Greece U-turn on fossil fuels

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Facing public pressure from spiralling electricity and gas prices while trying to stem imports from Russia, Greece’s prime minister Kyriakos Mitsotakis made a spectacular U-turn on energy policies.

Within two weeks, he announced, on April 6, the stalling of Greece’s decarbonisation plan and the activation of more lignite-fired power generation units and, on April 19, the return to active hydrocarbon exploration.

Both exploitation of the country’s significant lignite deposits in West Macedonia and Peloponnesus, and the search for hydrocarbons, were considered anathema by government energy planners.

There were standing instructions from the PM’s office that all permits for new projects were to be put on hold, and no encouragement should be given for solid fuel utilisation or hydrocarbon exploration.

Everything appears to have changed with the PM pledging to double lignite production over the next six months, so it is used once again as a main fuel for power generation to limit gas imports, which are primarily used for electricity production.

However, market sources note this will be a difficult, if not impossible, task given the early retirement of some key lignite producing fields in northern Greece and the shutting down of major power generation units.

Higher participation of indigenous lignite in the electricity mix is regarded as key in maintaining electricity prices at a reasonable level since it blocks greater natural gas use which is fully imported at a high cost.

“Accelerating the exploitation of the country’s national energy resources will allow us if we are lucky and we have exploitable natural gas fields, to boost our energy independence, our energy security,” Mitsotakis said at a meeting with energy and hydrocarbon officials last week.

The PM said that the country wants a clear picture by 2023 as to whether there are exploitable deposits, while he added there may be something that makes the government “optimistic.”

“If we have significant gas reserves, we will replace imports with our national wealth,” he said, outlining Greece’s ambition to become a gas producer and a hub for the storage and transfer of gas to Europe.

Surveys in six areas

He stated that surveys would be carried out in six onshore and offshore areas in western Greece and west of Crete.

The new target set by Greece will not undermine its plan to boost green energy and cut carbon emissions by 55% by 2030 per EU climate change targets.

Energy and Environment Minister Kostas Skrekas said new legislation would be introduced to allow this acceleration.

He also announced the creation of a special task force to that end.

According to sources, interest is strongly focused on the offshore reserves, while the new legislation facilitating their exploitation will be designed similar to Egypt’s regulations.

In a recent report citing new studies by Hellenic Hydrocarbon Resources Management SA (HHRM) and the Athens Academy, the non-governmental Institute of Energy for Southeast Europe (IENE) argued that if just a quarter of the planned drills in the Ionian and west of Crete are successful, Greece may be looking at deposits of 70-90 trillion cubic feet of natural gas, which would cover 15-20% of the European Union’s annual consumption.

IENE also reiterated HHRM estimates that Greece’s reserves may be worth as much as €250 bln.

This number is now higher, given the rise of oil and gas prices over the last 12 months.

Market sources consider this extremely conservative figure indicating that a number closer to €500 bln is more realistic.

Key component

Hydrocarbons will continue to be a key component of the energy mix at global and European levels, including Greece, for several years to come, according to a special report prepared by the think-tank IENE.

The report, presented at an online press conference on April 18, highlights the significant potential of Greece for the development of its hydrocarbon sector and targeted research by the companies concerned with discovering and exploiting oil and natural gas deposits.

The need to leverage this potential is particularly intense today, given the observed shortage of energy supply – especially natural gas – due to the current price crisis and the geopolitical instability that has arisen because of the war in Ukraine.

The report notes that to substantially reduce the high dependence on energy imports, there is a need to increase production from indigenous energy resources.

This cannot only concern RES, as RES-produced energy is mainly channelled to electricity, but all domestic sources, including solid fuels and hydrocarbons.

As the report underlines, the objective of lower energy dependence is combined with the effort to boost the economy and strengthen the country’s geopolitical position.

Specific geological targets have already been identified through the processing of research data that has resulted from seismic surveys to date.

Main conclusions

After a thorough review of both the exploration and production experience in Greece, the IENE report draws some conclusions:

  • Despite the longstanding efforts of the Greek state and by the consortia of Greek and foreign concessionaires, the Greek hydrocarbon industry, apart from the drilling activity at Prinos, has not managed to develop to date.
  • The licensing procedure for granting exclusive rights for exploration and production areas remains highly bureaucratic and time-consuming.
  • The investment risk and the high research costs are not in the slightest borne by the state budget but exclusively by the contracting consortia.
  • Due to currently incomplete research data, the size and economic value of potential hydrocarbon reserves cannot be determined with precision. However, based on existing seismic research and analysis, it is estimated that gas reserves are 2.0-2.5 trillion cubic meters.
  • There is a need for a supplementary denser seismic network (two and three dimensions).
  • The presence of energy groups, such as TotalEnergies and ExxonMobil, Hellenic Petroleum and Energean, and the expressed interest by other majors, enhance the prospect of having significant hydrocarbon reserves, especially in the Ionian Sea and in the west and southwest of Crete.
  • The presence of the TAP pipeline, the Greece-Bulgaria (IGB) interconnector, which is under construction, the planned EastMed and the four new FSRUs, reinforce the geopolitical and geostrategic value of Greece and the wider Balkan and southeast European region.
  • The gradual weakening of the pandemic will lead to an increase in demand and higher production of hydrocarbons. As long as supply remains low, energy costs related to hydrocarbons will remain high.
  • It is increasingly clear that in a complex and unstable geopolitical environment, the pursuit of energy self-sufficiency will be reaffirmed as a key objective of energy strategies pursued by EU countries and beyond. Therefore, the state must provide guarantees for the rapid approval of the required permits to expedite hydrocarbon exploration under current legislation.
  • Greece must and can transform from being an exporter of petroleum products and an importer of crude and natural gas to a producer of hydrocarbons and an exporter of natural gas. Such an outlook creates business opportunities by attracting much needed private investment, creating new jobs, reducing overall energy costs, increasing energy security while helping to achieve diversification of supply and revitalising a highly indebted economy. Increased hydrocarbon activity may enhance the country’s geopolitical and geostrategic importance.
  • Gaseous hydrocarbons provide an important bridge to green energy transition with the ultimate goal of achieving lower pollutant/carbon emissions. They can and should complement renewable energy sources (RES). Part of their revenues can and should be invested in green technologies (hydrogen, carbon capture-storage, development of natural gas storage). Hence, identifying and exploiting domestic hydrocarbon reserves, particularly gaseous hydrocarbons, is imperative.

As IENE pointed out, hydrocarbon research requires high investment, modern technology, and systematic work with a clear focus and requires patience and perseverance.

Costis Stambolis is a Financial Mirror correspondent based in Athens