Greece, through its state gas company DEPA, has bought Algerian gas via Sonatrach for the last 20 years at around 0.75 bcm per annum. Over the past few months DEPA, backed by the incumbent governmental administration has enacted rounds of discussion requesting a decrease in the LNG shipments it gets, and also an offer on regional expansion opportunities for the Algerian company.
According to all available information, by the end of the summer DEPA will formally make such a request, which if successful will constitute the second after Gazprom's price decrease (-15%) that Greece got this year. The Algerians had in 2011 proceed in a rebate and had retained since then a stable percentage in the Greek market.
Although at first glance Greece would hardly gain anything from this trial, nevertheless, it seems that the Greeks are bearing gifts in terms of providing Sonatrach with access to the wider South East European gas market. One basic item is a provision of supplying with Algerian gas the Interconnector Greece-Bulgaria (IGB) that in theory could be filled in full with LNG shipments from the North African country, with 3bcm in initial flow from 2017 to 5 bcm once the pipeline is upgraded by 2020. Recently, Algeria places the utmost importance in supplying the Trans Mediterranean pipeline to Italy which has a maximum flow of 30 bcm and constitutes a 'strategic' infrastructure item for Algerian export policy.
Nevertheless, the Italian market is matured and in a mild recession, and thus unable to expand further, while the incoming new amounts of gas via the Trans-Adriatic Pipeline and South Stream in the coming years, will exercise yet more pressure and quite possibly even reduce Algerian deliveries. Presently Italy has scaled down Algerian imports to 20 bcm per year costing Sonatrach literally billions in revenues.
This is where the Greek proposal comes off, whereby Algerians will increase LNG deliveries to Greece and consequently ship gas to Bulgarian and Romanian markets, in exchange for a decrease in their present-day pricing for their Greek client.
The above should take into consideration that Greece is vying for Azeri gas at the same time and that also Southeastern European markets are hardly expanding to the degree of providing an alternative to the Algerian exports. Moreover, Greece should proceed in upgrading its existing LNG infrastructure and built at least one other terminal in order to be able to accommodate such incoming flows via the sea route.
These plans are in motion but will not come into practical use in the short term. In a nutshell, negotiations between the two sides can be said to be difficult and to drag along the lines described previously.
A bit further North from the Greek borders the Russian-Italian-German and French South Stream project is progressing steadily to the extent that it practically gains in strength before initiatives such as those by Athens mentioned earlier can be fruitful.
During the international forum of Saint Petersburg, Gazprom and Serbian Srbijagas agreed upon the upgrade of the underground gas storage (UGS) facility in the Banatski Dvor area which will be increased from 450 mcm to 800 mcm. The gas stored will be filled from South Stream transfers. Concurrently in Bulgaria it was announced that Russian Stroytransgaz will receive the tender for building the Bulgarian South Stream pipeline onshore section, along with the local consortium Gazproekt Yug. Together some 110 Bulgarian companies will assume construction work as subcontractors with 7,500 personnel.
Despite recent Commission communiqués to the European Parliament and the Council of the EU, the project has already taken off in terms of construction but most importantly in political support, both by local players and big businesses across the EU, some of those shareholders in the whole scheme. Countries excluded either De Jure (such as Turkey) or De facto (such as Greece) are already pondering options to either become part of South Stream like Turkey suggested several times of late, or avert its construction by building alternative supply routes, such as Greece.
Overall, Greek policy has been mostly run on the completion of TAP bringing Azeri gas, which should operational after 2020 and secondly through an eventual persuasion of the Israelis to agree upon a transfer of their own gas into Europe through Cyprus-Greece, which again it will take 6-8 years to mature as an option.
The third and quickest option is the shift of Algerian LNG to Southeastern Europe through Greece, nonetheless the Algerians should agree on hefty discounts in order to make their product commercially more attractive than the Russian product and that remains to be seen.
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