Identifier
Created
Classification
Origin
05ATHENS3264
2005-12-29 14:03:00
CONFIDENTIAL
Embassy Athens
Cable title:  

GREEKS SEEK ROLE IN TRANSIT OF CASPIAN ENERGY TO

Tags:  ECON ENRG EPET GR 
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C O N F I D E N T I A L SECTION 01 OF 02 ATHENS 003264 

SIPDIS

E.O. 12958: DECL: 12/21/2015
TAGS: ECON ENRG EPET GR
SUBJECT: GREEKS SEEK ROLE IN TRANSIT OF CASPIAN ENERGY TO
WESTERN EUROPE

REF: A. BAKU 1918


B. ANKARA 6769

Classified By: Charge Countryman for reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 ATHENS 003264

SIPDIS

E.O. 12958: DECL: 12/21/2015
TAGS: ECON ENRG EPET GR
SUBJECT: GREEKS SEEK ROLE IN TRANSIT OF CASPIAN ENERGY TO
WESTERN EUROPE

REF: A. BAKU 1918


B. ANKARA 6769

Classified By: Charge Countryman for reasons 1.4 (b) and (d)


1. (C) Summary: In recent years, Greece has been quietly
moving towards greater energy integration with its regional
neighbors, playing on its membership in both NATO and the EU,
its economic leadership in the Balkans, and its strategic
location between Caspian energy sources and Western European
energy markets. Increasingly Greece sees itself as more than
a simple consumer of energy resources; in particular it has
taken significant steps to present itself as an energy
transit country. Projects like the Greek-Turkish-Italian
natural gas pipeline and the Burgas-Alexandropoli oil
pipeline highlight this new vision and direction. Although
Greece's domestic energy market needs further liberalization,
the GoG's leadership in the Athens Forum in the Energy
Community of South Eastern Europe, culminating in last
October's signing in Athens is emblematic of the GoG desire
to take a leadership role in the broader energy concerns of
the region. Greece's interest, properly encouraged and
supported, could be used to further USG policy interests in
the effective utilization of Caspian energy resources,
especially as regards transport route diversification. End
summary.

Setting
--------------

2. (SBU) Greece is a net energy importer as well as one of
the most petroleum intensive economies in the EU. For years,
these facts kept Greece preoccupied solely with procuring
sufficient energy for its own needs. This insularity was
reinforced by Greece's state-run energy sector which showed
little initiative to expand beyond its captive domestic
market. With the economic opening of the Balkans in the
1990s, however, and under increasing EU pressure to
liberalize, the Greek energy sector began to explore
international opportunities more seriously. Chief among
these efforts are a natural gas line connecting Turkey to
Italy across Greece, and a proposed Bosporous petroleum
bypass pipeline from the Burgas port in Bulgaria to the Greek
port of Alexandropoli. Since 2002, Greece has also pushed
aggressively to create a regional energy market through the

Stability Pact for South Eastern Europe, which would
facilitate the trading of gas and electricity in the Balkan
region, including Turkey.


3. (C) These efforts highlight Greece's perceived dual role:
a transit country for raw energy sources from the Caspian to
markets in Western Europe (with the possibility to run energy
to markets in the Balkans as well),and a processed energy
market hub for the Balkans, buying, selling and conveying
electricity (and gas) to and from the Balkans, Turkey and
Italy. In both cases, Greece can provide a relatively
advanced and stable alternative outlet for Caspian energy
currently dominated by Russian energy concerns.


Greek Efforts
--------------

4. (U) In 2003 Greece and Turkey signed an MOU to build a
natural gas pipeline from western Turkey to northeastern
Greece. The move was seen as a small, but significant step
towards better relations between the two countries, as well
as providing a platform for Turkey and Greece to work
together to deliver Central Asian natural gas to Western
Europe. Continuing its "pipeline diplomacy," in November of
2005 the GoG signed an MOU with Italy to extend the pipeline
under the Ionian sea to the Italian coast. Construction on
the 8-12 billion cubic meters (bcm) Greek-Turkish section of
the interconnector began in 2004 and is scheduled to be
completed in late 2006. Construction of the 4-6 bcm
Greek-Italian portion is scheduled to begin in early 2007,
with a scheduled completion in 2010. This gas line could
also easily be expanded to include Albania by a spur from
Ignomenitsa.


5. (U) Concurrently Greece has continually championed the
Burgas-Alexandropoli (B-A) petroleum pipeline as a bypass to
Turkey's overcrowded Bosporus Straits. As envisioned, oil
tankers in the Black Sea would offload Caspian crude at the
Bulgarian port of Burgas, which would then be piped via the
B-A to the Greek port of Alexandropoli to be loaded onto
tankers for delivery to final destinations. While the past
decade has seen a steady increase in the global demand for
crude, continued development of oil reserves in the Caspian
region, and a significant increase in daily traffic through
the Bosporus. However, a contentious debate over costs has
kept the B-A pipeline (as well as competing bypass
suggestions) in the planning phase. The tipping point for
construction of a bypass may have been reached, however; many
experts believe the Bosporus strait cannot physically handle
tanker traffic exceeding 3-3.5 million barrels a day. With
Central Asian capacity alone expected to exceed 3 million
barrels per day by 2008, a bypass seems ever more necessary.


6. (C) Already a major overall investor in the Balkan
countries, Greece is making its presence felt in the energy
sector as well. Public Power Corporation (DEH),Greece's
para-statal electricity concern, is currently bidding on a
900 MW power plant in Bulgaria, while Hellenic Petroleum, the
para-statal Greek petroleum company, already owns a refinery
in Macedonia as well as several hundred retail stations
across the Balkans. Additionally, the October signing of the
Energy Treaty for South Eastern Europe (SEEC) in Athens
showed a new face of Greek policy leadership. The treaty
aims to create a single stable regulatory framework for the
trans-border trading of energy. Greece, which pushed hard
for this treaty, currently has little exportable surplus, but
acts as a transit country already for Italy, Albania, and
Bulgaria, as well as buying surplus electricity from
Bulgaria. However, if Greek energy sector reforms continue,
it could develop surplus for export, as well as possibly
become a transit route for Turkish electricity to the Balkans
if the Turks decide to build nuclear power plants.

Concerns
--------------

7. (C) Like all things in the Balkans, there are plenty of
complications. On the gas interconnector, DEPA, the Greek
para-statal natural gas company, views Azerbaijan's
Shah-Deniz field as the major supplier to its trans-Greece
line. On several occasions over the past year DEPA officials
have expressed concern over their inability to conclude a
formal supply side agreement with their Azeri counterparts
(SOCAR),as well as their concern over being reliant solely
on Russian gas (GAZPROM) via Turkey (BOTAS). (Note: Recent
Baku reporting (ref a) suggests that the failure to conclude
an agreement lies with the Greek side, with SOCAR willing to
sign a sales and purchase agreement at any time. Further
follow-up may be necessary to determine if this apparent
disconnect is simply miscommunication or a real issue. End
note.)


8. (C) On the B-A pipeline, the Greeks have been pushing hard
and the idea may be building momentum. However, B-A faces
competition from a Turkish bypass solution that would run
from Samsun to its port city of Ceyhan, which has support
from the Italian private sector (ref b). Nevertheless,
TNK-BP and Chevron continue to hover on the periphery of the
B-A deal and have commented on their continued interest to
Ukrainian contacts. Industry officials have also noted that
given the growing development of broader Caspian oil reserves
and ever increasing global demand, the viability of two
Bosporus bypasses is not out of the question.


9. (C) Finally, the entire South East Europe region suffers
from under-developed or decayed power transmission and
distribution systems (needing over 10 billion dollars to
renovate according to a World Bank study). Lack of high
voltage transmission lines in particular will slow the
progression of an integrated and effective electricity
trading regime. The GoG has been engaged in energy sector
reform, but will need to move aggressively before much can be
made of its geographical position as a transit country for
electricity from Turkey or Italy to its northern Balkan
neighbors.

Comment
--------------

10. (C) Greek interest in Caspian energy is two-fold; first,
the GoG wants to show it is a Balkan leader (both politically
and economically) as well as a reliable and modern
international partner. Second, Greece stands to benefit from
the transit and distribution of energy through its territory.
Beyond the transit fees, Greek gas and electricity companies
are clearly attracted to the higher margin opportunities in
the regional export market which will be expanded by a
central Greek position in any South East European energy
network. An expanded Greek regional energy role serves USG
interests in terms of a broader, more diverse, and secure
transit system for the significant resources of the Caspian
basin. Greece's strategic position in the region could prove
to be a key component of any overall strategy to provide
non-Russian transit routes for Caspian energy destined for
Western Europe. For the U.S. to take best advantage of such
a Greek role, we will need to maintain a close dialogue with
the GoG. End comment.
COUNTRYMAN