GREECE'S EMERGING ROLE IN EUROPEAN ENERGY SECURITY

C O N F I D E N T I A L SECTION 01 OF 03 ATHENS 000231 SIPDIS DEPARTMENT FOR EUR/SNEC (STEVE MANN) E.O. 12958: DECL: 01/24/2016 TAGS: ENRG GR GAZPROM NATGAS OIL SUBJECT: GREECE'S EMERGING ROLE IN EUROPEAN ENERGY SECURITY REF: ATHENS 3264 Classified By: Ambassador Charles P. Ries for Reasons 1.4 (b,d) ¶1. (C) Summary. The recent dispute between Ukraine and Russia over the price of gas once again highlights Europe's vulnerable energy position. Senior Greek officials have impressed on us their wish that Greece provide an important East-West corridor in the movement of gas and oil through the Turkey-Greece-Italy (TGI) gas interlink and Burgas-Alexandroupoli (B-A) oil pipeline. Both projects are slowly moving forward, but without dependable gas and crude supply commitments, they risk remaining in the planning phase for some time. Although the energy security logic of Burgas-Alexandroupoli -- creating a relatively cheap, politically secure (and relatively easily built) second pipeline-based alternative to the clogged Bosporus Strait -- is clear, crude owners have yet to commit the through-put necessary to make the project bankable. On the TGI project, Greece, Turkey and Italy are committed to linking up their gas grids in such a way to allow for first-stage delivery of up to 8 bcm of non-Gazprom gas to Italy by 2010. Washington can help move both projects along, in part through heightened public support, but also in part by pushing the key players to move faster and work better together. End Summary. -------------- The Turkey-Greece-Italy (TGI) Gas Interlink -------------- ¶2. (C) TGI got its first real push in 2003 when Greece and Turkey signed an MOU to build a natural gas pipeline from western Turkey to northeastern Greece. The project was significantly extended in November of 2005 when the GoG signed an MOU with Italy to extend the pipeline under the Ionian sea to Italy. Construction on the 11-12 bcm Greek-Turkish section of the project began in July 2005 and is scheduled to be complete by the end of 2006. Construction on the 8bcm sub-Adriatic link to Italy is scheduled to begin in 2007. According to the Chairman of Greece's natural gas company, DEPA, Raphael Moisis, the remaining 3.5bcm could either be used entirely by Greece or exported to Balkan countries such as Albania. ¶3. (C) Our Greek contacts are optimistic that the TGI gaslink infrastructure can be completed by 2010. Moisis says Greek infrastructure will be in place by that date, and that the Turkish gas grid already has a carrying capacity of 8 BCM which, with the addition of "some compressors", could deliver the planned 11.5 bcm to the line. The Turks are making progress on the necessary infrastructure, having already assigned construction of the Dardanelles portion and working now to assign the portion crossing the Evros river. Work is also moving forward on the design phase of the Greece - Italy interconnect, which will be run by DEPA and Italian Edison. (Note: A significant portion of the funding for the TGI interlink will come out of the EU's Trans-European Energy Network (TEN),which considers TGI a "Priority Axis" project.) ¶4. (C) Although senior Greeks, from Development Minister Sioufas on down, are optimistic about the prospects for the TGI gaslink project, there are a number of speedbumps on the road to completion. Moisis has told us the overriding problem for TGI to reach its potential is nailing down a reliable supply of inexpensive gas from Azerbaijan. Having a contract in place for the delivery of Azeri gas as soon as possible is a sine qua non for the project to attract necessary international interest and financing. Greek officials claim that, although the Turks have ample supply, their gas, which comes largely from the Blue Stream line, is too expensive. The extant contract between Turkey's BOTAS and DEPA for the supply to Greece of 250 - 750 million CM of relatively cheap Azeri gas is only a small start on the path to assuring an adequate supply of Azeri gas. Moisis says that, although the GoG wants to move forward quickly with the Azeris, the latter are not ready to get down to specifics. Both Sioufas and Moisis have stressed to the Ambassador that Greece would welcome U.S. and EU help in getting the Azeris to the table for a final deal. ¶5. (C) One other potential roadblock, Russia, seems to have been mostly overcome. Moisis told the Ambassador directly that Russia would like to stop or delay TGI, or at least fill it with Russian gas. The GoG recognizes that any of these alternatives defeats the overriding goal of the project, the diversification of European energy supply. ¶6. (C) A long-running dispute between the GoG and the Russian Government over the construction of a major portion of the Greek pipeline from Komotini to Alexandroupoli has been resolved. According to Moisis, this dispute had its genesis in the 1990s when the two governments agreed that, in exchange for allowing Greece to extricate itself from a number of take-or-pay contacts for Russian gas, the GoG agreed that the Russian-Greek concern Prometheus would get the job of building this section of the Greek pipeline grid. (At the time, Moisis explained, there was no thought of an East-West link to Turkey. Rather Gazprom was interested in control of the downstream market of northeastern Greece.) Although DEPA pressed the GoG hard to bid out this part of the interconnector in order to assure timely completion, it lost the battle. Moisis says that, while Russian participation is likely to make implementation slower and more difficult, it will not stop the project. (Note: Ownership of this project leg will be held by DESFA (the gas distribution company to be spun off from DEPA later this year),not by Prometheus, eventually removing Russian influence from this part of the project.) -------------- Burgas-Alexandroupoli Crude Pipeline -------------- ¶7. (C) Greece's second major energy initiative, the Burgas-Alexandroupoli petroleum pipeline, has the potential to serve as another important alternative to Turkey's ever more crowded Bosporus Straits. Under current plans, oil tankers in the Black Sea would offload Caspian crude at the Bulgarian port of Burgas, which would then be piped via B-A to Alexandroupoli in Greece, and there loaded onto up to VLCC-scale ships for delivery to final destinations, including North America. Development Minister Sioufas made it clear in a January 24 meeting with the Ambassador he views B-A as a more significant project than TGI, and believes its 300 km distance could be constructed within four years. He says that the first phase of the project would create a capacity of 35 million tons of oil, with the potential to expand to 50 million tons in the second phase. Sioufas likes to contrast B-A with the bruited AMBO project, which he argues is much more expensive and exposed to the complex and often unstable political situation in Greece's northern neighbors. ¶8. (C) Sioufas claims significant forward movement in laying the groundwork for B-A. He notes his landmark April 2005 meeting with Russian Energy Minister Christenko in Sofia, where the two joined with their Bulgarian counterpart to sign a protocol formalizing trilateral cooperation on B-A. This document sets up a series of regular inter-governmental meetings on the pipeline, the next one of which is scheduled to take place February in Greece and is set to consider key issues such as taxation and legal status of construction workers entering Bulgaria and Greece. (Note: Participation in the meeting is to include Sioufas, Bulgarian Minister of Public Works Gagauzov, and Russian Energy Ministry Director General Yanovsky.) The protocol also sets out regular meetings between the involved companies, including DEPA from Greece, and BNK-BP from Russia, which are currently working to establish an international company to take over pipeline construction. Sioufas stressed to the Ambassador that he would welcome the participation of American companies in the project for their technical expertise and the added international profile it would give the project. -------------- Greece Pushes Regional Energy Role -------------- ¶9. (C) The GoG views its regional energy role in broad terms, both geographically and policy-wise. As Minister Sioufas told the Ambassador, "Greece's geopolitical position, stability, membership in NATO, the EU, close relationship with the U.S., make it a perfect partner in promoting peace, stability and energy cooperation in the region." Greece was a prime mover behind the March 4, 2005 signing of the Alexandroupolis Declaration by the Black Sea Economic Cooperation pact (BSEC),which committed the membership (including Albania, Azerbaijan Armenia, Bulgaria, Georgia, Greece, Moldavia, Romania, Russia, Serbia and Montenegro, Turkey and Ukraine) to move towards the full liberalization of their electricity markets. Sioufas views the Declaration within the context of Greece's role in the South Eastern Energy Community, which officially came into being at the signing of the SEEC charter in October 2005. Greece will, in fact, serve as the host to two of the SEEC's central bodies, the Regulation and the Power Boards. -------------- -------------- Sioufas Welcomes Energy Cooperation with the U.S. -------------- -------------- ¶10. (C) Sioufas has put strong emphasis on his interest in energy cooperation with the U.S. to help Greece realize its role as an East-West energy transit country. During his January 24 meeting with the Ambassador, Sioufas highlighted his excellent meetings in Washington at the Department of Energy last fall and reiterated his invitation to host Secretary Bodman in Athens. The minister has also emphasized SIPDIS his interest in having U.S. energy companies participate in Greek energy projects and welcomed the offer of Commerce Department DAS Eric Stewart to host a group of Greek public and private sector leaders to meet with potential U.S. energy investors and/or infrastructure companies. Both he and Deputy Foreign Minister Stylianides have in particular highlighted the positive role Chevron could play in B-A. -------------- Comment -------------- ¶11. (C) The USG should encourage, both privately and publicly, Greece's energy transit initiatives. These have the potential not only to increase Greek energy security, as well as Greece's ties with its Balkan neighbors and Turkey, but also to increase overall European energy security. Moreover, high-level public support is likely to get the attention of some essential actors: the Azeris, the Europeans and potential international investors. RIES