An abridged version of this article was published by Al Jazeera International.
ATHENS, Greece - Two geostrategic energy alliances are crossing swords over southeast Europe and the eastern Mediterranean. Between them, they plan billions of dollars’ worth of competing infrastructure projects. The ones that succeed will create the regional energy map of the future, and 2020 is shaping up to be a pivotal year in deciding their fate.
On one end of the piste stands the Russian-Turkish energy alliance, which seeks to boost Russia’s natural gas exports through new pipelines, and Turkey’s status as an energy transit hub to Europe. On the other end stands the rapidly advancing Liquefied Natural Gas (LNG) industry and its new champions, the Unites States, Israel, Egypt, Cyprus and Greece.
Both alliances are vying to sell natural gas to the European market, which has undertaken the world’s most ambitious decarbonisation programme. Over the next decade, Europe is forecast to bridge its transition from coal to renewable energy by importing increasing amounts of natural gas.
“All of our region has seen a mad race over the past two years, that will determine who will beat the others out to be Europe’s main supplier,” says Ioannis Desypris, a director at Mytilineos Group, Greece’s leading independent electricity producer and gas trader.
“All the forecasts predict that at least until 2040, when other technologies may be available, the energy transition to those technologies will depend on natural gas. So in spite of energy conservation… the only fuel that will continue and will have an increase is natural gas.”
Decarbonisation also demands a quick return on investment. “Probably in the 2020s there will be room for everybody’s gas, at least in reasonable proportions. But once we get certainly past 2030… we wouldn’t be so certain,” says Prof. Jonathan Stern who heads the Oxford Institute for Energy Studies.
The reason is Europe’s decarbonisation. “What the models mostly show is, if we’re going to meet the Paris targets (COP21), never mind any consideration of net zero [emissions], then gas has to basically remain relatively flat in terms of demand… and then post 2030 it has to decline relaively rapidly.”
Russia and Turkey
Turkey and Russia have a head start. On January 8, presidents Vladimir Putin and Recep Tayyip Erdogan plan to inaugurate the operation of Turkish Stream. The undersea pipeline, which runs 930km from the Russian Black Sea coast to Kiyikoy, west of Istanbul, will carry 15.75 billion cubic metres (bcm) of Russian gas a year to Turkey for domestic consumption. An identical pipeline, in theory to go under construction next year, is to carry that much again into southeast Europe after making landfall in Kiyikoy.
Turkish Stream I and II acquired greater importance after January 2009, when Russian gas monopoly Gazprom shut down gas flow to Europe through Ukraine because of a disagreement over arrears the Ukrainian gas operator owed it. Although Gazprom and Ukraine’s Naftogaz are finalising a new five-year transit agreement, Turkish Stream II would allow Gazprom the flexibility to curtail supplies to Europe via Ukraine should a similar spat arise, depriving that country of an estimated $3bn a year in transit fees. Gazprom-funded pipelines that are to carry Turkish Stream II gas through Bulgaria and Serbia to the Hungarian border are already under construction. Overnight, the Russian plan will increase Russia’s southern export capacity by half and reverse the flow of Russian gas through the region from southbound to northbound.
That achievement is both commercial and geopolitical. Gazprom aims to ensure southeast Europe’s continued dependence on Russian gas.
Publicly, US officials proclaim that they will sanction companies involved in building Turkish Stream II, and US Senate sanctions on 17 December did bring to a halt construction on its northern equivalent, the Nordstream II pipeline from Russia to Germany. Nordstream II is nearly complete – only 300km of the 2,400km pipeline are laid.
“The American attitude is part of a decades-long attempt by America to stop Russian gas, Soviet gas, going into Europe. So this is not a new phenomenon,” says Stern. “It’s never been successful. It was not even successful in the monopoly era, when governments and companies had complete control of gas they imported. Now they don’t. The single market means, nobody has control over this.”
If price rather than geopolitics decides matters, Stern says, the Russians still have the upper hand.
“Our analysis is that the Russians can go lower than anybody except gutter LNG and definitely lower than US LNG. Having said that, that is not the game the Russians want to play… but to some extent they have and they will, in order to maintain the volumes they want to see exported to Europe.”
Greece key to breaking Russian monopoly
Russian gas may be competitive in Europe, where it satisfies about a third of demand, but in the Balkans it is a monopoly. In the eyes of many US officials, Greece is key to breaking that monopoly beginning in 2020.
Greece’s gas transmission system operator, DESFA, has just finished expanding its LNG terminal – the only one in southeast Europe – and is building compressors that will allow it to pump gas north into Bulgaria via the Soviet-era Trans-Balkan Pipeline that was designed to bring Russian gas south.
This means Greece will be able to export American LNG to the Balkans on a small scale next year, but a new pipeline will massively expand that enterprise. DESFA is about to begin building the Interconnector Greece-Bulgaria (IGB), which will be able to send 3bcm of natural gas a year into Bulgaria by 2022, epandable to 5bcm. Bulgaria has already committed to 1.6bcm.
“[IGB] competes on the EU’s behalf with the second string of Turkish Stream,” says Desypris.
There is another non-Russian input: by the end of 2020, the Trans-Adriatic Pipeline (TAP) will begin pumping natural gas from Azerbaijan to Italy via Turkey and Greece, and 1bcm of that, too, will eventually feed into the Balkans via IGB; but TAP is Turkey-dependent, whereas the current investment frenzy in LNG would provide independence from both Russia as a source and Turkey as a transit country.
Three private consortia are drafting plans to build LNG storage facilities to feed Balkan consumption. The Copelouzos Group has plans to put a 1.5bcm floating storage and regasification unit (FSRU) offshore Alexandroupoli, in northeastern Greece. Motor Oil Hellas, a refiner, is reportedly drafting plans to put another 1.5bcm FSRU off its facility near Korinth. And the oil and gas exploration company Energean is looking into building an underground gas storage facility in a depleted gas field in Kavala, in northern Greece. The first two are expected to make final investment decisions next year, while the Greek government is preparing to privatise the Kavala field.
For US officials, the Alexandroupoli unit holds particular significance. “[The Alexandroupoli FSRU] is a project aimed at the Western Balkans,” says a senior US official. “It’s an energy diversification tool targeted right at Bulgaria and the former Yugoslavia, which are currently referred to as the Balkan energy island. These are all countries which are 100 percent dependent on Gazprom.”
The progress of Greece’s existing LNG terminal at Revythousa, near Athens, is indicative of escalating interest in LNG. Two years ago, LNG shipments were in the single digits. Last year, after an expansion, Revythousa clocked more than 50 shipments. It is already booked to capacity for 2020 at over 60 ships, with gas importers left wanting.
Energy transition key to gas demand
The catalyst for this new LNG investment, says Desypris, was Greece’s accelerating energy transition from coal to gas. The Mytilineos Group operates three gas-fired power plants of a combined 1200MW capacity, and is building a fourth of 826MW capacity.
“The gas-fired units [the private sector] created in Greece are the country’s biggest consumer,” says Desypris. “In 2018 they accounted for 65 percent of consumption. This year it was higher. And when our new unit goes online it will be higher still.”
The former state monopoly, the Public Power Corporation, is following suit. Next year it is to close at least two of its six operating coal-fired power plants, and plans to completely abolish coal by 2028, ten years earlier than Germany. It plans to replace the lost generating capacity with gas and renewables.
The reason is the high cost of greenhouse gas emissions. Last year the PPC paid 200mn euros to the EU’s Emissions Trading Scheme. “It would be more profitable to close certain older power stations and keep paying their staff than to operate them,” Greek energy minister Kostis Hatzidakis recently said. Lignite coal produces 215 pounds of CO2 per million British thermal units (btu), compared to 117 pounds for natural gas, according to the Energy Institute of America, so emissions costs are twice those of gas.
“We’ve known for 20 years that abolition of lignite coal was going to happen. The difference is that now there is a public commitment to a timeline,” says Desypris.
Greece’s turn to the US
Greece has gone from near-total dependence on Russian gas to an estimated 40 percent LNG market share in just two years, and US officials see Greece as the key to repeating that diversification in the Balkans.
The achievement of an EU-regulated market balanced between Russian, Azeri and LNG gas came at a price. Last July, Russian energy minister Alexander Novak announced that Turkish Stream II gas will not reach Europe via Greece, as originally planned, but via Bulgaria and Serbia.
For all the talk about markets dominating energy decisions, the Russian switch amply demonstrates the abiding relationship between energy and geopolitics.
In 2018, Greece’s leftist prime minister Alexis Tsipras visibly pleased the US by agreeing to recognise his northern neighbour as North Macedonia. The deal lifted a long-standing Greek veto on North Macedonia’s NATO membership, but displeased Russia.
“The [Alexandroupoli floating storage and regasification unit], the arrival of US LNG, showed that we we took a big turn towards the US and the Russians don’t trust us,” says a senior Greek energy official. “They consider us a US [territory] and wouldn’t put their investment through our country,” the official says.
That turn towards the US is set to continue. The current conservative government actively seeks US investors to whom to divest the state’s last 65 percent share of the Public Gas Company, and the last 35 percent state share of Hellenic Petroleum. Both privatisations are to take place next year.
For Greece, LNG is not just about satisfying demand and creating an export market, but security of supply. Next year, Greece will receive all its pipeline gas – both Azeri and Russian - via Turkey. “If they want to they can shut off supply,” says Costis Stambolis, executive director of IENE, the Institute of Energy for Southeast Europe. “That’s not just theoretical. It has happened. When there is bad weather in Turkey… they close off the supply to Greece. It’s happened many times but Greece didn’t complain because we got Russian gas and [LNG] gas and made ends meet.”
In addition to becoming a strategic importer of LNG and non-Russian pipeline gas into Europe, Greece may also prove pivotal as a conduit for the only significant new gas discoveries near Europe – those of the eastern Mediterranean.
Along with Israel and Cyprus, Greece champions the East Med, a 2,000km undersea pipeline to bring initially 10bcm a year of Israeli and Cypriot gas to Europe. The European Commission has included East Med as a Project of Common Interest, and is spending 37.5mn euros on a detailed technical study.
If the eastern Mediterranean is the only newly discovered gas near Europe, it is also the most controversial. Greek, American and European companies are heavily involved in exploring and exploiting east Mediterranean gas. There is no Turkish or Russian presence in this new market. Turkey has made clear its displeasure by disrupting exploration vessels in Cypriot waters on at least two occasions, and sending its own vessels to explore within Cyprus’ maritime territory. On November 27, it struck a deal with Libya to claim a broad corridor of water across the Mediterranean that cuts across Greece’s claims, escalating tension further.
The advance of Greece’s energy transition, southeast Europe’s diversification of supply and the east Mediterranean’s energy independence make 2020 a promising year. But since energy concerns are geopolitical concerns, it is also shaping up to be a year of diplomatic conflict and perhaps insecurity in the region.