Can oil and gas fix Greece's economy?
Greece is turning to offshore oil and gas as a potential source of revenue, despite having almost no existing oil and gas production to begin with.
Greece is in an economic depression. Whether or not it agrees to the ruinous terms imposed upon it by its creditors in order to obtain a bailout, or if Greece opts for a much more uncertain route out of the Eurozone, Greece has years of hardship ahead of it.
The government is turning to offshore oil and gas as a potential source of revenues. Greece has almost no oil and gas production to speak of, and has failed in the past to make any major discoveries. But it still holds out hope of large potential reserves located offshore.
Under the previous government, Greece proposed tax cuts for oil and gas exploration in order to attract more investment. It also conducted extensive 2D seismic surveying of offshore tracts in the Ionian and Mediterranean Sea between 2012 and 2014, in an effort to improve data on its reserves. (Related: Oil Price Plunge Raises Fears for Indebted Shale Companies)
On July 14, the Greek government said that it had received three bids for offshore oil drilling, to the west in the Ionian Sea and south of Crete in the Mediterranean. There were over 20 blocks up for bid accounting for over 200,000 square kilometers. The Greek government had invited Russian and Chinese companies to bid, but so far the Energy Ministry has not revealed which companies submitted the three bids.
To a large degree, Greece’s oil and gas fortunes depend on Energean Oil & Gas, the country’s only domestic oil producer. Energean is trying to boost production at Greece’s only producing field, the Prinos. It just completed a 3D seismic survey of the field, which will help it learn more about what is located beneath. But the field is mature and only produced 1,300 barrels per day in 2014. The company has a multiyear plan to lift that to 10,000 barrels per day, still a paltry sum by global standards.
Energean is also planning an exploration program with its partner Trajan Oil & Gas for its onshore Ioannina block in Western Greece, as well as the KataKolo block, located in Western Peloponnese. The government estimates the block has three to five million barrels of recoverable oil. (Related: Why We Should Get Used To Low Oil Prices)
Of course, the debt crisis has cast a long shadow over Energean’s operations. The company had hoped to partner with larger international oil companies to develop offshore oil fields. Larger companies could provide the financing that the small Energean needs. But plans for partnerships were essentially put on hold because of the uncertain political and economic environment.
“Without liquidity in the system provided by the banks and a clear message that Greece will remain in the eurozone, without consensus by all political parties that strategic areas such as tourism, shipping or exploitation of natural resources will remain unaffected by political changes, the business climate will remain negative,” Energean’s CEO, Matthaios Rigas, told the FT in a May 2015 interview.
Despite the turmoil over the last few weeks, which included a default on an IMF payment, bank closures, and a potential rupture with the Eurozone, the Greek Energy Ministry ruled out extending the bidding round beyond the July 14 deadline. The deadline had already been pushed back by two months Prime Minister Alexis Tsipras in an effort to attract more interest. (Related: The Multi-Trillion Dollar Oil Market Swindle)
Yet another option the Greek government is considering is a Russian-backed natural gas pipeline. The Turkish Stream project – seen as a rival to the Trans-Adriatic Pipeline that would run from Azerbaijan to Italy – would allow Russia to ship natural gas to Europe without having to worry about Ukraine. Greece’s Energy Minister revealed on July 9 his support for the pipeline, which could send 47 billion cubic meters of natural gas through Greece if it is completed.
However, that project is highly suspect, as many European policymakers support the alternative route from Azerbaijan. Also, Turkey has yet to agree to the project. There is a good chance it will not be constructed.
Still, Greece would also benefit from the Trans-Adriatic Pipeline, but the Energy Minister has expressed his dissatisfaction with the financial terms even though he supports the project in theory.
Even if Greece is successful in attracting more interest and investment from oil and gas companies, it will be several years before any substantial increases in oil production materialize. That offers little solace to a government and people who are looking for short-term economic answers.
By Nick Cunningham of Oilprice.com
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