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Greece as Europe’s energy highway:natural gas pipeline projects going through Greece
November 22, 2011 | Filed under: Featured News,Geopolitics,Opinion & Analysis
The Greek Foundation for Economic & Industrial Research recently published a study regarding Greece’s prospects on the planned pipeline projects in the region.
According to the study, despite the depressed economic activity, the boom of shale gas extraction and the push for renewable energy, Europe is still in need of new upstream pipelines and interconnectors. The demand for pipeline gas might not rise as much as expected in the past, yet indigenous production is set to fall, which implies that EU’s import dependency will continue to increase.
This trend heightens the community’s energy security concerns.
Opening the southern gas corridor will boost Europe’s energy security, as it would link the EU market with the largest deposit of proven gas reserves in the world. And there is an opportunity for Greece to benefit from this development by becoming a highway for Europe’s gas supply, which involves the construction of interconnectors with the neighbouring markets, such as the Italy-Greece Interconnector (IGI Poseidon) and the Trans Adriatic Pipeline (TAP).
The construction of such major infrastructure projects would provide a much needed boost for the Greek economy. Looking specifically at the options involving Greece, both IGI and TAP would provide strong stimulus on the activity of Greek manufacturing & services.
Regarding the probability of materialisation, TAP meets with somewhat weaker support from the Greek government as, unlike IGI, it does not involve the participation of the Greek State, while IGI is ahead in the licensing process (TPA exemptions, positive environmental impact assessments, etc.). Nevertheless, TAP is more likely to gain the support from the Shah Deniz
Consortium companies (which includes TAP’s shareholders Statoil), as its shareholders enjoy higher credit rating (financial deliverability criterion) and have considerably stronger expertise in the construction of onshore and offshore pipelines (project deliverability, operability and engineering design criteria).
Looking at economic activity, IGI covers a slightly larger distance over Greek territory compared to TAP. Consequently, stimulus is expected to be slightly higher. The construction of the onshore section of IGI is expected to boost GDP by € 469 million, and TAP with € 435 million, during the construction phase. In terms of job creation, this is expected to have an impact of 11,600 and 10,700 jobs throughout the Greek economy respectively for IGI and TAP, taking into account the effects on sectors not involved directly in the pipeline projects and the induced effects from the boost of household income.
As concerns the cash position of the Greek state, the construction of IGI seems to impose significant burden on the fiscal consolidation effort. The Greek State is a shareholder in both the onshore section and the Poseidon offshore pipeline through its participation in DEPA, DESFA and indirectly through its stake in Hellenic Petroleum. In order to meet its obligations as a shareholder, the Greek State will have to provide funds in the range of €170-210 million per year during the projects’ construction and the payback period for the Government is expected to reach 2030. This implies that there are benefits to the swift privatisation of DEPA and DESFA to strategic investors with appropriate experience in construction and operation of offshore and onshore pipeline networks that extend beyond the immediate cash revenue from the privatisation deal, which should also be taken into account.
The benefits for Greece from becoming an energy highway are sizable. However, this outcome is far from guaranteed. Some of the projects that aim to provide Caspian gas to Europe do not consider a Greek route, but bypass Greece (e.g. Nabucco, SEEP and South Stream’s northern branch) altogether. Also, the development of gas storage and LNG terminals in the EU outside Greece could further ease Europe’s energy security concerns.
Greece is endowed with favourable geopolitical position. There is no guarantee, however, that the country can reap the gains from this position. In order to rejoin the path of economic and social progress, the Greek society should leave behind the indolence, protectionism and hostility to private initiative and foreign capital that has crippled its productive forces and embrace the openness that comes with international energy market integration. Fast-track procedures and mentality are essential to ensure the required efficiency of the administrative processes.
Timing is crucial. The Greek state should make sure that its position does not impede, but actively supports, the realisation of any and all projects along the Greek route of the Southern Corridor.
November 22, 2011 | Filed under: Featured News,Geopolitics,Opinion & Analysis
The Greek Foundation for Economic & Industrial Research recently published a study regarding Greece’s prospects on the planned pipeline projects in the region.
According to the study, despite the depressed economic activity, the boom of shale gas extraction and the push for renewable energy, Europe is still in need of new upstream pipelines and interconnectors. The demand for pipeline gas might not rise as much as expected in the past, yet indigenous production is set to fall, which implies that EU’s import dependency will continue to increase.
This trend heightens the community’s energy security concerns.
Opening the southern gas corridor will boost Europe’s energy security, as it would link the EU market with the largest deposit of proven gas reserves in the world. And there is an opportunity for Greece to benefit from this development by becoming a highway for Europe’s gas supply, which involves the construction of interconnectors with the neighbouring markets, such as the Italy-Greece Interconnector (IGI Poseidon) and the Trans Adriatic Pipeline (TAP).
The construction of such major infrastructure projects would provide a much needed boost for the Greek economy. Looking specifically at the options involving Greece, both IGI and TAP would provide strong stimulus on the activity of Greek manufacturing & services.
Regarding the probability of materialisation, TAP meets with somewhat weaker support from the Greek government as, unlike IGI, it does not involve the participation of the Greek State, while IGI is ahead in the licensing process (TPA exemptions, positive environmental impact assessments, etc.). Nevertheless, TAP is more likely to gain the support from the Shah Deniz
Consortium companies (which includes TAP’s shareholders Statoil), as its shareholders enjoy higher credit rating (financial deliverability criterion) and have considerably stronger expertise in the construction of onshore and offshore pipelines (project deliverability, operability and engineering design criteria).
Looking at economic activity, IGI covers a slightly larger distance over Greek territory compared to TAP. Consequently, stimulus is expected to be slightly higher. The construction of the onshore section of IGI is expected to boost GDP by € 469 million, and TAP with € 435 million, during the construction phase. In terms of job creation, this is expected to have an impact of 11,600 and 10,700 jobs throughout the Greek economy respectively for IGI and TAP, taking into account the effects on sectors not involved directly in the pipeline projects and the induced effects from the boost of household income.
As concerns the cash position of the Greek state, the construction of IGI seems to impose significant burden on the fiscal consolidation effort. The Greek State is a shareholder in both the onshore section and the Poseidon offshore pipeline through its participation in DEPA, DESFA and indirectly through its stake in Hellenic Petroleum. In order to meet its obligations as a shareholder, the Greek State will have to provide funds in the range of €170-210 million per year during the projects’ construction and the payback period for the Government is expected to reach 2030. This implies that there are benefits to the swift privatisation of DEPA and DESFA to strategic investors with appropriate experience in construction and operation of offshore and onshore pipeline networks that extend beyond the immediate cash revenue from the privatisation deal, which should also be taken into account.
The benefits for Greece from becoming an energy highway are sizable. However, this outcome is far from guaranteed. Some of the projects that aim to provide Caspian gas to Europe do not consider a Greek route, but bypass Greece (e.g. Nabucco, SEEP and South Stream’s northern branch) altogether. Also, the development of gas storage and LNG terminals in the EU outside Greece could further ease Europe’s energy security concerns.
Greece is endowed with favourable geopolitical position. There is no guarantee, however, that the country can reap the gains from this position. In order to rejoin the path of economic and social progress, the Greek society should leave behind the indolence, protectionism and hostility to private initiative and foreign capital that has crippled its productive forces and embrace the openness that comes with international energy market integration. Fast-track procedures and mentality are essential to ensure the required efficiency of the administrative processes.
Timing is crucial. The Greek state should make sure that its position does not impede, but actively supports, the realisation of any and all projects along the Greek route of the Southern Corridor.
