By Kakia Papadopoulou
With projects in place for two natural gas pipelines planned by companies such as Swiss EGL, Italy’s Edison and DEPA vowing to cross its territory, and a third one masterminded by giants Gazprom and ENI possibly also touching in with gas, Greece could be close to fulfilling its dream of becoming a natural gas hub in southeast Europe. That is, if it plays its chances right.
For now, Greece is doing only little more than feverishly working on “the political promotion of the gas interconnection between Greece, Italy and Turkey, and a tripartite agreement will be signed soon,” Development Ministry officials told energia.gr.
Meanwhile, the European Commission gave conditional approval to Greece and Italy to limit third-party access to the so-called Poseidon gas pipeline -the underwater section that should be connecting Italy and Greece through the Adriatic Sea - namely to Edison and Greece’s Public Gas Corporation or DEPA, which are building it.
The exemption, however, is strictly and conditionally limited, as other parties in the region should be given access to use at least 10 percent, or 0.8 billion cubic meters of gas per year of the pipeline’s planned capacity. Then again, it will be very interesting to see where Edison and DEPA plan to bring the gas from, because the EU’s Commission is linking conditional exemption to such criteria too.
The derogation has been given to the Poseidon pipeline under the condition that “the gas in question originates from “non-traditional” sources of gas supply to the Italian and Greek markets, compared to “traditional” sources.
Italian and Greek energy regulators were demanded to “explicitly determine whether and to what extent different derogation periods should be granted depending on the actual origin of the gas that is eventually contracted with respect to the pipeline, and amend the decision accordingly.” the EC said.
“If it originates from areas other than Russia, Algeria and Norway-the bloc’s main gas suppliers-the justification for the exception will be stronger,” a Commission spokesman said.
Then again, there’s another stark condition set forth by the EC, which so far seems to have been unheard of in Greece.
“Greek national authorities shall approve without delay the currently pending secondary legislation on gas, ensuring effective access to undertakings willing to transport gas through the country,” the EC said, when explaining conditions set forth concerning the pipeline considered by Edison and DEPA. In other words, Greece must give access to other pipelines to ensure competition within Europe and the EU.
And if that is not clear enough, the EC puts even more bluntly:
“Furthermore, the Greek national authorities shall confirm that DEPA has no currently valid agreement which would prevent it from taking the necessary measures to grant transit on its network or to undertake the necessary network improvements to enable other gas inter-connector projects.”
EC sources told energia.gr that Edison has a 7.7% share of the Italian gas market, while DEPA currently does not sell any gas in Italy.
“By making the new infrastructure economically and financially feasible, the limited exemption should increase competition. In addition there are many other additional gas import infrastructures planned or being considered. Italian gas consumption is growing; the market is open,” the EC people said.
Italy’s gas demand is seen rising sharply in the next five years from around 80 BCM per year currently to nearly 112BCM by 2012-2013. The need for direct gas supplies to Italy is imperative, and industry observers reckon that more than one pipeline will be needed.
Indeed, Switzerland’s EGL announced last November its plans for the Trans-Adriatic Pipeline (TAP) project which will transport gas from Thessaloniki to Italy’s port of Brindisi through Albania, via a submarine route considerably shorter than Edison and DEPA’s Poseidon.
While Edison and Depa so far have not disclosed their sources of gas for their Poseidon pipeline, EGL this month announced it has already secured more than half of its initial annual 10 billion cubic meters of gas via a 25-year-long supply contract from Iran, more in line with the EC’s criteria to grant exemptions for “non-traditional” gas sources.
Gas deliveries will begin once the proposed TAP is operational, which is thought to be at the end of 2010. Part of the gas will be used to supply EGL’s gas-fired combined cycle power plants in Italy, while part will be used for onward supplies to Western Europe, Switzerland included, the company said.
On the other hand, another obvious problem emerges with Edison-Derpa’s Poseidon. If that pipeline would carry gas from the Caspian region through Turkey and Greece, and then to Italy and from there to the western markets, it would supposedly have to transport it mainly from the Shah-Deniz field in Azerbaijan and other Asian suppliers. That production, however, has already been contracted by Georgia, Turkey and Azerbaijan itself. Larger quantities will be made available only after 2014, the second phase of the field.
At this point, other question arises: which of the pipelines under consideration to transit Greek territory would have enough gas contracted in order to fulfil so-called “ship-or-pay” interconnection agreements in the long run?
Also, since ENI and Gazprom just announced a much bigger pipeline, the South Stream, which could carry up to 30 billion cubic meters of gas a year to Italy, would it make sense for Edison to still compete with ENI on that?
Then again, assuming Poseidon would be supplied with Russian gas, the justification for a greater exemption from the EC would fade away.
Additionally, the exemption from third party access for the Poseidon pipeline is seen as a hiccup to fair-play rules, bearing in mind that independent TAP is an open access pipeline.
“TAP provides the lowest transportation cost into western EU gas markets, re-gasification of Albania without additional costs, and open access pipeline via an open season process,” an EGL top executive told energia.gr. “Moreover, it has gained wide political and regional support, given its great potential to contribute to economic and energy security in southeast Europe.”
Also, market sources argue that the supply of the Edison-DEPA pipeline is bound to become problematic, considering that neither of the two companies have so far managed to secure the appropriate gas supply contracts, this being the main reason for the serious delays in the project so far. Originally, the project was scheduled to complete in 2010. Now DEPA sees it done not before the end of 2011.
Meanwhile, EGL has stated it would this summer announce its partner in its own pipeline, that would most likely add own gas deliveries to the pipeline, as well as co-finance up to half of TAP.
Greece could indeed be close to becoming a southeast European natural gas hub. However, that can only be attained by not excluding any of the serious projects aimed at involving its infrastructure and goodwill. And by taking the EC’s conditions seriously.