By Costis Stambolis
Renewed interest in oil exploration in the North Aegean sea has been expressed by local and international firms following the announcement in mid January of what appears to be a major oil find,in the sea area 3 miles west of the island of Thassos. The concession area where the find is located is explored by Kavala Oil S.A. , which operates the production facility at Prinos, which for many years , between 1981 and 1998, was Greece’s only indigeneous oil resource.According to a company announcement oil was struck in an offshore location known as Kallirachi. Initial estimates refer to a large oil deposit capable of covering the country’s entire oil needs for two years.
Greece relies heavily for its energy needs on imported oil and gas which correspond roughly to 69% of its gross energy consumption. Almost all of the oil and gas consumed in Greece is imported. Dependency on imported oil and gas has been growing steadily over the last 25 years and is set to increase further, to 75% of total energy needs, over the next ten years, according to a recent study by Greece’s energy regulator, RAE.
Energy analysts , backed by an EU study, point out that this is a dangerously high figure which outlines Greece’s dependence on imported fuels.Fuel imports mainly cover crude petroleum and limited amounts of white products and natural gas which Greece imports via pipeline from Russia and LNG from Algeria.
As far as oil is concerned of the 320,000 barels a day which Greece is consuming, only 4,000 to 5,000 are produced locally which are pumped out of the Prinos oil field.The rest is imported by the two major refinery groups, Hellenic Petroleum S.A and Motoroil S.A. Between them they import approximately 19.5 – 20.0 million tons of oil per year which they obtain from different suppliers in Saudi Arabia, Iran, Iraq and Russia. Greece spends some 3.5to 4.0 billion dollars per year for oil imports based on current prices , a high enough figure compared to the current account deficit of 11.8 billion euros and the country’s GDP of 154 billion euros.Back in the early 80’s Greece had been producing 25,000to 28,000 barrels of oil daily from the Prinos field.At that time local oil production had managed to cover almost 13% of the country’s petroleum needs.
In the aftermath of the 1973 oil crisis, Greece, like many other countries at the time, embarked on a systematic effort to discover and exploit its local energy resources. Strong incentives were given to international oil firms to carry out hydrocarbon prospecting in different parts of the country. It was then that US oil company ‘Oceanic’ made its first successful offshore oil strike in the Prinos location few miles south east of the island of Thassos, off the town of Kavalla in Northern Greece. The first strike followed a second one further south in an area hence known as South Kavalla, where substantial gas quantities were found.An international consortium was then formed , the North Aegean Oil Company (NAPC), lead by Canadian firm Denisson Mines which undertook to explore commercially the hydrocarbon finds. Following an investment of approx. 600 million US dollars which covered a complex of platforms, underwater pipelines and onshore chemicals facilities, crude production commenced in early 1981 with 8,000 to 10,000 bpd. A quantity which peaked at more than 30,000 bpd by 1989. Production then started to drop as the main oil deposit became gradually depleted.
With production falling as low as 6,000 to 7,000 bpd and without being able to explore for new deposits NAPC decided to leave Greece in 1998.
Two were the reasons which lead NAPC to pull out of Greece :
(a)The price of oil in the international markets had dropped to very low levels, some 12 dollars per barrel ; which prevented the company from carrying out any major exploration programme within its primary concession area –in the immediate area around Thassos-without help from its partner at the time, state owned Public Oil Corporation.The government then refused to co-operate with NAPC saying that there was limited scope for further research in the area.
(b)Earlier, in 1987, the socialist government of the late Andreas Papandreou had barred NAPC from carrying out any exploration activity in its other major concession area east of Thassos, which extensive geophysical surveys and exploratory drillings in the late 70’s (conducted by Oceanic) had shown the presence of huge oil and gas deposits. Since a small part of this particular concession
Was lying outside Greek territorial waters, although it is located within Greece’s continental shelf, Papandreou was not willing to take any chances in provoking Turkish reaction. In the event the Turks complained in anticipation of possible exploration activity and the two countries came at the brink of war in late March 1987. After that any thoughts of letting NAPC explore east of Thassos were abandoned. Since then successive Greek governments have proposed to the Turkish side of resolving the whole continental shelf issue for the whole Aegean Sea by submitting the case for arbitration to the International Court of
Justice at the Hague. A position which the Turks are now discussing with the Greek government but have not yet fully accepted.
Following NAPC’s departure from Greece the facilities and the primary concession areas at Prinos, in a deal brokered by the then government in order to safeguard 500 jobs at stake, were taken over by ‘Kavala Oil’ which continued production. The majority shareholder(67%) at Kavala Oil was local construction firm Evrotechniki SA while the NAPC trade union took a minority stake of 33% . With this scheme limited oil production , between 3,500 to 4,000 bpd ,continued while some basic exploration work in the concession area around Thassos was also carried out funded out of the company’s restricted cashflow.From exploratory work carried out in 2001 and 2002 some interesting facts surfaced which pointed out that the area around Prinos was holding a lot more oil than originally indicated. In order to carry out a major oil search in the area Kavala Oil’s management brought in a new shareholder, London Stock Exchange listed Reagal Peroleum, with the implicit understanding that it would invest in new exploration activity.Reagal went ahead and after protracted negotiations bought most of Evrotechniki’s share thus becoming the majority shareholder in Kavala Oil.
Following a well planned research programme new exploratory drillings were carried out last October and Novemer and more recently in early January this year. This new effort lead to a very promising new oil find in a drilling area known as Kallirachi, some 3 nm east of Thassos. According to Kavala Oil geologists the new deposit contains some 227 million barrels of oil, a reasonably large find by international standards. However, not all of the deposit is exploitable given the area’s morphology and geological formations.Oil specialists point out that given the new deposits’ geophysical characteristics this may prove to be as large as the original Prinos deposit. Kavala Oil’s managing director Nicholas Loutsigkas says that if the fields around Thassos, including Kallirachi, are properly explored and following some limited investment in the region of 50 to 80 US million dollars, quite small by international standards, then the region is capable of producing some 40,000 to 50,000 barrels per day.From a political point of view this production area is quite secure, points out Loutsigkas since it is 100% within Greece’s own territorial waters.
Should Greece be successful in its efforts to delineate the continental shelf in the Aegean, following initial negotiations with Turkey and eventual resolution of the issue at the Hague, then the road is opening up for exploration of the rich oil and gas deposits in the east of Thassos region. Existing geological and geophysical data suggest that oil deposits in the region of 900 million barrels (STB) are located in the Babouras and Stavros drilling sites.Combined with potential production from the Prinos and Kallirachi deposits, the whole North Aegean area may be capable of delivering more than 200,000 bpd , note petroleum geologists who are familiar with the area. In this case Greece could be well on its way of gaining its energy independence.