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.

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The Turkey-Greece-Italy (TGI) Gas Interlink
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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.)

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Burgas-Alexandroupoli Crude Pipeline
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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.

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Greece Pushes Regional Energy Role
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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.

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Sioufas Welcomes Energy Cooperation with the U.S.
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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.

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Comment
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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