GRexit was the main topic at a conference in Brussels on 8 July organized by the German Marshall Fund of the United States, Greek Energy Forum and Natural Gas Europe. The stark conclusion from this conference is that GRexit would have knock-on effects on energy projects, regional balances and climate, and very likely Europe’s Energy Union and energy security efforts. We examine these in the following.
Knock-on effects on energy projects
Greece is the entry point of energy and gas projects coming into Europe, eg Southern Corridor and Turkish Stream, and their regional interconnections. The financial feasibility of several of these interconnectors may become questionable if Greece has to switch back to the drachma. The highly devalued currency may make Greek participation in these projects a major challenge. It may not stop projects but it may become a concern for investors and finance, and thus project bankability.
Such projects include:
- ITB, the interconnector to Bulgaria
- The Central East South Europe Gas Connectivity (CESEC) project, the objective of which is to establish regional infrastructure to improve security of gas supplies
- The Vertical Gas Corridor, linking the gas grids of Greece, Bulgaria, Romania
- Balkan Stream, to extend the Turkish Stream through Greece, Macedonia, and Serbia
- IAP, to expand TAP through the West Balkan markets.
LNG receiving terminals
- The Kavala LNG terminal, which has already been accepted by the EU as a Project of Common Interest (PCI) and is at a stage requiring international financing
- Alexandroupolis Offshore LNG: a project in preparation but so far has not received support by the Greek government, despite continuous reassurances.
GRexit would make progressing such projects difficult.
Even with a GRexit, Greece is expected to stand by its obligations under signed agreements on energy projects, such as TAP. However, they may try to initiate a review of these agreements, as already hinted by the Energy Minister Lafazanis.
TAP is also important to Turkey who stated recently that it is ready to provide financial support to Greece, with Davutoglu saying that stability in Greece is important for Turkey.
Domestic energy needs
A prominent Greek energy expert Kostis Stambolis said that Greece can rely on lignite for its electricity production, solar energy, biodiesel and wind energy to cover almost 95% of its current energy use. Regarding oil, although Greece imports almost 100% of it, it has already secured 120 days of strategic reserves, giving thus a period to adapt to the new situation before requiring major purchases. The gas sector will suffer more, since reserves are enough for not more than 20 days of consumption on par with today’s levels. Energy imports would become a challenge.
With reliance on imported gas not being possible, Greece would then have to rely more and more on locally produced lignite and renewables. This would pose climatic challenges and may affect the position Greece would take within the EU on control of carbon emissions. This may then undercut the EU’s drive for renewables and energy efficiency.
If the geopolitical complexities in the Middle East limit the prospects for gas imports from Israel and Cyprus, the economic dynamics, and the political instabilities of GRexit may make the prospects even worse.
The Eastern Mediterranean, Greece and South East Europe could play an important role in Europe’s energy strategy, but with a Greece in the middle under the potentially terrible consequences of a GRexit, political and economic tensions and conflicting alliances could harm these plans.
GRexit would offer an opportunity for Russia to advance its interests. Russia has strategic interests in the region and is pushing theTurkish Stream Pipeline that would run from Russia through Turkey and link up in Greece. From there, Russian gas would travel on to the rest of Europe.
In June Alexis Tsipras met with Russian President Vladimir Putin at the St. Petersburg International Economic Forum and signed a memorandum to push the project forward. Russia’s energy minister emphasized that Gazprom would not own the section of the pipeline on Greek territory, but Russia agreed to finance the project.
With GRexit, there is a possibility that Russia could come to Greece’s aid, even though serious financial aid may be a problem. And Greece has tried to use a potential turn towards Russia as leverage in talks with Europe.
Earlier this week the Greek Energy Minister announced that Greece has mapped out details of this €2bn gas project with Russia, contrary to EU’s position. Such a move is bound to stir more tension with the EU.
EU Energy Union
If the European Union does not manage to solve the Greek problems, could it proceed with projects that are even less concrete than a bailout deal? Can the EU proceed with something for which there is not a clear deadline, not a tangible urgency, like the Energy Union? Can the European Union be credible in this new mission, after failing in a clearer one? Especially if following GRexit Greece’s cooperation cannot be guaranteed? Energy Union is proving to be a challenge to implement and with Greece retroactive it would become that much more difficult.