In its eighth year of paralyzing austerity, Greece is facing another hot summer. Political controversies will be even more heated than the blessed Peloponnese climate, as the Tsipras Government is expected to vote on another round of austerity measures to unlock a final €12 billion bailout tranche. If the vote is passed, Greece should exit the bailout programme on August 20 this year and, if all goes according to plan, Athens might see some sort of debt relief after the three botched bailout loans. Against the background of an impending labour, tax and pension reforms, many Greeks still wonder where future Greek economic growth will come from – the recent surge in tourism, accounting for 20 percent of national GDP, has certain organic limits, whilst other sectors of economy have been largely withering.
Despite colossal constraints, the Greek economy has been growing for the fifth consecutive quarter already, albeit from a very low baseline. Greece’s GDP is expected by the IMF to grow 2 percent this year, yet much more is needed. Energy might play a key role in kick-starting economic growth in the long-suffering country – Greeks already are Europe’s foremost shippers, so perhaps it is even logical that they develop other spheres of activity, too. Hellenic Petroleum, the leading actor on the Greek downstream market, has been posting profits against all odds (i.e. higher taxation) and even managed to expand its presence abroad, most notably in the Former Yugoslav Republic of Macedonia. Notwithstanding its noteworthy success, the Tsipras government is about to privatize 50.1 percent of Hellenic Petroleum, delivering on previous EU bailout instructions.
There is little doubt Hellenic Petroleum, Europe’s third largest refiner, will be privatized (international trading majors Glencore and Vitol are seen as most likely candidates so far), just as the national gas corporation DEPA and the power utility company PPC. The new owners ought to bring in a more profitable and market-oriented business approach, yet the truly untapped potential for Greece lies beneath the waves of the Ionian Sea. Although the idea might seem ridiculous at first, it need not be dismissed right off the bat, as continental Europe’s (excluding Russia) largest oil field, the Albanian Patos-Marinza, is located quite close to the island of Corfu, which is set to become the primary drilling site of the new Greek offshore drive.
Greece rarely comes to mind when one thinks of oil-producing nations – it imports the overwhelming majority of oil and gas it needs, producing only minuscule amounts of its own hydrocarbon resources. In fact, in 2017 it has produced one-and-a-half as much olive oil as crude oil (with crude output around 3100 bpd). Yet Greece’s offshore potential is largely unknown – no exploratory drilling was conducted in Greece since 2005 as investors looked elsewhere to place their bets on. The next few months and years, however, will mark the beginning of a new period in Greek upstream, that of offshore drilling. Bearing witness to the ambitiousness of the task is the involvement of European majors Total and Repsol, alongside Greek companies Hellenic Petroleum and Energean Oil&Gas.
The island of Corfu is increasingly seen as the new offshore point of attraction. Following the 2014 International Licensing Round, Total has secured Block 02 to the west of the island (in a joint venture with Italy’s Edison and Hellenic), whilst Hellenic Petroleum has clinched acreage (Block 01) to its north. Moreover, Spanish major Repsol has farmed ininto Energean’s Ioannina and Aitoloakarnania blocks last year, also taking over as the project’s operator. The island of Crete also attracted significant interest as gas finds in Egyptian and Israeli waters have stirred up interest in the Eastern Mediterranean, Total and ExxonMobil have declared their willingness to conduct test drills there. It is virtually impossible to foretell whether the future drillings will bear fruit as Western Greece, especially its deepwater offshore, is massively underexplored.
Western Greece exhibits several blocks that were already mapped to a certain extent – Hellenic’s offshore Gulf of Patraikos between the island of Kefalonia and the Peloponnese is assumed to contain at least 100 MMbbl of oil. The tax regime should not be a burden on the companies, as it is quite light despite the difficult economic situation – companies will have to pay a 20 percent special income tax, coupled with a 5 percent regional tax. Even if Greek oil turns out to be as viscous and sulphurous as Albania’s (Patos-Marinza is 10° API, 5 percent sulphur), it would do tremendous good to the nation’s energy industry.
If one is to take into consideration Greece’s quite massive refinery output (32 mtpa for its four refineries), domestically produced crude might significantly improve the nation’s refining profitability. Even though its refinery production is expected to shrink in the long-term by an average annual decrease of 1-2 percent, there is still ample space to make money as Greece’s refiners have managed to establish a solid foothold in the Southern Balkans, Cyprus and Turkey. Moreover, the potentially heavy sour nature of crudes will by no means be a problem, as due to their high conversion depth, sophisticated Greek refineries have been traditionally set up to process heavier sulphurous crudes – Iraq and Russia taking up two-thirds of its crude imports is illustrative of this tendency.
Having said that, Greece ought to be very prudent as for how it handles its oil drilling plans politically. The ultimate task of the Greek political elite is to insulate the nascent oil & gas upstream sector from political upheavals and policy U-turns. Previous prime ministers of Greece, most notably Antonis Samaras in 2012, have created an intense public anticipation of good things to come by announcing that Greece’s oil worth billions of dollars is on the brink of being turned to account. Then, after nothing happened and the Greek populace was confronted with further rounds of austerity, erstwhile ambitious plans turned sour. Simplifying and quickening the approval process, whilst guaranteeing stable and unchanged fiscal terms throughout all the phases of development would be the best contribution that one can imagine from the politicians. Having done that, everything would be in the oilmen’s hands.