prices 2004-2014 ............................................ 69

4.2.5. Does Greece pay a reasonable price for its gas imports? ............................... 76

4.3. The price of natural gas for consumers on the Greek gas market ............................ 76

4.4. The Greek economy 2004-2014 and the role of energy prices ................................. 81

4.5. Competitiveness of the Greek gas market ................................................................ 84

4.6. Conclusion ................................................................................................................ 86

Conclusion ............................................................................................................................ 88

References ............................................................................................................................ 91

3

List of figures and tables

Fig.1. Energy efficiency Consumption by primary energy source, 2001-2011 ....................... 17

Fig.2. Final energy consumption by source, 2011 ............................................................................ 18

Fig.3. The final energy consumption per segment 2011(1a) and the gross energy consumption

per primary source of energy 2011(1b) ............................................................................................... 19

Fig.4. Energy Sector in Greece .............................................................................................................. 19

Fig.5. Natural Gas Demand ..................................................................................................................... 21

Fig.6. Natural Gas Consumption, by Sector ....................................................................................... 21

Fig.7. Greek Oil imports, by supplier country ................................................................................... 24

Fig.8. Contractual Quantities DEPA .................................................................................................... 25

Fig.9. Natural Gas Supply by sector*, 1997 to 2009 ....................................................................... 26

Fig.10. DEPA Group Structure .............................................................................................................. 28

Fig.11. Greece Natural Gas pipelines ................................................................................................... 36

Fig.12. Gas import dependency in Central and South-Eastern Europe (2012) ........................ 37

Fig.13. Gas transit dependency in Central and South-Eastern Europe (2012) ......................... 38

Fig.14. Supply cuts in Europe during the 2009 Russia-Ukraine dispute ................................... 39

Fig.15. The evolution mixtures of natural gas in Greece, 2007-2010 ......................................... 40

Fig.16. Natural Gas Imports, by Source .............................................................................................. 41

Fig.17. Projected Routes of Nord Stream, Nabucco and South Stream Pipelines .................. 42

Fig.18. Projected Routes of TANAP, Nabucco and TAP............................................................... 44

Fig.19. The Balkanscrossroads of gas pipelinesTAP .................................................................. 46

Fig.20. Index Price Imports of natural gas in Greece ...................................................................... 57

Fig.21. Natural Gas prices in Europe ................................................................................................... 59

Fig.22. EU LNG Import Capacity ......................................................................................................... 61

Fig.23. LNG prices by country ............................................................................................................... 62

Fig.24. EBP and LNG prices in EU ...................................................................................................... 62

Fig.25. Latest price snapshot .................................................................................................................. 63

Fig.26. Argus European des spot LNG ................................................................................................ 63

Fig.27. Benchmark price snapshot ........................................................................................................ 64

Fig.28. Natural gas import and spot prices in Europe ..................................................................... 67

Fig.29. OECD Europe gas supply, 2013 ............................................................................................. 68

Fig.30. Gas trading in EU and Continental hubs-OTC volumes .................................................. 69

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Fig.31. Gas market size- Estimation of traded volumes on electronic platforms .................... 70

Fig.32. Traded volumes versus consumption on main European gas markets ......................... 71

Fig.33. Wholesale gas price formation in EU .................................................................................... 71

Fig.34. OECD Europe consumption versus maximum supply ..................................................... 72

Fig.35. Europe spot gas prices ................................................................................................................ 73

Fig.36. Global Gas prices 2007-2011 ................................................................................................... 74

Fig.37. The weighted average import price 2011- 2013 ................................................................. 76

Fig.38. Electricity Production in the interconnected system, 2010 ............................................. 77

Fig.39. Natural gas prices in IEA member countries, 2010 ........................................................... 79

Fig.40. Natural gas prices in IEA member countries, 2010 (continued) .................................... 79

Fig.41. GDP growth 1950-1980, various countries .......................................................................... 80

Fig.42. GDP growth 1980-2000 ............................................................................................................. 80

Fig.43. Real GDP growth 2001-2012 ................................................................................................... 81

Fig.44. Greek debt compared to Eurozone average ......................................................................... 82

Fig.45. Greek government-debt crisis .................................................................................................. 82

5

Acknowledgements

This dissertation could not have been finished without the help and support from many

professors, research staff, graduate students, colleagues, friends and my family. It is my great

pleasure to acknowledge people who have guided, helped and encouraged me.

I would like to express my deepest gratitude to my advisor, Dr. Sharples Jack, for his

excellent guidance, caring, patience, and for providing me with an excellent atmosphere for

conducting the research. My research would be impossible without his help. I would also like

to thank all of my professors and especially Mr. Recordati Maurizio, Dr. Lomagin Nikita, Dr.

Vymyatnina Yulia for their constant guidance, personal attention, suggestions, endless

encouragement and full support during the academic year 2013-2014 of my postgraduate

study and research. Moreover, I would like to thank the Dean of International Programs Mrs.

Trofimova Maria and all the staff, who are working for international programs in the

European University for their confidence and help.

I would also like to thank all the ENERPOs colleagues, who like good friends were always

willing to help and give their best suggestions throughout my postgraduate studies.

Especially, I would like to thank Katherine Bennett, Koen Van Delft, Max Hoyt, Keri Hahn

and Lindsey Foster for their support and help during my thesis writing.

I would also like to thank my parents, my brother, my grandparents and my friends, whose

support and constant encouragement helped me through the hard times of this program. My

deepest appreciation is expressed to them for their love, understanding, and inspiration.

Without their support, blessings and encouragement, I would not be able to finish this work.

Finally, through my life, work experience, studies, friendships and my family relations, I have

learned, not to be satisfied with the conventional want, but to fight, looking for the

elusive but desirable. My postgraduate studies and my successful graduation would have

been illusion without the support, confidence and help, first of myself and secondly of the

people mentioned above.

6

Abstract

The dependence of energy supplies and imports is a much highlighted issue, particularly

nowadays, as energy is a commodity which has entered very rapidly in our everyday life.

Thus, the issue of energy security has risen significantly; for example energy used as

leverage convergence of interests and alliances, or a source of controversy and conflict with

background global political, strategic and economic events curbed by strong superpowers-

countries of the international community. As result the supplier countries struggle for their

energy security of demand and the importer countries for their energy security of supply.

Greece is an importer country and thus we refer to asymmetrical dependency, shifting the

balance of power in favor of the other. A critical analysis of this argument requires

consideration of the political and energy relations between Greece and its suppliers in the last

ten years as, through that, we can see the level of the Greek dependency and how the Greek

energy policy has acted to bring prosperity, efficiency and sustainability to its market; aiming

at energy security of supply. Greece has a significant dependency of mainly Russian gas. In

conjunction Greece is an EU Member-State, therefore it is important to do an analysis of the

Greek energy policy in conjunction with the EU's energy policy and in the sphere of Greece's

diversification of gas supply and routes which aim to ensure its energy security.

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Introduction

Greece, in order to cover its energy needs with respect to oil and gas, is relying almost

entirely on imports from third party countries-producers. The combination of high

dependency on fuel imports (65%) and their internationally-indicated prices describe the

pathogenesis of the country's energy system which leads to a negative impact on the external

balance and the general growth. This situation is particularly worrying in terms of energy

security of supply and competitiveness of the economy, as the country remains extremely

vulnerable to fluctuations in international prices of oil and gas while any geopolitical

development could easily disrupt the energy supply of the country.

The geographical position of Greece is particularly advantageous since its neighbours have

areas rich in both oil and natural gas. The main role is played by Russia, which holds a third

of the world's gas reserves and one tenth of oil. As Russia is the main gas supplier in Greece

and EU it is important to mention Greece's dependent relationships on Russian gas.

In conjunction with the EU-Russia relationship, which after the gas crises 2006-2009 and

recently because of unstable Russo-Ukrainian relations, caused the EU Member-States to

worry about their energy supply security; Greece, on the one side as a Member-State should

participate and espouse the relevant European provisions and legislation, on the other side it

must have a national target for the protection of its energy security of supply through

agreements and legislation of the Greek government. In the period 2004-2014, the turmoil of

the political and natural gas energy relationship between Russia and the EU, in addition with

the financial crisis in the EU but mainly in Greece, have revealed the importance of the role

and position of the Greek government. It is an important and critical period for the Greek

state as the Greek government has faced the country's economic downturn; causing a lack of

foreign investment, high -energy prices for the consumers in industry, household and

transportation sector. And the same time, it has to make significant agreements and take

decisions inextricably linked to the Greek and to the European energy policy; ensuring the

country's energy security of supply, mainly in natural gas. Thus, it is interesting to investigate

the energy security of an economically-vulnerable European country, in the context of EU

energy security and the role of Russia.

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Energy security has many dimensions: long-term energy security mainly deals with timely

investments to supply energy in line with economic developments and sustainable

environmental needs. Short-term energy security focuses on the ability of the energy system

to react promptly to sudden changes within the supply-demand balance. Lack of energy

security is thus linked to the negative economic and social impacts of either physical

unavailability of energy, or prices that are not competitive or are overly volatile. In more

specific terms, it is the provision of affordable, reliable, diverse and ample supplies of oil, gas

and their future equivalents and adequate infrastructure to deliver those supplies to markets.

The question this paper seeks to answer is to what extent has the Greek government

succeeded in ensuring Greece's energy security in the sphere of natural gas since 2004.

Therefore it will be analysed, in particular, in terms of how the Greek government has acted

in the political and economic sector of the country with the aim of ensuring the countrys

energy security of supply with gas at affordable prices and in an environmentally acceptable

manner. To be able to answer that question, initially, in the first chapter, the key concepts will

be given along with the definition of energy security according to global and Greek literature

review. In the second chapter, the energy sector will be analysed with emphasis on the role of

gas in the Greek economy and society. Additionally the role of the Greek Government and

the Greek company DEPA-DESFA in the gas sector will be analysed. In the third chapter, the

countrys energy security of supply from 2004 until now will be referred to. This will be first

analysed -through the impacts of the supply disruptions via Ukraine and in Greece in the

years from 2006-2009; secondly through the Southern Corridor and by attempts from the

Greek government to diversify the sources and transit routes of Greece's gas imports

(TANAP-TAP-South Stream). Finally, in the fourth chapter, the competitiveness of Greek

natural gas imports will be addressed: the first part of chapter four will discuss the import

prices of gas and LNG; the second through the gas prices in the countries wholesale and

retail markets; the third through the Greek economic process of 2004-2014 and the role of

energy prices on the market and the final part through the competitiveness of the Greek gas

market.

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Chapter One: Literature review and key concepts

1.1. Defining energy security

Energy is a commodity that enters, directly or indirectly, into various sectors of modern

society. The absolute need for energy consumption in all social and economic sectors, along

with the strong interactions of international markets in today's globalized environment,

requires the development of an institutional framework for the adoption of a common energy

policy, under the implementation of its primary strategic objectives: First, security of supply

for energy coverage of all citizens and businesses; second, competitiveness for mitigating the

effects of the increasing prices of energy goods and third, sustainability with reasonable

power consumption through qualitative, rather than quantitative growth.

Through the Ukrainian-Russian disputes and the actions taken by Russia and its effect on

European countries, we can understand the way in which energy policy is determined and

constrained. Energy security is a multifaceted issue no longer restricted solely to the domains

of the viability of energy supply, price appreciation and preservation of the environment,

issues which are included in the energy policy triangle (Percival, 2008:3).

The concept of Energy Security is defined by the IEA, as being adequate, affordable, and

reliable supplies of energy. Energy efficiency, stock-holding, alternative fuels, substitution

options, diversification of supply sources, changing energy mixes and spare capacity are all

important concepts in energy security thinking (Percival, 2008:3). Energy security includes:

security of supply and security of demand; reliability to meet the needs of the energy market,

with the most favorable conditions for the citizens; the need to create alliances and alternative

routes and smoothing mechanisms in times of energy crisis.

The energy-importing countries aim to secure their supply from the exporting countries and

the energy-exporting countries aim to secure their demand from importing countries. So there

are two forms of dependency; from one side the symmetrical dependency including the

impulse to improve relations between countries and the overall geopolitical climate; on the

other side, the asymmetrical dependency which shifts the balance of power in favor of the

other. (Percival, 2008:5)

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Also there is the interdependence. In this kind of relations coexists several concepts, such as

resource nationalism, government bilateral agreements and energy as a political lever.

Specifically these elements are extremely evident by the EU-Russia energy relations and their

focus on the Ukrainian issue. As result, in the current global relations the countries are

embedded in energy-dominated relationships with a lot of problems.

1.2. Literature on energy security

In order to analyse the policy of Greece on the issue of security of supply in energy, reference

must be made to the previous literature on such an issue from a general perspective.

The literature on energy security suggests that different countries have developed different

strategies for securing their energy supply and its meaning varies from one country or one

context to another. Thus, universal definitions of energy security are less frequently attempted

than contextualized discussions of its various aspects or dimensions.

One of the most frequently quoted definitions is the availability of sufficient supplies at

affordable prices suggested by Yergin (2006). It is preceded by the European Commissions

(2000) definition of energy security as the uninterrupted physical availability on the market

of energy products at a price which is affordable for all consumers.

The concept of energy security is defined in European-Commission Green paper of 29

November 2000 Towards a European strategy for the security of energy supply, as being:

energy strategy is to ensure, for the well-being of citizens and for the proper functioning of

the economy, the uninterrupted physical availability of energy products on the market at an

affordable price for all consumers, whilst respecting environmental concerns and looking

towards sustainable development.

After a few years of this definition, the Commission (EC, 2010) defined energy security as

the ability to ensure that future essential energy needs can be met, both by means of adequate

domestic resources worked under economically acceptable conditions or maintained as

strategic reserves, and by calling upon accessible and stable external sources supplemented

where appropriate by strategic stocks.

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Kalicki and Goldwyn (2005:9) define energy security as it is assurance of the ability to access

the energy resources required for the continued development of national power.

Barton Barry, Redgwell Catherine, Ronne Anita and Zillman N. Donald (2004:3) have

provided their definition of energy security as that of being the condition in which a nation

and all, or most, of its citizens and businesses have access to sufficient energy resources at

reasonable prices for the foreseeable future free from serious risks of major disruption of

service.

However, this definition of the energy security does not take into consideration the often-

large resident immigrant populations living in many nations-developing and developed

nations alike. Moreover, this human-focused definition fails to take into account the

environmental or sustainability aspects or even resilience concerns which are important issues

that need to be addressed when attempting to define the issue of the security of energy. It is

an undisputable fact that the access to resource is different from sustainable use. Furthermore,

it is a fact that access of the consumer to uninterrupted and affordable energy has become to

be an essential concept of the function of modern economies. Therefore, the definition of the

term appears to be viewed from a narrow angle, if in fact the long-term and sustainability

development conditions are not taken into consideration.

However, the uneven distribution of energy supplies among countries globally has led to

significant vulnerabilities. Opportunities for energy efficiency may exist over wide

geographical areas, for example by using renewable energies, instead of using conventional

energy sources, which are concentrated in a limited number of countries.

Therefore since there is no definition agreed on by all of energy security, it becomes

important to analyse the crucial aspects and characteristics constituting energy security. In

this respect, Martin William, Imai Ryukichi and Steeg Helga, have identified three facets of

energy security.

The first involves limiting vulnerability to disruption given the rising dependence on

imported oil from an unstable Middle East. The second concerns the provision of adequate

supply for rising demand at reasonable prices (energy efficiency) and the third, related to

environmental challenges, needs to operate within the constraints of sustainable development,

12

however uncertain and long term. Building on these facets, we can observe that these crucial

elements of access, supply, reliability and sustainability vary at different times and places.

Indeed, today energy needs balance with the management of complex infrastructures, a highly

increased market competition, a well-developed energy trade and environmental constraints.

Energy insecurity is defined by Bohi and Toman (1996), as the loss of economic welfare that

may occur as a result of a change in the price or availability of energy.

These definitions contain notions of availability, sufficiency, affordability, welfare,

energy products (or supplies), and interruptions, which are open to wide

interpretations. For example, Yergin (2006) discusses the different meaning of energy

securitywithin his given definitionfor several different countries. This concept of variability

of the notion of energy security is also stressed by Mueller-Kraenner (2008), Kruyt et al.

(2009), and Chester (2010).

In its analysis of energy security, scholarly literature draws different boundaries for energy

systems and subsystems. These boundaries differ between how many and which fuels are

considered, as well as how far up and downstream boundaries are drawn within that system.

In terms of fuel-related boundaries, studies range from focusing on a specific fuel (generally

oil) (Kendell, 1998; Gupta, 2008; Greene, 2010); looking at all fossil fuels (Le Coq and

Paltseva, 2009); analysing the security of an electricity system (Stirling, 1994) or critical

energy infrastructure (Farrell et al., 2004) to evaluating the security of the whole primary

energy system (Neff, 1997 ; Jansen et al., 2004 ; Jansen and Seebregts, 2010). Within each of

these divisions, some studies focus only on the supply side while others integrate supply and

demand aspects and indicators.

Hence energy security is not a static concept. Primarily related to oil, it now implicates a wide

range of problems that imply different national, regional and international regulatory

responses. Indeed the IEA, originally concerned with oil security at its creation in 1974, now

deals with the three Es (energy efficiency, energy security and environmental protection)1.

1 IEA, 2014. Shared Goals. [online] Available at:

[Accessed 5 August 2014].

See Ministerial Action on EIA Shared Goals, 4 June 1993, IEA/GB(93)41 and Annex I See Ministerial Action on EIA Shared Goals, 4 June 1993, IEA/GB(93)41 and Annex I

13

With respect to the characteristics of energy systems that are associated with their security,

various studies propose and discuss different dimensions of energy security. The simplest

discussion uses two dimensions of energy security: the physical and economic

dimensions (Kendell, 1998; Gupta, 2008). Another commonly used taxonomy is the

availability (i.e., physical availability of resources), accessibility (geopolitical aspects

associated with accessing resources), affordability (economic costs of energy), and

acceptability (social and often environmental stewardship aspects of energy) (Kruyt et al.,

2009). Other dimensional classifications include economic, environmental, social, foreign

policy, technical and security (Alhajii, 2007) dimensions, as well as energy supply,

economic, technological, environmental, social-cultural, and military security dimensions

from von Hippel et al. (2009) and others.

1.3. Literature on Greek energy policy

Considering that, Greeces energy needs are based mainly on imports we will analyze the

context of Energy Security in the prism of countrys security of supply.

According to National Energy Planning Commission (2012:8) and Ministry of Environment

Energy and Climate Change2 the challenges for the national energy policy consist largely of

those of the European energy policy.

Thus, Priority and top goal of energy policy objectives is finding, securing and management

of energy resources, so as to ensure the safe, smooth, continuous and reliable energy needs of

the country, in all its territory, and the best conditions for its citizens. The second objective

is to create energy reserves, alliances and alternative pathways to meet the needs of the

domestic energy market in times of energy crisis and consumer protection through application

of exogenous smoothing mechanisms, emergency destabilizing phenomena and trends. The

third objective is the sustainable development of the spectrum of the energy sector, in all its

forms, from production to end use through the prism of nature protection and environmental

conservation.

Also, according to the Deputy Minister Mr. Bouga John, the main axes on which the National

Energy Strategy is developed is energy security by diversifying energy sources and the 2 Ministry of Environment Energy and Climate Change, 2009-2014. Energy: Energy Policy. [online]

Available at: < http://www.ypeka.gr/Default.aspx?tabid=272 > [Accessed 5 August 2014].

14

parallel strengthening of the country's geo-strategic role in the region; the saving and rational

use of energy; and the environmental protection and sustainable development within and

international obligations of the country (pistimonikoMarketing.gr, 2009).

Moreover, through the study of Eliamep (Hellenic Foundation for European & Foreign

Policy) and specifically of Proedrou Philipou (Lecturer in the Department of Political and

International Relations at City College, Thessaloniki, Greece) it can be concluded that:

Greece's participation in setting and adjusting the regulatory framework of the European gas

market aims to maintain the current rules favouring the central role of Gazprom as a supplier

of European, and Greek market. On a practical level, the Greek policy on energy security is

twofold. On the one hand, it alleges the perpetuating, quantitative and qualitative

improvement of the cooperation with the main supplier; and on the other had, it promotes the

policy of diversification of sources that will reduce dependence on Russian energy. The

energy security is not isolated from the wider geopolitical realities, but instead interacts with,

affects and is affected by security issues.

While the Greek policy on a regulatory and practical level is consistent with the country's

interests in the energy and security sector, is only one set of tactical moves. In other words,

these movements aim to create at a balanced import policy in order to avoid serious shortage

of raw materials. However, as such the import policy demonstrates the absence of a strategy,

Greece has natural resources that can contribute significantly to the energy mix, reducing the

need of imports from third countries producers (Proedrou, F., 2009:5).

By 2008, energy security of supply was sought mainly at European level but the recent

negative experiences indicate the need for forecasting and scheduling in a purely national

level and taking into account the international energy interconnections of the country (i.e.

natural gas and electricity).

Today there is a serious deficit, if not complete absence, of a national energy plan despite the

serious efforts made by PCA in 2006-2008 and most recently through the Ministry of

Environment Energy and Climate Change (YPEKA) (Stamboli, K.N., Xatzibasileiadi, I.,

Mazi, I., Theofilaktou, K., Sofianou, N. and Poinioti, A., 2013:25).

15

The occasional efforts of energy planning and strategy formulation without continuation had

prioritized the compliance with European objectives and expectations ignoring the Greek

reality, national needs and priorities. In spite of that, there is scope for coordination and

harmonization with EUs objectives, in parallel with the support and promotion of national

priorities. But without a basic national strategy and planning in the energy sector, in

contribution with EUs strategy, Greece can not make full use of domestic energy resources

and geopolitical opportunities that exist and will exist in the coming years in a wider

geographical area (Stamboli, K.N., Xatzibasileiadi, I., Mazi, I., Theofilaktou, K., Sofianou, N.

and Poinioti, A., 2013:25).

Finally, Dr. Antonis Metaxas (Lecturer in University of Athens, Guest Professor at the

International University of Greece), expressed the following estimate on the Greek energy

policy:

The historical lack of a proper long-term plan for the Greek energy market

but also for a range inextricably affected by this individual policy sectors,

with a main subject, one could argue for that of the industrial development

of the country, tends to lead the state to the adoption of makeshift, short

sighted interventions and often of questionable effectiveness and

compatibility according the law. The lack of political courage and defined

plans for the effective confrontation of the electricity market with

competition, here is typical the continued existence of monopolistic

structures in essence into the domestic market for electricity and natural gas

produces inevitable consequence. We can also mention the apparent lack of

production plan of reconstruction: How can an economy in crisis recover if

there is no coherent policy and regulatory interventions appropriate to allow

the rationalization of the energy cost of the domestic industry even in

relation with the claiming intra-EU competition? This relates not only to the

obviously necessary punitive action for non-compliant, legal and regulatory,

pricing practices of quasi-monopolistic providers in the electricity and

natural gas, but also with further comprehensive interventions that will lead

to a rationalization of the energy cost of the Greek industry.

(Energypress.gr, 2014)

Having in mind the above, in the following chapters, we will proceed to analyse the Greek

energy policy of 2004-2014 which guides the energy security of supply.

16

Chapter Two: The Greek Energy Sector

2.1. Introduction

Natural gas is globally the fastest growing primary energy. It allows greater energy efficiency

than any other fuel in all production sectors and particularly in the electricity sector

(technology combined). Also, it incurs much less the environment than other fuels per-

derived energy (by 38% from coal, 28% from fuel oil and 24% diesel oil)3. Additionally, it

provides greater flexibility, ease of use and general management from the other fuel in both

residential as to commercial and industrial applications.

Thus, natural gas is an innovative fuel for electricity generation in creation degree of close

interdependence of the two vital markets for electricity and natural gas. Still it is a necessary

reserve fuel, not only for the effective development of Renewable Energy Sources.

Furthermore, it is a fundamental element in the development of new major user sectors such

as automotive and future commercial production of innovative forms of energy, such as

hydrogen and liquid fuels. Finally, is the main marketing tool of the European target 20-20-20

and thus, of the Single European Energy Policy.

Greece was one of the last European countries to develop infrastructure import, transport and

consumption of natural gas due to geostrategic, economic and geopolitical events. Thus, the

introduction of natural gas in the energy balance of Greece launched with the establishment

of DEPA, 1988, as a development of the necessary infrastructure and all other aspects of the

gas industry.

The Greek energy market based mainly on domestic lignite production needed to meet the

needs of electricity and of oil and gas imports. Greece imports 100% gas to fill the need of

electricity and heating in both domestic and industrial sector of the country. In this way,

firstly, we will introduce the role of natural gas in Greeces energy sector and economy. Next

we will present the countrys import dependency and Greek energy security. Moreover, we

will see the Greek gas sector and the role of the key players in the Greek gas sector in order to

3 Maximum efficiency of gas versus the comparable fuels, thus the percentages are larger in fact.

17

understand the coexistence of natural gas sector in the Greek economy and society and the

role of the Greek government.

2.2. The role of natural gas in Greeces energy sector and economy

2.2.1. Primary energy mix 2004-2014

Greece is highly dependent on hydrocarbons4, imported oil and natural gas (NG) as their

participation in the final energy consumption in the last decade (2001-2011) reaches an

average of 70% (Stamboli, et al., 2013: 3). Nevertheless, the use of oil in power generation is

expected to decline in the coming years due to the increasing penetration of NG in cities and

RES in island parts of the country especially with the completion of the planned electrical

interconnections.

In 2011 the share of oil was 62% reduced to some extent because of the crisis, while the NG

increased by 6%; while in the EU-27 figure for oil accounted for 40% (Stamboli, et al., 2013:

3). In terms of gross energy consumption oil and NG participate together with an equally high

rate of 63% for the year 2011. In Greece petroleum products cover energy needs by 98% in

transport by 47% in the residential sector, 31% in industry (from 39% 2010) and by 12% in

trade (Stamboli, et al., 2013: 3).

Natural gas, also imported 100%, is the rising fuel throughout that due to the "pure" form

(burning releases 50% less CO2 from coal) gradually replacing oil central heating of

buildings and domestic lignite electricity. The introduction of NG into the energy system of

the country began only in 1996 and in 2011 accounted for 14% of gross energy consumption

(Stamboli, et al., 2013: 5). The penetration of NG in the energy balance of the country is at an

accelerating rate because of the lower cost in most applications compared with oil and its

environmental assets. It is characteristic that in times of economic crisis, consumption of NG

increased from 3.0 bcm in 2008 to 4.5 bcm in 2011, i.e. an increase of 50% (Stamboli, et al.,

2013: 5).

4 due to increased use of oil in transport, but also the role they play as the primary fuel in power

system in the non-interconnected islands (e.g. Rhodes, Crete, Kos, Chios, Limnos, Mytilini Cyclades)

18

Table 1 shows the energy consumption by primary energy source for the period 2001-2011,

while the oil balance summarized in Table 2 below, which shows the consumption and

production of oil and products, imports and exports, gross and final consumption of

petroleum products.

Fig.1. Energy efficiency Consumption by primary energy source, 2001-2011

Source: Stamboli, et al., 2013: 4

NG

NG

Solid fuels

& Mineral

oils

Solid fuels

& Mineral

oils

Electricity

Electricity

RES

RES

19

Fig.2. Final energy consumption by source, 2011

Source: Stamboli, et al., 2013: 4

The energy mix of the country depends on oil, natural gas, solid fuels (coal) and Renewable

Energy, i.e. hydro, wind, solar, biomass and geothermal (Figure 1(b)). In both the final and

the gross energy consumption 100% imported sources (crude oil products and natural gas)

dominate the energy mix to 68% and 63% respectively (Stamboli, et al., 2013: 3). The

domestic production of lignite, which is converted entirely into electricity, covers 24% of

final energy consumption while also imported coal (1.0%) covers basic needs of the industry

(Stamboli, et al., 2013: 3). So we see that almost 70% of the energy mix of the country

depends on imported fuels.

Solid Fuels Mineral Oils Natural Gas Electricity RES Heat

20

Fig.3. The final energy consumption per segment 2011(1a) and the gross energy consumption

per primary source of energy 2011(1b)

Source: Stamboli, et al., 2013: 7

Fig.4. Energy Sector in Greece

Source: IEA Key World Energy Statistics: 2013, 2012, 2011, 2010, 2009, 2006 IEA October, crude

oil p.11, coal p. 13 gas p. 15

Household

Sector

Transport

Industry Tertiary

Mineral Oils

Solid Fuels

Natural

Gas

RES

Electricity

21

2.2.2. The share of natural gas in energy consumption by sector (electricity generation,

industrial energy consumption, residential energy consumption, transportation)

In 1981, the indigenous production of natural gas started. The annual demand grew very fast,

at an average rate of 9.4% per annum between 2002 and 2008 (IEA-Greece, 2010). In 2008,

the demand for natural gas steadily increased and stood at 11.5 mcm/d (IEA-Greece, 2010).

Also, the transformation (electricity generation) represented roughly 70% of total gas

consumption (IEA-Greece, 2010). The sharp increase of gas demand, especially since the

mid-1990s, was primarily driven by growth in the demand for electricity and the subsequent

construction of new, gas-fired power stations (IEA-Greece, 2010). Reflecting the economic

downturn, however, gas demand fell sharply by 15% from 2008 to 2009, reaching 3.1 bcm

(IEA-Greece, 2010).

However, in 2009, Greeces gas demand fell to 9.7 mcm/d, which was a 16% decline from

the previous years level, while the daily peak demand was 16.3 mcm/d and 11.4 mcm/d in

the summer of 2009 (IEA-Greece, 2010). In 2009, electricity generation consumed 64% of all

gas, industry 22%, households 9% and services and transport 5% (see the follow Figure).

Natural gas demand is forecast to reach 16.2 mcm/d in 2015 and 19.6 mcm/d in 2020, which

will be a 68% and 102% increase over the 2009 figure, respectively (IEA-Greece, 2010). The

ratio of demand for electricity generation in total demand is projected to remain dominant at

around 65% in 2015 and 68 % in 2020, respectively (IEA-Greece, 2010). Greeces domestic

production of natural gas is negligible, the South Kavala gas field, located in the Kavala Gulf

of the Aegean Sea, produced merely 9 mcm in 2009 (0.02 mcm/d) (IEA-Greece, 2010).

22

Fig.5. Natural Gas Demand

Source: IEA-Greece, 2010

Fig.6. Natural Gas Consumption, by Sector

Source: IEA-Greece, 2010:13

23

2.3. Import dependency and Greek energy security

2.3.1. Greek domestic energy production 2004-2014

Energy production in Greece is dominated by the state owned Public Power Corporation

(PPC or DEI). In 2009 DEI supplied for 85.6% of all energy demand in Greece, while the

number fell to 77.3% in 2010 (Public Power Corporation S.A., 2010: 7). Almost half (48%)

of DEI's power output is generated using lignite, a drop from the 51.6 % in 2009 (Public

Power Corporation S.A., 2010: 8). The indigenous lignite remains the main fuel electricity,

engaging in gross energy consumption by 28%. Another 12% comes from hydroelectric

power plants and another 20% from natural gas5. Between 2009 and 2010, independent

companies' energy production increased by 56%, from 2,709 GWh in 2009 to 4,232 GWh in

2010 (Public Power Corporation S.A., 2010: 7).

Greece has the largest reserves of lignite in Europe and further utilization required for reasons

of energy security and employment but because of quite stringent environmental conditions

laid down by the EU, the production costs from here on will grow. The large-scale

exploitation of lignite in Greece offers the country a significant competitive advantage in the

energy and technological level but must be done with the latest and most efficient

technologies.

In 2012, Renewable Energy Sources (RES) accounted for 13.8% of the country's total energy

consumption, a rise from 10.9% in 2011, a figure almost equal to the EU average of 14.1% in

2012.6 The RES are already contributing to increasing rates by 8.0% (2011) in gross energy

consumption (3.0% in the large hydropower PPC and 5.0% from other renewables). With the

exception of large hydro, the electricity generation from other RES subsidized through Feed

in Tariffs (FIT's) under the energy environmental policy of the EU, which has set a target

penetration of RES into the European energy balance to 20% by 2020. Due to the generous

grant of producer price growth of RES, particularly solar, has been rapid in the last three

5 Invest in Greece Agency, 2008. Energy. [online] Available at:<

http://www.investingreece.gov.gr/default.asp?pid=38&la=1> [Accessed 15 July 2014] 6 Eurostat, 2008. Share of renewable energy in gross final energy consumption %. [online] Available

at:

[Accessed 20 July 2014]

http://en.wikipedia.org/wiki/Public_Power_Corporation_of_Greece

24

years (during the economic crisis) while, the potential for further penetration of RES in total

energy balance remains positive, despite the reduction in FIT's, from now on.

In 2013, according to the independent power transmission operator (), Greece

produced more than 20% of its electricity from RES and hydroelectric power plants. This

percentage in April reached 42%. Greece currently doesnt have any nuclear power plants in

operation; however in 2009 the Academy of Athens suggested that research in the possibility

of Greek nuclear power plants begin.

Greece has 10 mil. barrels of proven oil reserves as of 1 January 2012.7 Hellenic Petroleum is

the country's largest oil company (70%), followed by Motor Oil Hellas (30%). The Greek

government owns 35.5% of the capital of the Hellenic Petroleum and there is no government

control in Motor Oil Hellas. Greece's oil production stands at 7,946 bbl/d, ranked 90th, while

it exports 181,600 bbl/d (57th) and imports 496,600 bbl/d (25th)8.

The country has four major refineries that have a refining capacity of 490,000 b/d, an amount

sufficient to cover the needs of Greece in oil, but also exported to third countries.

In Greece, exports of petroleum products increased by 57 %, 102 kb/d in 2004 to 160 kb/d in

2009. Thus Greece exported in 2009, exclusively to FYR of Macedonia 20 kb/d of crude oil.

Greece is also a net exporter of gasoline.

2.3.2. Greek energy import dependency 2004-2014

As we saw above, dominant energy source in the country is oil, which is 55% of the energy

balance and along with gas, it reaches 70%. In the Bay of Kavalla, there is a rudimentary oil

production (0.35 mb/y). For this reason, Greece imports nearly all the necessary quantities of

oil (410,000 bpd) and gas (4,2 bcm). In 2009, Greece introduced 554 kb/d of oil, which

consisted of 358 kb/d of crude oil, 53 kb/d NGL and raw materials, and 143 kb/d of refined

products.

7 CIA, 2014. The World Factbook Greece. [online] Available at:

[Accessed 15 July 2014] 8 CIA, 2014. The World Factbook Greece. [online] Available at:

[Accessed 15 July 2014]

https://www.cia.gov/library/publications/the-world-factbook/geos/gr.htmlhttps://www.cia.gov/library/publications/the-world-factbook/geos/gr.html

25

Fig.7. Greek Oil imports, by supplier country

Table created by author, take the sources: ELPE and Protothema.gr, 2013

As we can see on the above table, for Greek oil imports significant sources are OPEC

countries such as Iran, Libya and Saudi Arabia, and the former Soviet Union (USSR).

After the cessation of petroleum trade with Iran, then the EU ban, the Hellenic Petroleum

Company9, now obtain from Russia, proportionally vast majority of crude oil, which is

treated to produce fuel.

Specifically, in 2012, Greece imported 43.7% of crude oil from Russia, compared with the

corresponding rate 32% in 2011. From Libya 17.5% compared to 8.6% in 2011, Kazakhstan

14.4 % compared to 9.1% in 2011 and Saudi Arabia with 6.1% versus 6.1% also in 2011.

The remaining quantities of crude oil (9.1 % in 2012) came mainly from purchases of

individual loads (5.9% in Egypt and 6.9 % of the free market in 2011).

Moreover, in 2009, the bulk of imports of refined products, originated mainly by OECD

Europe, about 40%, and approximately 16% from Russia.

Greece began to import natural gas in 1997 and DEPA is the main supplier-importer of

natural gas pipelines and liquefied natural gas (LNG). Imports of natural gas, representing

9 The cessation of Iranian oil supplies from April 2012, due to the ban which imposed by the

European Union, meant for ELPE reorientation of their commercial policy burden on economic

outcomes, and increase the cost of supply, contributing in reduce of profitability.

26

approximately 100% of the total volume of natural gas consumed in Greece, while she

doesnt export gas.

For the Greek market-DEPA, Gazprom is the main supplier of natural gas with 60% of total

gas supplies. From an intergovernmental agreement in 1987 between Soyuzgazexport (now

Gazprom export) and the company DEPA, they entered into gas contracts to supply from

1996-2016. Thus, the majority of the imports originate from Russia and through the Greek-

Turkish natural gas pipeline, which was completed and opened in November 2007. Moreover,

29% of the gas is LNG from Algeria10

.

Fig.8. Contractual Quantities DEPA

Source Company Maximum Quantity

(bil Nm3 / year)

Contract duration

until

Russia Gazprom 2.80 2016

algeria Sonatrach (LNG) 0.7 2021

Turkey BOTAS 0.7 2021

Total Annual Contracted Quantities 4.2

Source: DEPA

10

DEPA S.A., 2014. Natural Gas supply. [online] Available at:

[Accessed 15 May 2014].

http://www.depa.gr/content/article/002003006/160.html

27

Fig.9. Natural Gas Supply by sector*, 1997 to 2009

Source: IEA, 2011: 70

2.4. Key players in the Greek gas sector

2.4.1. The role of DEFSA, DEPA, EPAs, and other energy companies

DEPA was founded in 1988 with the mission to introduce natural gas to Greece. DEPA is the

main supplier-importer of natural gas pipelines and liquefied natural gas (LNG) in Greece.

The April 2010 reforms enabled new suppliers to enter the Greek natural gas market. As of

June 2011, 15 companies were registered as users of the national natural gas system: two

companies were registered as a natural gas suppliers (DEPA and M&M Gas which is owned

by Motor Oil Hellas and the Mytilineos Group); nine companies were registered as eligible

customers (including PPC and Aluminium S.A.); and four companies registered as third

parties (Edison, E.ON Ruhrgas, Prometheus and Statoil) (IEA, 2011). The first delivery

of natural gas by suppliers other than DEPA took place in May 2010; they supplied 19% of

natural gas to Greece since the reforms until the end of 2010 (IEA, 2011). In practice, the

gas sector still remains dominated by DEPA and its subsidiaries.

Delegated Law 3428/2005, by Presidential Decrees No. 33 and 34 of 2007 (Government

Gazette 31/20.02.2007) established the Administrator of the National Natural Gas System

28

(ESFA) under the name National Transmission System Gas SA (DESFA) and established

procedures for personnel transport by DEPA SA Manager.

The Greek law 3428/2005 (Government Gazette 313/27.12.2005) on liberalization of Natural

Gas market provided provisions for the creation of the wholesale market in the future, as there

was no such market yet. The Law transposed into the Greek legislation the Directive

2003/55/EC (European-Commission 2003) concerning common rules for the internal market

in natural gas and the Directive 2004/67/EC (European-Commission 2004) concerning

measures to safeguard security of natural gas supply. On 30th

of March 2007, under this

legislative framework on the liberalization of the gas market the law established the National

Natural Gas System Operator (DESFA) S.A. and at the same time established a 100%

subsidiary company DEPA S.A. It was responsible for the expansion of urban networks and

the distribution of natural gas in domestic demand and consumers of industry, with annual

consumption less than 9.3 mcm/y11

. Thus, the National Natural Gas System (NNGS) was

transferred to DESFA, which includes the National Natural Gas Transmission System and the

LNG terminal station at Revithousa Island. So DESFA, as owner is granted full and exclusive

right to operate, manage, exploit and develop the NNGS.

DEPA and DESFA have been a single public company until now, but they have been tendered

out in the consortium separately. The entity is 65% Greek state owned, while the remaining

35% is held by Hellenic Petroleum Company (ELPE) (IEA-Greece, 2011). DEPA is engaged

in wholesale and supply of natural gas to major customers. Through its subsidiary DESFA

own the national gas transportation network and regasification terminals. In addition, DEPA

owns 51% of-the shares in the three local distribution companies (EPAs): Attica (Athens),

Thessaloniki and Thessaly- the companies on the retail sale and deliveries of natural gas to

small and medium businesses and private customers in Greece while private investors hold

the remaining 49% (DEPA)12

.

The minority shareholder in EPA Thessaloniki and EPA Thessalia is ENI, while the

minority shareholders of EPA Attiki are Royal Dutch/Shell (25% of shares) and the

Agricultural Bank of Greece (24%) (IEA Review, 2011). By law, DEPA may not sell its

11

DESFA S.A., 2014. Companys history. [online] Available at:

[Accessed 10 May 2014]. 12

DEPA S.A., 2014. Gas Distribution Companies (EPAs). [online] Available at:

[Accessed 15 May 2014].

http://www.desfa.gr/default.asp?pid=155&la=1http://www.depa.gr/content/article/002001004002/60.html

29

majority share in EPAs. EPAs receive natural gas from DEPA and supply it to customers in

their concession area. In line with EU Directive 2003/55/EC, EPAs have been granted a30-

year derogation from Third-party access in their concession areas (IEA Review, 2011).

Future distribution companies may derogate from TPA for 10 years (extendable to 20 years

subject to the European Commissions approval). Only DEPA is authorized to form new

EPAs. Recently, it established three more EPAs in 2011, in the regions of Sterea Ellada,

Central Macedonia, and Eastern Macedonia and Thrace, through partial private investments

and an international tender (IEA Review, 2011).

Fig.10. DEPA Group Structure

Source: IEA, 2011: 73

So DEPA, through DESFA, holds the existing natural gas infrastructure consisting of the

main high pressure pipeline and the exclusive right to import and supply of natural gas in

Greece. In addition, it is the sole owner and manager of the National Network Trans System

Operator (TSO) in Greece, LNG System Operator (LSO), as well as the local Distribution

System Operator (DSO).

30

2.5. The Consortium of the Greek Gas Company

Within the many privatizations, which take part in Greece in order to meet its obligations

towards its creditors, are the privatization of DEPA and DESFA. Through these efforts the

Greek government seeks to benefit 1.2 bill.

Law 4001/2011 that entered into force in August 2011, transported the Third Energy Package

into the national legislation and provided for ownership unbundling of DESFA S.A. from

DEPA S.A. However, the above law was subsequently amended in December 2011, by a

Governmental Legislative Act, to allow for either model, Ownership Unbundling or ITO, to

be followed in this case (according to investors interests in acquiring one or both of the

above companies). Finally, December 2012, DESFA S.A. submitted an application to

Regulatory Authority of Energy (RAE) to be certified as an Independent Transmission

Operator.

Initially, in March 2013, Russia was in an advantageous position as the only candidate for the

purchase of Greek company DEPA. Thus, Gazprom was seeking more favourable conditions

for participation in the privatization process and asked to obtain guarantees for the solution of

the current debt (380 mil. to the company) from its Greek consumers and customers. Also,

they did not want to pay the guarantee of participation of 20% of the total transaction amount

(as there was the possibility due to the opposition of the EU and to the antitrust Regulatory

requirements of the EU to block the agreement and withheld the guarantee fund of the

transaction) (EurActiv.com).

The Greek government on the other hand, to resolve the disputes, reduced the guarantee fee

for Gazprom from 20% to 10% and promised via the Hellenic Republic Assets Development

Fund (HRADF) to compensate the Greek consumers of DEPA in the event that the debt has

not been settled. Thus, Gazprom offered to pay for the company 900 mil. to register as

bidder of DEPA (EurActiv.com). Another candidate was the company M&M Gas (a

consortium of Greek enterprises Mitilineos Oil and Motor). However, the possibilities to win

the competition were small, since that company offered to pay only 550 mil.

(EurActiv.com).

31

Finally, Gazprom didnt apply for participation in the privatization of DEPA, reporting that

there werent sufficient guarantees for any deterioration in the already difficult economic

situation of the Greek company until the end of transaction. As response, the Hellenic Fund

for the privatization (HRADF) claimed to have obtained all the necessary guarantees and to

be committed to compensation for the deficient account of Greek consumers in the amount of

180 mil. until the end of 2015 (EurActiv.com).

Therefore the reasons for the withdrawal need to be found outside of Greece. The European-

Commission and U.S. were strongly against the RussiaGreece transaction. Obviously,

Gazprom has received some warnings that this acquisition could then be annulled in the

context of European energy market of the EU and competition law. Since the Russian

company is already in legal battle with EU in the Court of Hague (monopolistic strategy, non-

uniform tariffs per country (but tailored to the degree of dependence of), as well as a number

of other complaint).

Moreover, the Greek media reported that the reason for non-participation of Gazprom in the

consortium of DEPA was based on unresolved differences of the future price of gas for Greek

consumers (as the RU gas is costing Greece about 30% more expensive than the average in

the European-Union and the Greek Government claimed price reduction through the

acquisition of DEPA).

So, the consortium failed when Gazprom refused to submit binding offer. Instead of that,

Sintez (by Leonid Lebedev) suddenly offered for DEPA and DESFA as a package, a

maximum amount of 1.8 bill ($2.36 bill). This amount exceeded by far its own capital of its

capitalization Sintez, so would be required to cooperate in any way with Gazprom, as well as

the company itself had hinted at.

Simultaneously, there were also other candidates such as the State Oil Company of

Azerbaijan (SOCAR). It made an offer of 400 mil.($525 mil.), having the ability to acquire

31% of DESFA's stakes from the Greek state and the total package of 35% of the Hellenic

Petroleum company, leaving 34% of DESFA's stakes in the ownership of the state

(EuroActiv.com).

The Greek government, which was besieged eagerly from Gazprom to acquire DEPA,

rejected a package deal on the DEPA and DESFA with Sintez. The Fund Asset Development

32

Board unanimously expressed their satisfaction with the terms of the SOCAR's offer.

However, it has been updated twice about continuing interest Sintez in a package deal; on

June 21st it was announced that the SOCAR has won the bid to acquire control of (Public Gas

System) Greek DESFA. SOCAR was the ultimate winner, as the Russian company Sintez had

not submitted a binding offer in the final round. Thus, SOCAR as sole bidder submitted a

final binding offer to DESFA by default (as the only remaining opponent) against 17-plus

companies from 12 countries took part in the competition. Thus, on 11 June 2013, the

SOCAR won the tender for the acquisition of 66 % of DESFA against the offer of 400 mil.

(Tsibanoulis&Partners Law Firm, 2013).

For Azerbaijan, this has been a decisive incentive to choose the Trans-Adriatic Pipeline

(TAP) gas route through Greece to Italy, with regard to the preference of Nabucco-West route

to Central Europe, on 28th

of June 2013.

From Azerbaijans perspective, the control of DESFA means for the first time it had an

entrance into gas transportation and in distribution companies in the territory of the EU.

SOCAR holds dominant market share in Georgia and significant market share in Turkey, it

would seek to turn Turkey into a major transit country for natural gas of Azerbaijan through

the project Trans-Anatolia Gas Pipeline (TANAP). According to the President of SOCAR,

Rovnag Abdullayev, the company currently holds 17% market share in Greece, but it cannot

control the retail consumers directly yet. Finally, by DESFA, Azerbaijan allocated natural gas

to retail gas market in Greece and beyond.

The European institutions have legislated for the sake of efficiency in favour of the separate

purchase of energy companies and public infrastructure companies. This underlines the ban

of the foreign company, the country's main supplier of gas, to own the country's transmission

system. There is a possibility to become a dominant player in the market, with the restriction

of competition and transparency as to the cross-subsidization of activities.

Its not the same for Azerbaijan, as with this purchase, SOCAR owns 66% of the unique

Greek gas company including and the grids of Greek pipelines. In additional, TAP becomes

the most important EU supplier and maybe the main supplier of Greece, in future.

Recently, after a year, the EU Commission, instead of its support during the consortium of

DEPA-DESFA, express objections about this agreement (referred to third energy packet) and

the DG Energy requested that SOCAR divest its stake in the Greek company from 66% to

33

49% thereby losing full control (Natural gas Europe, 2014). So, the agreement has frozen in

front of the EUs political and economic turmoil and the negotiations will continue.

2.6. Conclusion

Greece has a gas import dependency of 100% and in 2011 accounted for 14% of gross energy

consumption (Stamboli, et al., 2013: 5). In 2009, electricity generation consumed 64% of all

gas, industry 22%, households 9% and services and transport 5%. Natural gas is the rising

fuel throughout that due to the pure form gradually replaces oil central heating of buildings

and domestic lignite electricity. In conjunction with that, the penetration of NG in the energy

balance of the country is at an accelerating rate because of the lower cost in most applications

compared with oil and its environmental assets; and bearing in mind that the natural gas

demand is forecast to reach 16.2 mcm/d in 2015 and 19.6 mcm/d in 2020, which will be a

68% and 102% increase over the 2009 figure, respectively (IEA-Greece, 2010). Also, the

ratio of demand for electricity generation in total demand is projected to remain dominant at

around 65% in 2015 and 68% in 2020 (IEA-Greece, 2010), while the production costs of

lignite from here on will grow. Lignite will be more costly and less efficient; therefore we can

understand the significant importance of natural gas in the energy sector of the country. In the

possible reduction of lignite and oil, Greece will significantly increase its gas imports, so in

this point its important to do an analysis of the security of country's gas supplies.

Compared with most countries of the EU, and many other countries outside the EU, the Greek

energy balance lags both in terms of an enlarged and balanced composition of the energy mix,

since it is dominated by a fuel, and the high degree of energy dependence (65%) and the

limited geographical diversification of imported Natural gas (70% of the fuel imported from

Russia). The unilateral direction to today's energy balance with effortless and thoughtless

exclusion of essential forms of fuel such as e.g. coal, domestically produced hydrocarbons,

nuclear energy, has deprived the creation of a balanced energy mix, which is a prerequisite

for the creation of conditions of energy security.

In conclude, as we saw through this chapter, in Greece, DEPA-DESFA is the main gas import

company and until recently is 65% Greek state owned, while the remaining 35% is held by

Hellenic Petroleum Company (ELPE) (IEA-Greece, 2011). With its turn, the gas company

34

owns the three EPA (51%), which control the retail prices for the consumers. So, we can see

the immediate link between the Greek Government-DESFA/DEPA-EPA and thus, the

significant important role of the government in gas sector. In contribution to that, natural gas

plays an important role in the energy mix of the country and its consumption grows

significantly, requiring immediate attention and investigation of the Greek Government

according to be an efficient environmentally and economically fuel for the country and its

consumers. Finally, the Greek government has to balance the energy mix of the country

according to bring better and safer conditions on the price system and on the issue of Greek

energy security.

35

Chapter Three: Security of supply

3.1. Introduction

For many years, 83,4% of European gas imports were coming from only three countries,

Russia, Algeria and Norway, while mainly transported through a pipeline controlled by two

or three key countries (Institute of International Relations, 2013: 20).

The EU, foreseeing both the ever increasing energy needs, particularly in the gas sector, and

the relationship of dependence with Russia, considers independence from Russian control

in the Caspian region. Therefore, for the better protection against the economic and

geopolitical uncertainty, which creates the above monopolist situation, the EU countries seeks

mainly the last two decades as a possible diversification of both suppliers and transit of

natural gas to their territories. In other words, the EU is looking for new energy routes and

resources outside the Caspian region, both because of their geographical proximity and

because natural gas production.

Soviet design and inspiration transferred the majority of the gas in both Russia and the

countries of Central Asia to the European territory. Especially after the 2006 and 2009 crises

between Russia and Ukraine over gas prices, problems and supply interruptions experienced

by many European countries made Europe understand with greater clarity and urgency of the

risk of double monopoly control over imports, namely that on the supply and on this transit.

Since then, the policy of diversification in the energy sector is one of the most important

objectives of the EU, the main objective being independent of Russian control access to rich

reserves of natural gas in Central Asia and the Caspian Sea.

As a European Member-State, Greece and its energy policy is linked immediately with EUs

energy policy aiming natural gas diversification and energy security. Greece began to import

natural gas in 1997.The gas market in Greece is as an immature market which is still largely

controlled by the national government. The gas market has gradually opened to competition

since 2005.

In this chapter, we will analyse the Greek energy security of supply aiming to understand how

reliable and stable it is, so far. So, firstly we will see the transit routes for Greeces gas

36

imports, emphasized on the transit route for gas imports from Russia via Ukraine. And,

secondly we will analyse the Southern Corridor and attempts by the Greek government to

diversify the sources and transit routes of Greeces gas imports, according to understand the

process of the Greek energy security.

3.2. Transit routes for Greeces gas imports

There are three entry points for the natural gas transportation system of Greece and the Greek

Public Gas Corporation-DEPA, is the only company which has signed three long-term import

contracts.

The first entry point (with a maximum import capacity of 5.8 bcm/year but cannot excide) is

at Promahonas, located on the Greek-Bulgarian border, via which imports 2.8 bcm of natural

gas from Russia, under the contract with Gazexport. It is imported by a pipeline through

Ukraine, Moldavia, Romania and Bulgaria to the Greek market, annually until 2016 (recently,

they have expanded their contract up to 2016 for another 10 years, of about 2 bcm) (IEA,

2010).

The second entry point (maximum capacity 6.7 bcm/y) is at Kipoi on the Greek-Turkish

border and under the contract with Turkish BOTAS imports of about 0.7 bcm annually until

2021. This point connects the Greek national natural gas transmission system with the

corresponding Turkish transmission system and enables 1bcm of gas imports from the Middle

East and the Caspian region (IEA, 2010).

The third entry point is the LNG terminal located on the island of Revithoussa in the Gulf of

Pachi and under the contract with Sonatrach (Algeria) imports of about 0.7 bcm LNG

annually until 2021. Also, it has a technical capacity of 4.55 bcm, which brings Greeces total

technical import capacity to 9.15 bcm per year, (IEA, 2010).

37

Fig.11. Greece Natural Gas pipelines

Source: DESFA

3.3. Ukraine, Romania, and Bulgaria as a transit route for gas imports from Russia

Being located in a strategic location for the delivery of Russian, Caspian, and Middle Eastern

gas supplies to Europe; and according to diversify its supplies and routes aiming countrys

energy security; Greece is involved in international gas pipeline projects, such as the Greek

branch of South Stream, Interconnector Greece-Bulgaria (IGB) and Trans Adriatic Pipeline

(TAP), as Interconnector Turkey-Greece-Italy (ITGI), recently effectively losing the Southern

Corridor pipeline race to the rival Trans Adriatic Pipeline (TAP) project.

38

3.3.1. Supply disruptions via Ukraine in 2006 and 2009

Russia was the largest single supplier to the EU in 2012, providing 36.5% of EU gas imports13

(Sharples and Judge, 2014). This gave Russian gas a share of 24.2% of total EU gas

consumption. According to recent reports Russias share of European gas consumption

reached 30% in 201314

(Sharples and Judge, 2014).

The dependence on Russian gas imports is highly differentiated by region and between EU

member states. The average level of gas import dependency (79.1%) and the average share of

Russian gas in consumption (53.5%) for Central and South-Eastern Europe are both

significantly higher than the EU averages (see Table 1). Therefore, these states are more

vulnerable to disruptions in Russian gas deliveries to Europe.

Fig.12. Gas import dependency in Central and South-Eastern Europe (2012)

Source: Sharples and Judge, 2014

13

EU-28 gas import dependence at 65.8% of consumption in 2012. 14

It includes Turkey (where Russian gas accounts for more than half of total gas consumption), the

figure for the EU-28 is likely to be slightly lower than 30 %.

39

Fig.13. Gas transit dependency in Central and South-Eastern Europe (2012)

Source: Sharples and Judge, 2014

There are highly differentiated impacts in the suspension of gas transit via Ukraine on

different European states. In Greece particularly, it had an effect of 80% gas cut and as result,

booked more LNG supplies and switched gas power plant to oil (see Table 4).

40

Fig.14. Supply cuts in Europe during the 2009 Russia-Ukraine dispute

Source: Sharples and Judge, 2014

In March 2013, 208.7 mcm/day of Russian gas flowed via Ukraine, out of total Russian gas

exports to (non-Baltic) Europe of 383.1 mcm/day (Sharples and Judge, 2014). Therefore,

transit via Ukraine accounted for 54.5% of Russias gas exports to (non-Baltic) Europe this

time last year (Sharples and Judge, 2014). There existed 89.5 mcm/day of spare capacity on

the non-Ukrainian routes, leaving 119.2 mcm/day (equivalent to 43.5 bcm per year) that

would be non-deliverable in the case of a shutdown of Ukrainian transit (Sharples and Judge,

2014). While figures for March 2014 will differ somewhat, this gives a clear indication that a

supply shortfall due to disruption on the Ukraine route couldnt be entirely compensated for

through alternative transit routes for Russian gas.

Greece covers 50%-60% of its markets natural gas needs from Russia through the Greek-

Bulgarian pipeline, which is supplied by the network, that passing through Ukraine, Romania

and Bulgaria. This means that of the 11 to 12 mcm/d, consumed in Greece, (note: in days with

low temperature as today) more than 5.5 mcm depends on a smooth flow through Ukraine

41

(Floudopoulos, 2014). From the LNG station in Revithoussa can meet the needs of full

consumption for a period of six to seven days.

The sources of natural gas in the Greek market during the years 2007-2010 differed. In 2009,

Greece had 3.6 bcm (9.7mcm/d) of total natural gas imports, roughly three-quarters of which

were supplied by pipeline and the remaining portion was imported in the form of LNG (IEA-

Greece, 2010). However, the share of Russian gas in total gas imports has gradually declined

from 85% in 2005 to 57% in 2009, due to the increase of imports from Algeria and Turkey

(Azeri gas). Natural gas supplied from Algeria and Turkey accounted for around 22% and

20% of the total gas imports in 2009 (IEA-Greece, 2010). The imports were implemented

with short-term supply agreements, both from DEPA and other users ESFA.

Fig.15. The evolution mixtures of natural gas in Greece, 2007-2010

Source: RAE

Although Greece has no underground gas storage facilities, in March 2013 the country had

11.4 mcm/d of spare LNG import capacity, compared to its gas imports via Ukraine of 6.56

mcm/d. So, Greece has the option of utilizing their spare LNG import capacity.

The countrys only gas storage facility is located at the LNG terminal on the island of

Revithoussa. The combined storage capacity of the two LNG tanks in Revithoussa is 130000

Russia LNG Turkey

42

bcm of LNG, which is equivalent to 80 mcm of natural gas (IEA- Greece, 2010). The full

capacity of this storage facility equates to 8 days of average gas demand and 5 days of peak

gas demand in 2009 (IEA-Greece, 2010). Around 10000 m3 of the storage is reserved for

shortterm balancing and security of supply purposes.

However, in each case, when problems occur in the feed taken extraordinary measures and

limited or even zero consumption of power plants which constitute about 60% of total

consumption. The electricity needs covered by lignite, hydro and petroleum plants. In

practice, the daily consumption is limited between 4 to 5mcm, i.e. the consumption of the

PSC (households, small business) and industry (Floudopoulos, 2014).

Consequently, the Revithoussa can cover all the needs for a period of 12-14 days. Note that in

case, that there will be problem of supplying Russian natural gas, reasonably is probable that

the flow of gas from the Turkish border (approximately 2.5 mcm) will be stopped completely,

as has happened in the past in similar cases, when the Turks keep meeting their own needs gas

from alternative sources (Azerbaijan, Iran) (Floudopoulos, 2014).

In conjunction with the above, as the country has a dependency of Russian gas supplies 60%,

considering the gas crises and supply interruptions 2006-2009 and currently the unstable

relation between Russia-Ukraine, aiming at security of supply, it needs to diversify from the

transit route that supply gas from Russia.

Fig.16. Natural Gas Imports, by Source

Source: IEA-Greece, 2010:14

43

3.4. The Southern Corridor and attempts by the Greek government to diversify the sources

and transit routes of Greeces gas imports

3.4.1. South Stream

South Stream pipeline is a Russian project, as Nord Stream (which already has overcame

from 2011), aiming to increase the supply of gas to bypass the unstable Ukraine and its

neighbours and carrying Russian gas to the heart of Europe without political obstacles. After

the 2006 and most after 2008-2009 gas crises between RussiaUkraine increased the need

from Russian perspective to secure its energy supplies to European countries.

Particularly South Stream operated from South Stream Transport AG and National project

companies. So, as formally presented line pipe will be from Anapa (Black Sea) to Varna,

Bulgaria. From there we continued to Serbia-Croatia-Slovenia-Hungary-Austria-Italy.

Moreover, the planned capacity of the gas pipeline will be 63bcm and 2380km. According to

calculations, the pipeline begun in late December 2012 and the first gas estimated will start

from the Anapa region in December 2015.

Fig.17. Projected Routes of Nord Stream, Nabucco and South Stream Pipelines

Source: BBC News

44

This supplier pipeline will create a lot of jobs and will have the largest capacity, the cost of

this project estimated to $39 bill15

(Marson, J., 2013) and will have increased a lot of political

considerations and mostly recently through the political and economic crises in Ukraine and

the conflicts between RussiaUkraine has increased the uncertainty of the creation for the

project through the European uncertainty to Russian supplies and the implementation of West

and mainly US.

With an overview of the following facts-stages we can see how the project has come across

until now. So, in 2006, Gazprom proposed the construction of a second section of the Blue

Stream pipeline beneath the Black Sea to Turkey, and extending this up through Bulgaria and

Serbia to western Hungary. In 2007, the South Stream project was proposed through

Bulgaria, Serbia, Hungary and Slovenia to Austria and through Greece to Italy. In January

2008, posted the consortium of South Stream AG-Gazprom and Eni. In April 2008, Greece-

Russia signed intergovernmental agreement corporation, construction and operation the

Greek part of South Stream. In 2009, the gas companies from each country signed agreement

for the construction of the pipeline.

In June 2010, Gazprom and DESFA agreed to form a joint venture to design, finance,

construct and maintain the gas pipeline in Greece. The capacity and the completion date of

the Greek section of South Stream remained to be confirmed. As of January 2011, the final

investment decision on South Stream remained to be taken. The EU and Russia are

negotiating on a single regulatory regime for the pipeline.

In September 2011, the shareholders agreement signed between Gazprom (50%), Eni (20%),

lectricit de France (15%) and Wintershall (15%) for the establishment of the projects part

South Stream Transport AG under the Black Sea16

.

Finally, in 2012, Greek government refused to attend the conversation with Russia and

European Commission, supporting that it isnt in Greek interest. In addition, Gazprom has

shown that the 2007 agreement between Karamanlis-Putin was economic sacrifice for

Russia, having already Russian gas passing to Italy (Northern Italy) is about 17 bcm

industries in Northern Italy, while consumption Greece is in total 2.9 bcm.