Ngpipelines

Ι∆ΡΥΜΑ ΟΙΚΟΝΟΜΙΚΩΝ & ΒΙΟΜΗΧΑΝΙΚΩΝ ΕΡΕΥΝΩΝ
FOUNDATION FOR ECONOMIC & INDUSTRIAL RESEARCH
GREECE AS EUROPE’S ENERGY HIGHWAY:

NATURAL GAS PIPELINE PROJECTS GOING
THROUGH GREECE
November 2011
Study team:
Yannis Stournaras
Svetoslav Danchev
Nikos Paratsiokas
Copyright  2011 Foundation for Economic & Industrial Research
This study may not be reproduced in any form or for any purpose without the prior knowl-
edge and consent of the publisher.
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 Foundation for Economic and Industrial Research ii

Natural Gas Pipeline Projects Passing through Greece
CONTENTS
RESEARCH HIGHLIGHTS ........................................................................................................... V

EXECUTIVE SUMMARY..............................................................................................................VI
1. INTRODUCTION................................................................................................................... 1
2. DOES EUROPE NEED MORE PIPELINES? ...................................................................... 2
2.1 CURRENT SITUATION .......................................................................................................... 2
2.2 CONSUMPTION TRENDS ....................................................................................................... 5
2.3 PRODUCTION TRENDS ......................................................................................................... 6
2.4 NET IMPORTS ..................................................................................................................... 7
2.5 SECURITY OF SUPPLY ........................................................................................................ 10
2.6 CONCLUSIONS .................................................................................................................. 12
3. THE GAS PIPELINE PROJECTS....................................................................................... 13
3.1 INTRODUCTION ................................................................................................................ 13
3.2 IGI POSEIDON ................................................................................................................. 16
3.3 TAP................................................................................................................................ 17
3.4 NABUCCO AND SEEP ........................................................................................................ 19
3.5 SOUTHERN GAS CORRIDOR ALTERNATIVES ......................................................................... 20
3.5.1 South Stream ........................................................................................................... 20
3.5.2 Extraction in the Mediterranean basin ................................................................... 21
3.5.3 LNG, storage facilities and other pipelines ............................................................ 22
3.6 CONCLUSIONS .................................................................................................................. 23
4. COMPARATIVE ANALYSIS OF THE PROJECTS ........................................................... 24
4.1 INTRODUCTION ................................................................................................................ 24
4.2 PROBABILITY OF MATERIALISATION .................................................................................... 25
4.2.1 Evaluation criteria .................................................................................................... 26
4.2.2 Impact of the Greek government’s privatisation programme .............................. 28
4.3 IMPACT ON GREECE .......................................................................................................... 29
4.3.1 Impact on economic activity ................................................................................... 30
4.3.2 Impact on the cash position of the Greek State.................................................... 34
5. CONCLUSIONS ................................................................................................................... 39
6. BIBLIOGRAPHIC REFERENCES...................................................................................... 41
7. APPENDIX: ASSUMPTIONS ............................................................................................ 42
 Foundation for Economic and Industrial Research iii

Contents
LIST OF FIGURES
Figure 2.1: Origin of gas imports in the EU-27 ..................................................................2

Figure 2.2: EU27 member States with the larger natural gas consumption, 2010 ..................3
Figure 2.3: Issues and Solutions .....................................................................................4
Figure 2.4: EU 27 Gas demand projections – Gross Inland Consumption (in bcm).................6
Figure 2.5: Projection of EU27 indigenous gas production ..................................................7
Figure 2.6: Projected net gas imports in the EU ................................................................8
Figure 2.7: EU27 import dependency...............................................................................8
Figure 2.8: Europe’s Gas supply by source type ................................................................9
Figure 2.9: Natural gas reserves by country (in tcm), 2010 ................................................9
Figure 2.10: Narrow and broad definitions of energy security ........................................... 10
Figure 3.1: Pipelines for natural gas transmission in Europe ............................................. 13
Figure 3.2: Shah Deniz consortium ownership ................................................................ 14
Figure 3.3: Interconnector Turkey-Greece ...................................................................... 15
Figure 3.4: Italy-Greece Interconnector ......................................................................... 16
Figure 3.5: Trans-Adriatic Pipeline................................................................................. 18
Figure 3.6: Nabucco .................................................................................................... 19
Figure 3.7: South Stream ............................................................................................. 21
Figure 4.1: Scoring of projects competing for Greece-Italy Interconnection, according to
specified criteria ........................................................................................ 26
Figure 4.2: Direct, indirect and induced effects ............................................................... 30
Figure 4.3: Investment cost breakdown ......................................................................... 31
Figure 4.4: Cost breakdown between imports and domestic production for €1 billion pipeline
investment ................................................................................................ 32
Figure 4.5: Annual impact on domestic output during the pipelines’ construction period ...... 32
Figure 4.6: Annual impact on domestic Value Added during the pipelines’ construction period
............................................................................................................... 33
Figure 4.7: Additional tax revenue per year of construction .............................................. 33
Figure 4.8: Annual impact on GDP during the pipeline’s construction period ....................... 33
Figure 4.9: Additional annual labour income during the pipeline’s construction period ......... 34
Figure 4.10: Additional employment in Greece during the pipeline construction period ........ 34
Figure 4.11: Projected Fiscal Developments.................................................................... 35
Figure 4.12: Participation of the Greek State in IGI’s pipeline projects ............................... 35
Figure 4.13: Impact on the cash position of the Greek state............................................. 37
Figure 4.14: Payback period on Greek State’s equity investment in IGI Poseidon ................ 38
LIST OF TABLES
Table 2.1: Energy security risks and solutions over the short, medium and long term.......... 11
Table 4.1: Main obstacles and reasons for delay along the NG3 corridor ............................ 24
Table 4.2: Shah Deniz consortium criteria for the export route selection ............................ 25
Table 7.1: Gas pipeline projects .................................................................................... 42
Table 7.2: Scoring of projects competing for Greece-Italy Interconnection, according to
specified criteria ........................................................................................... 43
Table 7.3: Benchmark cost data.................................................................................... 44
Table 7.4: Sources of capital ........................................................................................ 44
Table 7.5: Technical parameters ................................................................................... 45
Table 7.6: Lending terms ............................................................................................. 45
Table 7.7: Cost of capital ............................................................................................. 46
Table 7.8: Other assumptions ....................................................................................... 46
 Foundation for Economic and Industrial Research iv

RESEARCH HIGHLIGHTS
Despite ambitious energy efficiency and renewable energy targets, EU’s gas import de-
pendency will continue to increase, heightening energy security concerns.
Opening the Southern Gas Corridor will boost EU’s energy security.
Two Southern Corridor projects, IGI and TAP, are designed to go through Greece, pro-
viding a window of opportunity for Greece to realise its strategic goal to become high-
way for EU’s gas supply.
Which project will materialise depends on the decision by the Shah Deniz’s sharehold-
ers regarding the route that will export the field’s gas.
Along the criteria announced by the Shah Deniz consortium operating the field, TAP has
advantage over IGI on financial and project deliverability, due to its shareholders’
greater financial strength and extensive experience. Meanwhile, IGI enjoys the strong
support of the Greek and Italian governments and is ahead in the licensing process
(TPA exemptions, positive environmental impact assessments, etc.).
The construction of either gas pipeline, IGI or TAP, through Greece would generate
significant value added to Greece. Economic activity is expected to contribute €413m -
€445m Value Added (€435m - €469m in GDP terms) and between 10,700 – 11,600
employment opportunities during the construction period.
Since IGI’s onshore section is slightly longer on Greek territory, it is expected that its
impact will be slightly higher. That said, whereas TAP will be funded mainly by its
shareholders, the IGI option would require significant public investment with extensive
payback period during a period of strenuous fiscal consolidation effort. The benefits
from avoiding this near-term burden should be taken into account in the decision to
privatise the Greek State’s equity in DEPA, DESFA and Hellenic Petroleum.
Greek stakeholders in the pipeline projects, in particular the Greek Government, should
make sure that their position does not impede, but supports, the realisation of any of
the projects along the Greek route of the Southern Corridor that will contribute in
Greece’s economic progress.
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Executive Summary
EXECUTIVE SUMMARY
1. Introduction
Given the strategic location of Greece, the country can play an important role in Europe’s
objective to diversify its routes of gas supply by constructing a pipeline corridor to bring Cas-
pian gas to the EU market. The participation of Greece in this process, however, is not guar-
anteed. Several of the potential pipeline projects such as Nabucco, SEEP and South Stream’s
northern branch bypass Greece, whereas others such as IGI and TAP would put Greece on
the European energy map. As the energy map of Europe is being redrawn, Greece should
decide whether it is willing and able to participate in this process, and support the options
that serve its public interest.
This study aims to stimulate a debate on a number of issues pertaining to the role of Greece
as energy highway. We assess the need for gas interconnectors with Greece’s neighbours,
taking into account the suppressed economic activity and the ambitious energy efficiency and
renewable energy targets adopted in the EU. We present the pipeline projects relevant to
Greece, and we analyse those projects which could enhance Greece’s role on the basis of
their probability of materialisation and impact on Greece’s geopolitical position and economy.
2. Does Europe need more pipelines?
Currently, roughly two thirds of the gas supply in the European Union comes from imports.
The bulk of imports come from Russia, Norway and Algeria (Figure 1). The share of the re-
maining suppliers is significantly smaller, but on a rising trend due to falling LNG prices (in
the case of Qatar) and new infrastructure (e.g. Greenstream for Libyan gas).
Figure 1: Origin of gas imports in the EU-27

2000 2009
Other Other
3% 8%
Libya
3%
Qatar
Algeria 5%
25% Russia
37%
Algeria
Russia 15%
51%
Norway
21%
Norway
32%
Source: Eurostat
According to conventional wisdom, energy demand and gas imports should keep on rising.
That assumption has however come under challenge in the past 3-4 years, which have seen
Europe plunge into severe economic downturn. In addition, the ambitious targets for energy
 Foundation for Economic and Industrial Research vi

efficiency and renewable energy that have been set in order to reduce greenhouse gas emis-
sions put further downward pressure on the future demand projections. Notwithstanding such
factors, there is little doubt that the EU’s indigenous production will continue its decline (Fig-
ure 2), so we believe that net imports will continue on an upward trend.
Figure 2: EU-27 demand, production and import dependency

Demand Indigenous Production
700 250
Primes 2007
600
Primes 2009 200 Primes 2009
500 Baseline Reference
Primes 2009 150 Primes 2009
400
bcm
Reference
bcm
Baseline
300 Eurogas 2010 Eurogas 2010
Environmental 100
200 IEA 2010 New IEA 2010 New
Policies Scenario 50 Policies Scenario
100 IEA 2010 450
Scenario
0 0
2005 2010 2015 2020 2025 2030 2035 2005 2010 2015 2020 2025 2030 2035
Net Imports Import Dependency
600 100%
550 90%
Primes 2007 80%
500
Baseline 70% PRIMES 2007
450 Primes 2009 60% baseline
bcm
bcm
Reference PRIMES 2009

400 50%
Primes 2009 Reference
350 Baseline 40% PRIMES 2009
Eurogas 2010 30% Baseline
300
Environmental 20%
250 10%
200 0%
2005 2010 2015 2020 2025 2030 2010 2015 2020 2025 2030
Source: [3],[4]
Also, it is worth noting that these demand projections have all been published before the dis-
aster in the Fukushima nuclear plant in March 2011. Since then the German parliament voted
to close all its nuclear plants by 2022 and an Italy referendum rejected the possibility of in-
troducing nuclear into the country’s energy mix. That abrupt halt of the nuclear renaissance,
one of the three key carbon-free electricity generation technologies alongside Renewables
and CCS, is bound to shift demand projections upwards for the cleanest fossil fuel, natural
gas.
In conclusion, energy security will remain a top priority for Europe for many years to come.
The import dependency for gas is expected to increase from about 60% today to over 90% in
2050. Even under scenarios with very high penetration of renewables and very energy-
efficient economy, the issue of gas import diversification will remain on the agenda.
3. The Southern Gas Corridor
The Southern Gas Corridor is the 4th gas corridor into Europe, and aims to bring abundant
Caspian (today) and Middle Eastern (future) gas to European markets. In the initial phase,
the Shah Deniz consortium in Azerbaijan will provide that Caspian gas. In 2012, the consor-
tium will select their preferred pipeline partner, and will initially furnish 17 bcm (billion cubic
metres), expected in 2018: 10 bcm for European exports, 6 bcm for Turkey, and 1 bcm for
 Foundation for Economic and Industrial Research vii

Executive Summary
Azerbaijan and Georgia. The initial quantity destined for Europe, 10 bcm, is expected to in-
crease with time, and the consortium has set down expandability of the proposed pipeline as
one of the 8 key criteria for selecting the winning project.
A number of pipeline projects compete for the Caspian gas from the Shah Deniz consortium.
Two of these projects would go through Greek territory: IGI (Italy Greece Interconnector),
and TAP (Trans Adriatic Pipeline) (Figure 3). A third project, Nabucco, has a strong and long-
standing support from the European Commission, but would bypass Greece. One more pro-
ject along the South Corridor that does not go through Greece – BP’s South East Europe Pipe-
line (SEEP) – appeared on the scene in late September. A fifth project, South Stream, may
connect to Greece, but since it is not feeding on Caspian gas but Russian gas, it does not
constitute a contribution to the EU’s diversification strategy. This study will focus on the pro-
jects which will pass through Greece.
Figure 3: Pipeline projects on Greek territory
IGI
The Italy-Greece Interconnector (IGI) has total length of 807 km and strictly speaking com-
prises of two interdependent projects:
i) Komotini-Thesprotia: a high pressure pipeline with 15 bcm planned capacity from Ko-
motini to the Ionian coast of Thesprotia. The section will be financed and constructed by
DESFA, the Greek national transmission systems operator, which currently is 100% sub-
 Foundation for Economic and Industrial Research viii

sidiary of DEPA, in turn owned by the Greek state and Hellenic Petroleum. The section
constructed by DESFA will become part of the Greek National Gas Transmission System
(NGTS) upon completion.
ii) Poseidon: a 207 km offshore pipeline with 10 bcm capacity that crosses the Ionian Sea
in order to connect to the gas network of Italy. The construction and financing of the off-
shore Poseidon pipeline will be undertaken by IGI Poseidon SA, a private company owned
equally by Edison – an Italian energy company – and DEPA.
TAP
The total length of the TAP pipeline was recently extended to start from Komotini. With the
new route, the pipeline is approximately 784 km long, with 466 km over Greek territory and
an offshore section of 115 km in the Adriatic Sea. The initial transportation capacity of the
pipeline is 10 bcm per year, but the pipe-size and selected offshore crossing means that it
can expand its capacity to 20 bcm by adding a compression station on the Greece-Albania
border.[13]
The TAP consortium consists of the Swiss company EGL (42.5%), Norway’s Statoil (42.5%)
and E.ON Ruhrgas of Germany (15%). The construction of TAP will be mainly financed by the
consortium’s own capital. It is also worth noting that Statoil has a significant share in the
Shah Deniz consortium (25.5%) which will deliver the Caspian gas from Azerbaijan.
Non Greek route competitors
IGI and TAP, in turn, compete for the Caspian gas with Nabucco and BP’s SEEP. Nabucco has
a total length of approximately 3,900 km, passing through Turkey, Bulgaria, Romania, Hun-
gary and Austria. The pipeline's planned capacity is 31 bcm per year, which renders Nabucco
the pipeline with the largest capacity among the proposed projects in the Southern gas corri-
dor. That said, it is questionable whether sufficient gas volumes will be available in order to
make the project viable.
BP’s SEEP project was announced in the closing hours of the procedure to collect formal pro-
posals for gas evacuation from Shah Deniz to Europe via Turkey from the second phase of
the field’s development. SEEP has more or less the same route with Nabucco, but is consid-
erably cheaper, as is designed specifically to carry the capacity that will be initially available
from Shah Deniz II (10 bcm to Europe + 6 bcm to Turkey).
An alternative to Nabucco and SEEP that might possibly see a secondary line go through
Greece is provided by the South Stream project. South Stream is a joint project by Gazprom,
Eni S.p.A., Wintershall and EdF to develop a cross-border pipeline that will transfer Russian
 Foundation for Economic and Industrial Research ix

Executive Summary
gas to South-East and Central Europe directly through an offshore pipeline. Compared to ex-
isting routes, it bypasses Ukraine, while compared to the South Corridor projects, the pipeline
bypasses Turkey. The pipeline’s planned capacity was doubled recently to 63 bcm from 31
bcm per year. Several options for the pipeline route are under considerations and under one
of them the pipeline goes through Greek territory to connect with Italy. Unlike the South Cor-
ridor projects, however, South Stream does not feed on Caspian but on Russian gas, which
puts into stark question its attractiveness to the EU’s diversification objectives.
4. Comparative criteria between the Greek pipelines
In theory, a social planner would compare the projects along a number of established criteria
that would enable the selection of the project or projects that maximise net social benefit. In
practice, however, the pipeline selection process is much more complex, involving a great
number of stakeholders and criteria. In this study we compare the alternative projects along
three dimensions: probability of materialisation, impact on Greek economic activity and im-
pact on the cash position of the Greek state.
Probability of Materialisation
Among the projects that feed on Caspian gas and go through Greek territory – IGI and TAP –
TAP seems more likely to gain the support from the Shah Deniz Consortium (which includes
TAP’s shareholders Statoil).
Figure 4: Scoring of projects competing for the Greece-Italy Interconnection
Stakeholder support - EC
3
Stakeholder support Stakeholder support

Other host countries Greek government
2
1
Stakeholder support
Offshore risk
Local communities in Greece
0
Strategic positioning
Transit country risk
Upstream
Experience in pipeline Financial

construction & operation deliverability
IGI TAP Southstream

* 3 = Strong position, 2 = Average position, 1 = Weak position
 Foundation for Economic and Industrial Research x

The TAP shareholders enjoy higher credit rating, and have considerably stronger expertise
and experience in the construction and operation of both onshore and offshore pipelines.
Notwithstanding this, TAP meets with weaker support from the Greek government as, unlike
IGI, it does not involve direct State participation.
Impact on Greek economic activity
Large-scale infrastructure projects have considerable impact on various sections of the society
and the gas pipelines are not an exception. Interests vary across stakeholder groups, which
implies that the impact of such projects is quite heterogeneous. In this section we focus on
quantifying the impact of selected projects on economic activity.
Figure 5: Impact on Domestic Value Added

Komotini - Thesprotia TAP (Greek section)
500 500
240 445 450
450 413
223
400 400
350 350
€'09 million
€'09 million
300 300
250 250
77 71
200 200
150 128 150
119
100 100
50 50
0 0
Direct Indirect Induced Total Direct Indirect Induced Total
We limit our attention to the onshore Greek sections of IGI and TAP, as both projects com-
pete for gas coming from the same entry point (ITG) and going to the same destination (It-
aly). The south branch of South Stream is not included in the impact assessment for a num-
ber of reasons, including lower probability of materialisation, similar route with IGI Poseidon
and different time frame.
Figure 6: Additional employment in Greece during the pipeline construction phase

14,000 14,000
5,818 11,606
12,000 12,000
5,396 10,765
10,000 10,000
8,000 8,000
1,927
6,000 6,000 1,787
3,862 3,582
4,000 4,000
2,000 2,000
0 0
Both IGI and TAP would generate Value Added in excess of €400m/pa (Figure 5). As the on-
shore section of IGI is slightly longer than TAP’s Greek section, it is reasonable to expect that
its construction will provide slightly stronger stimulus on activity. The direct effect on value
added from the construction of the pipelines is estimated at € 128 million and € 119 million
 Foundation for Economic and Industrial Research xi

Executive Summary
respectively for IGI and TAP, while more than half of the overall impact, € 240 million and €
223 million respectively, corresponds to induced effects due to higher household income.
Also in terms of employment the impact would be notable, since increased economic activity
implies higher employment. The construction of the onshore section of IGI is expected to in-
crease employment by more than 11,600 jobs and more than 10,700 jobs for TAP (Figure 6).
In conclusion, both IGI and TAP would contribute significantly to Greece in terms of Value
Added as well as employment at a critical time for the economic prospects of the country.
Impact on the cash position of the Greek State
Given the timeline of Shah Deniz II, the construction of either IGI or TAP will take place
within the next four years or so, which is a crucial period both for reigniting the Greek econ-
omy and taming the course of Greek government debt.
In the case of TAP, the project will be mainly funded by TAP’s shareholders Statoil, EGL and
E.ON. In the case of IGI, the Greek state has large equity participation in both the onshore
(Komotini – Thesprotia) and the offshore (Poseidon) sections. The proprietor of the onshore
section (DESFA) is fully owned by DEPA where the Greek state holds 65% stake and indirectly
further 12% as a 35% shareholder of Hellenic Petroleum. Similarly, the shareholding struc-
ture of DEPA determines the participation of the Greek State in Poseidon. As a shareholder,
the Greek state must provide its share of equity capital required for the project.1
Figure 7: Impact on the cash position of the Greek state
IGI Poseidon TAP

150
100 1.0
50
0.8
€'09M
0
€'09M
-50 0.6
-100 0.4
-150
-200 0.2
-250 0.0
2013
2016
2019
2022
2025
2028
2031
2034
2037
2040
2013
2016
2019
2022
2025
2028
2031
2034
2037
2040
Using benchmark cost data and assuming that 1/3 of the IGI’s investment cost would come
from equity capital, the maintenance of the current shareholder structure of DEPA and Hel-
lenic Petroleum means that the Greek State would have to endure direct or implied cash out-
flow in the order of € 170 - 210 million annually (Figure 7). Equally, an investment with such
a sizable capital expenditure and considerable loan financing would have a sizable payback
1
The impact of operation cash flows on the cash position of a company’s shareholders is a more complicated matter,
as it depends on the company’s dividend policy and the country’s accounting conventions. For this exercise we as-
sume that positive net cash flows are fully handed out as dividends to the shareholders.
 Foundation for Economic and Industrial Research xii

period and it is expected that the Government’s payback for investment into IGI would not
balance until 2030 (Figure 8).
These are important factors for the privatisation of DEPA and DESFA together with the sale of
the State’s share in Hellenic Petroleum. The potential realisation of these privatisation deals
would generate upfront revenues for the Greek State and would free it from the obligation to
provide considerable funds for the construction of IGI Poseidon in the near term. However,
taking into consideration the fact that such large privatisation deals face various issues and
difficulties, it is doubtful that a potential acquisition of DEPA and DESFA by strong strategic
investors and the restructuring process that this entails would take place soon enough to
have an impact on the decision by the Shah Deniz consortium.
Figure 8: Payback period on Greek State’s equity investment in IGI Poseidon
1,000
800
600
400
€'09M
200
0
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
-200
-400
-600
-800
5. Conclusions
The economic benefits for Greece from hosting natural gas pipelines are sizable. Becoming
part of the Southern Corridor pipeline will generate € 413 – 445 million added value (€435 –
469 million GDP) for the Greek economy and 10,600 – 11,700 jobs in the Greek manufactur-
ing and services sectors during the pipelines’ construction phase. It will also secure Greece’s
overarching strategic goal to become an energy highway for Europe’s gas supply.
This transformation, however, is not guaranteed. Four projects compete for Caspian gas. Two
of them, the Nabucco project, which has significant support from the European Commission,
and SEEP, which is managed by one of Shah Deniz’s key shareholders, bypass Greece alto-
gether. The two Southern Corridor projects that go through Greece, IGI and TAP, would pro-
vide significant added value and job creation in Greece.
Ultimately, which project will materialise depends not on any of the host-Governments but on
the forthcoming decision by the Shah Deniz’s shareholders. Along the criteria announced by
the consortium operating the field, TAP seems to have advantage over IGI on financial and
project deliverability, due to its shareholders’ financial strength and extensive know-how.
 Foundation for Economic and Industrial Research xiii

Executive Summary
Meanwhile, IGI enjoys the strong support of the Greek and Italian governments and has pro-
gressed further in the process of obtaining the necessary permits.
Since IGI’s onshore section on Greek territory is slightly longer compared with TAP, it is ex-
pected that the impact will be slightly higher in terms of output. That said, while TAP will be
mainly funded by its shareholders, today’s shareholder structure of DEPA and Hellenic Petro-
leum mean that realising those benefits through IGI will require a substantial public invest-
ment (€170 - 210m annually) with a payback period nearing 20 years. These considerations
are important today, when the Greek government is struggling to reduce its budget deficit
and debt.
In the run-up to the Shah Deniz decision, the Greek stakeholders, in particular the Greek
Government should make sure that their position does not impede the realisation of any of
the projects along the Greek route of the Southern Corridor. In order to rejoin the path of
economic and social progress, Greek society should leave behind the indolence, protectionism
and hostility to private initiative and foreign capital that has crippled its productive forces and
embrace the openness that comes with international energy market integration.
 Foundation for Economic and Industrial Research xiv

1. INTRODUCTION
A number of gas transmission projects, such as the Trans Adriatic Pipeline, the Italy-Greece
Interconnector and South Stream’s southern branch are envisaged to potentially pass through
Greek territory. Given the strategic location of Greece, the country can play an important role
in Europe’s attempt to diversify its routes of gas supply. The participation of Greece in this
process, however, is not guaranteed. There are several pipeline projects, such as Nabucco
and South Stream’s northern branch, which bypass Greece altogether. As the energy map of
Europe is being redrawn, Greece should decide whether it is willing and able to participate in
this process and implement the option that serves best the public and the country’s interest.
The attempt to connect the EU market with new gas fields can be traced back at least to the
establishment of the Trans-European Networks for Energy (TEN-E) in 1996. The purpose of
this EU initiative was to boost investment in important energy infrastructure projects. Since
then a number of ideas have turned into projects and some of them are already in operation.
In the mean time, the effort to reduce greenhouse gas emissions has changed significantly
the perception of the EU policy makers on the optimal means for energy needs’ satisfaction.
This study aims to highlight a number of issues pertaining to the role of Greece as an energy
highway for Europe’s gas supply. Greece would not be in the position to become a highway if
natural gas consumption was not part of Europe’s new energy priorities. Section 2 of this
study reconfirms the need for new gas interconnectors between Greece and its neighbours in
order to boost Europe’s energy security.
Section 3 presents in greater detail the pipeline projects that pass through Greece, together
with their close alternatives, before comparing the projects along various criteria in section 4.
We assess advantages and disadvantages of selected major pipeline options in terms of their
probability of materialisation and impact on Greece’s geopolitical position and economy.
 Foundation for Economic and Industrial Research 1

2. DOES EUROPE NEED MORE PIPELINES?
2.1 Current situation
Natural gas represents approximately a quarter of total energy consumption in the EU-27.
Gas in Europe is provided from indigenous sources and from pipeline and LNG imports. The
main sources of indigenous supplies are concentrated at its north-western part, mainly in
Great Britain and Netherlands. More than half (55%) of Europe's primary energy is imported.
Russia, the world’s largest natural gas reserves and producer country, holds large share of
Europe’s natural gas imports (Figure 2.1), with annual gas volumes exceeding 100 bcm p/a
for the period 2007-2010. Even though the volume of natural gas imports from Russia has
not changed substantially, its share of imports has fallen in the past decade. Russian gas is
exported to Europe by pipelines via Ukraine (capacity of 127 bcm) and Belarus (28 bcm ca-
pacity), whereas Russia is connected to Turkey through the Blue Stream pipeline with capac-
ity of 14 bcm. The State-owned gas company Gazprom has a monopoly on gas exports from
Russia with sales of 156 bcm of natural gas to the EU-27.[11]
Figure 2.1: Origin of gas imports in the EU-27
2009
2000
Other Other
3% 8%
Libya
3%
Qatar
Algeria 5%
25% Russia
37%
Algeria
Russia 15%
51%
Norway
21%
Norway
32%
Source: Eurostat
The North Sea region is the second largest supplier of natural gas to continental Europe with
Norway controlling the bulk of these reserves. With an annual production of 90 bcm in 2007
Norway has become the fifth largest gas producer after Russia, USA, Canada and Iran and
the third largest gas exporter in the world after Russia and Canada. Almost all gas export
from the country are directed to the EU market, indicating that it will remain an important gas
supplier in the following years. Indigenous production in the EU27 mainly comes from Nether-
lands and the UK.

Gas imports from North Africa are made through Italy and Spain with a connection between
Algeria and Spain, and two connections from Libya and Algeria to Italy. Algeria’s exports to
Europe by pipeline will increase following the completion of the Medgaz pipeline to Spain. The
Trans-Mediterranean (TRANSMED II) pipeline (Algeria to Italy via Tunisia and Sicily) is opera-
tional since 2008 with capacity of 6.5 bcm per year.
A section of the EU27 gas imports is covered by LNG shipments. LNG import capacity is dis-
tributed unevenly across the EU with the majority of available capacity accumulated in a small
number of countries. At the end of 2010, twenty LNG terminals were in operation in Europe
with a total nameplate capacity of 170 bcm. Twelve of the terminals have been brought into
service in the last decade. Currently, four additional terminals are under construction in Spain
(El Musel), Italy (Brindisi and Livorno), Netherlands (Rotterdam) and Poland (Swinoujscie).
These stations are scheduled to add a further 27.2 bcm in EU’s import capacity by 2014. The
first of these terminals (in Rotterdam) is expected to receive the first cargo and start com-
mercial operations within 2011.
Among the EU member-states, the United Kingdom and Germany are the largest consumers
of natural gas, followed by Italy, France, Netherlands, Poland and Spain (Figure 2.2). The
island nations of Cyprus and Malta are the only EU member-states that do not consume natu-
ral gas.
Figure 2.2: EU27 member States with the larger natural gas consumption, 2010
120
99,8
100
87
81,1
80
bcm
60
50,7
46,8
37
40
19,9
20 15,5
0
UK Germany Italy France Netherland Spain Belgium Poland
Source: Eurogas
The origin of gas imports varies across the member states. Germany imports the vast major-
ity of its gas volumes from Russia. The dependence on Russian imports is also very high in
the new EU Member States of Eastern Europe – the Baltic countries consume primarily Rus-

sian gas. In contrast, France has developed an extensive network that allows diversified gas
inflows from Norway, Russia, Algeria and Netherlands.
The significant dependence on Russian gas reserves and the risk of a disruption of supply
from disputes between Russia and countries along the route (Ukraine and Belarus serving as
recent examples) has led the European Commission to explore new gas resources and pipe-
line routes. For that purpose the Commission has identified 10 gas projects of European in-
terest (4 of which are already completed), 100 priority gas projects (21 completed) and 122
gas projects of common interest, grouped along 6 priority axes.[1]
Figure 2.3: Issues and Solutions
Issues Solutions Projects
More gas Yamal – Europe II

from the (NG1)
Galsi (NG2)
Growing same sources
demand & routes Medgas (NG2)
Growing
need for
Falling pro- NG3 (South Corridor)
imports
duction
New sources East Mediterranean
Gas Ring (NG6)
Security of
supply Route Nord Stream (NG1)
diversification
South Stream
Other LNG (NG4)

solutions
Storage (NG5)
The projects along the axes are suited for particular EU policy priorities, which are not neces-
sarily fixed. Projects that provide increased flow from the same countries of origin and transit
routes meet the growing need for imports, but do not provide solutions with other security of
supply issues (Figure 2.3). The pipeline projects along the NG3 axis (South Corridor) address
both the need for diversification (source and route) and the growing need for imports, while
the purpose of another project that we touch upon in this study – South Stream – is to pro-
vide route diversification possibilities. Meanwhile, the diversification concerns are also ad-
dressed with projects that do not involve pipelines, such as new LNG terminals and storage
facilities.
The ambitious renewable energy, energy efficiency and GHG emission objectives for 2020
and 2050 signify the shift of priorities in EU’s strategy, which affects the relative importance
of the natural gas projects. The development of an integrated European gas market has re-

mained priority, while the role of natural gas as “bridge technology” in the transition in clean
energy resources is also recognised. At the same time, the EU is going through a major eco-
nomic and debt crisis, shifting further down the demand growth projections. In this unstable
economic environment, it is worth reassessing the impact of the changing energy projections
on the relative stance of the projects.
2.2 Consumption trends
World gas demand is expected to increase by 44%-55% until 2035 from 2008 levels on the
back of strong expansion in China and other developing countries.[2] Due to its extensive use
and its lower carbon footprint relatively to other fossil fuels natural gas is expected to be the
fastest growing fossil fuel in meeting energy needs for the next two and a half decades.
In most regions demand for natural gas will be mainly driven by the power sector in view of
its relatively low carbon emissions as it displaces coal in electricity generation. Natural gas
used in power generation produces half the CO2 emissions, compared to conventional coal
power units and very low sulphur emissions as well. In addition, increased use of gas in the
power industry is also related to the growing share of renewable resources, as the reserve
power generation needed to back intermittent wind power is largely provided by gas-fired
power plants.
On the contrary, gas demand in the developed economies of the EU is not expected to ex-
perience the growth patterns of the developing economies, even under no policy scenarios,
as they have lower potential economic growth rate and already high penetration of gas.
Meanwhile, the need to contain the growth of greenhouse gas concentration in the atmos-
phere implies that the developed countries should significantly reduce their greenhouse gas
emissions by adopting carbon-free technologies and reducing the energy intensity of their
economies.
The divergence between simple trend projections and the desired path, combined with some
scepticism on EU’s commitment to its ambitious climate policy targets, has resulted in widely
varied forecasts of the future EU demand (Figure 2.4). The projections for gross inland gas
consumption in 2030 vary from 396 bcm in the IEA 450 Scenario to 622 bcm in Eurogas’s
2010 Environmental reference scenario. It is instructive to note that industry projections re-
main buoyant, while environmental policy scenarios indicate that demand should decrease
over the next 25 years. The change in policy is evident in the downward shift of PRIMES ref-
erence scenarios (incorporating adopted policy measures) over the years.

Figure 2.4: EU 27 Gas demand projections – Gross Inland Consumption (in bcm)
700
600
Primes 2007
500
Primes 2009 Baseline
400 Primes 2009 Reference

bcm
Eurogas 2010 Environmental

300
IEA 2010 New Policies
Scenario
200
IEA 2010 450 Scenario
100
0
2005 2010 2015 2020 2025 2030 2035
Source: [3],[4]
It is worth noting that these gas demand projections have all been published before the dis-
aster in the Fukushima nuclear plant that occurred in March 2011. Since then German parlia-
ment voted to close all its nuclear plants by 2022 and in Italy referendum voters rejected the
possibility of introducing this form of energy to the country’s energy mix. The abrupt halt of
the nuclear renaissance, one of the three key carbon-free electricity generation technologies
alongside renewables and CCS, is bound to shift the demand projections upwards for the
cleanest fossil fuel – natural gas – and boost its role as a “bridge” fuel in the transition to
low-carbon economy.
2.3 Production trends
On the supply side, the EU natural gas sector is experiencing rapid depletion of reserves,
which have fallen by approximately 20% over the last decade. In 2006 EU’s gas reserves
were estimated at 3,100 bcm, an equivalent of approximately 6 years of consumption. In-
digenous gas production in the Northern region, which is almost entirely (more than 90%)
consumed in the UK, Netherlands and Germany, is decreasing rapidly. It is indicative that the
UK, one of the world’s largest gas producers until recently, has seen a rapid decline in pro-
duction that has transformed the country from self-sufficient to increasingly dependent on
gas imports (through the UK-Belgium interconnector and the UK-Norway pipeline).
The projections on the supply side show less of a variation, as all point to rapid fall in indige-
nous production (Figure 2.5). In the PRIMES 2009 Baseline and Reference Scenarios produc-
tion falls to 129 bcm in 2020 and to less than 90 bcm in 2030. The decrease is higher in the
Eurogas 2010 Scenario, where gas production in 2030 is estimated to drop to a third of its
2010 level (66 bcm).

Figure 2.5: Projection of EU27 indigenous gas production
250
200

150
bcm
Eurogas 2010
100
IEA 2010 New Policies
Scenario
50
0
2005 2010 2015 2020 2025 2030 2035
Source: [3],[4]
Recent progress in the extraction of unconventional gas that includes shale gas, coalbed
methane, tight gas (from low permeability reservoirs) and methane hydrates, might
strengthen to some extent the supply position of Europe. The bulk of proven unconventional
gas reserves are concentrated in the Middle East (Iran, Qatar) and Russia with approximately
54% of the world total. In Europe, the main exploration fields of shale gas and coalbed
methane are found in Poland, Hungary and Germany. However, unconventional gas produc-
tion faces strong operational disadvantages (such as difficulties in gaining access to land) and
environmental concerns mainly due to the need of large water volumes and the risk of water
contamination with chemicals, used during the extraction. This limits, for the time being, its
prospects as a source of indigenous gas production in the densely populated EU countries.
2.4 Net imports
Even if natural gas consumption does not increase as much as anticipated until recently, the
decline in primary production signifies that import dependency will intensify. Even under the
PRIMES 2009 Reference scenario, which incorporates ambitious energy efficiency and renew-
able energy targets, net imports are set to rise. Meanwhile, according to Eurogas’s 2010 Envi-
ronmental Scenario net gas imports are projected to exceed 552 bcm in 2030, marking an
average annual increase rate of 3.1% (Figure 2.6).
In any case, the import dependency ratio is set to increase. The external need for gas sup-
plies in the EU is expected to vary between 73% and 92% in 2030, marking an increase of 10
to 20 basis points with respect to 2010 (Figure 2.7). As such, the import dependency for gas
will significantly exceed the ratio for energy overall, which is expected to reach 57% by 2030
and 58% by 2050, from 55% today.[5]

Figure 2.6: Projected net gas imports in the EU

600
550
500
450
bcm

400
350 Eurogas 2010

Environmental
300
250
200
2005 2010 2015 2020 2025 2030
Source: [3],[4]
The global natural gas reserves suffice to meet the projected increase in global demand.
Europe can take advantage of its good proximity to areas with large gas reserves. More than
two thirds of the world’s proven gas reserves lay in Russia, the Middle East and the Caspian
region.
Figure 2.7: EU27 import dependency

100%
90%
80%
70%
60%
PRIMES 2007 baseline
bcm
50% PRIMES 2009 Reference

PRIMES 2009 Baseline
40%
30%
20%
10%
0%
2010 2015 2020 2025 2030
Source: [4]

Figure 2.8: Europe’s Gas supply by source type

600
500
400
bcm per year
P ipeline Impor ts
LNG Imports
300
EU P r oduction
200
100
0
2005 2010 2015 2020 2025 2030
Source: [3]
Russian reserves of natural gas are estimated at 47.6 tcm or 25.4% of total world reserves.
The Middle East (Iran, Qatar, Saudi Arabia, United Arab Emirates) and the Caspian region
exceed this with estimated reserves towards 90 tcm, the latter Caspian region representing
7% of the world total, while recoverable resources are estimated at 26 tcm. The region’s
largest gas field - South Yolotan field - is under appraisal, but is large enough to support pro-
duction higher than 100 bcm per year.
Figure 2.9: Natural gas reserves by country (in tcm), 2010
Russia 47,6
Iran 29,6
Qatar 25,5
Turkmenistan 7, 5
Saudi Arabia 7,4
United States 6,9
Un. Arab Emirates 5,9
Nigeria 5,2
Venezuela 5,0
Algeria 4,5
Iraq 3,2
Australia 3,1
China 3,0
Indonesia 3,0
Kazakhstan 2,4
Rest of World 17,2
0 10 20 30 40 50
Source: [3]
Despite the abundant reserves, the increasing demand for natural gas in the medium to long
term implies that competition in international markets will be intensified. Uncertainty with

respect to supply over the next decades is mainly related to whether sufficient and timely
investment will be made in developing those resources and what will be the precise cost of
exploitation. In any case, the shares of both LNG and pipeline gas are expected to increase,
vis-à-vis EU’s indigenous production (Figure 2.8).
2.5 Security of supply
The increasing energy import dependency of the EU magnifies the community’s concerns over
the security of its supply. In this regard, the European Union has formulated a series of poli-
cies aimed at supporting the development of an effective energy infrastructure in Europe.
Figure 2.10: Narrow and broad definitions of energy security
Sustainability
Affordability
Physical
availabil-
ity
Source: [3]
Following the January 2009 gas crisis that was caused by disagreement over the terms of
Russian gas supply to Ukraine, the European Union adopted a series of legislative acts, aimed
to strengthen its energy security. Regulation No. 994/2010 established a set of measures,
including a provision for enhanced flexibility of the gas infrastructure, whose purpose was to
safeguard the security of gas supply. In this regard, the strengthening of the gas transmis-
sion network has become top priority for the EU policy makers - €1.4 billion of the 2010/2011
European Energy Programme for Recovery is earmarked for 31 gas infrastructure projects,
including new pipelines along the South Corridor.
We should not forget, however, that energy security is not limited to physical availability, but
incorporates concerns over the affordability and, in its broadest definition, sustainability of
supply (Figure 2.10). As such, it is a polysemic concept with different short term, medium
term and long term risks and solutions (Table 2.1).
In the short term, risks are mainly associated with unexpected disruptions of technical, politi-
cal or malevolent nature (e.g. acts of terrorism). Infrastructure projects cannot provide a so-
lution in such a short timeframe, where more appropriate measures include an early warning
mechanism and comprehensive contingency plans that incorporate disruption scenarios.
Transparency and availability of up-to-date information are necessary conditions for the

cross-border coordination at times of unexpected supply disruption. Load shedding is a

measure of last resort, which has to be taken to ensure the stability of the system, greatly
facilitated by contracts with sufficient flexibility.
Table 2.1: Energy security risks and solutions over the short, medium and long
term
Short-term Medium-term Long-term
(<1 year) (1 – 30 years) (30+ years)
• Unexpected disruptions • Lack of deliverability • Climate change
Risks (technical, political, (capacity under-
malevolent) investment)
• Early warning and crisis • New upstream • Renewables (incl.

prevention mechanisms pipelines & biogas)
• Transparency interconnectors • Nuclear
• Access to up-to-date • New LNG & storage • Carbon capture and
information facilities storage / re-use
Solutions • Contingency plans with • Diversified fuel mix • Hydrogen
disruption scenaria • Market integration
• Cross-border coordination • Reverse flow
• Interruptible contracts & load possibilities
shedding • Energy efficiency
• Stock of alternative fuels
Source: [2][7][8]
In the medium term, the availability of sufficient capacity to deliver energy to the final con-
sumer at affordable prices constitutes the key energy security risk. New pipeline connections
with new gas fields as a solution to energy security concerns enter the picture in this context.
Interconnectors between EU markets, together with LNG & storage facilities are also impor-
tant elements of the medium term energy security strategy. Still, not all measures addressing
medium-term energy security concerns require large infrastructure investment. Stronger mar-
ket integration with diversified fuel mix, reverse flow possibility and a stock of alternative fu-
els would make it easier to serve energy demand. Finally, there is a large scope to increase
the efficiency of the energy use, which would reduce the size of demand that will have to be
served in the first place.
The sustainability of EU’s energy choices comes strong among the energy security concerns
in the long term, which within this context surpasses the economic lifetime of the natural gas
pipeline projects that are currently promoted. Carbon-free technologies, such as renewables,
nuclear and CCS provide solutions to long-term sustainability concerns. The assimilation of
large-scale intermittent technologies would require peaking natural gas units, at least in the
medium term, until micro-generation and storage solutions, such as hydrogen, which can be
transported over the natural gas network, are developed on a sufficient scale. Meanwhile CCS
would need pipelines for the transportation of CO2. In this context, natural gas constitutes a

“bridge” solution to carbon-free future, while the natural gas pipeline infrastructure might
have a role to play even after the expiration of the pipeline’s economic lifetime.
2.6 Conclusions
Natural gas is the fastest growing source of energy with important implications for economic
development and security of energy supply. Natural gas needs, grow at particularly high rate
in the developing countries around the world, especially China and India – the most populous
countries in the world – as they record significant economic growth.
In the EU27 the future course of the demand for natural gas is less certain in the following
years while indigenous production will steadily decline. In any case, the EU will require addi-
tional gas import capacity. In contrast to EU where primary gas production falls due to de-
pleted fields gas reserves, in Russia and the Middle East / Caspian regions the reserves suf-
fice to cover the growing global demand for gas. The increased import dependency of EU27
implies that there will be further need to enhance energy security indicating that new pipeline
routes combined with LNG & storage facilities will have to be developed.
Given the uncertainty about future EU27 natural gas demand and the increasing import de-
pendency, large pipeline projects lose precedence over projects that increase market integra-
tion and flexibility. Within the Greek context, the relative position of interconnectors such as
IGI and TAP, together with new or upgraded LNG terminals and underground storage facili-
ties gains strength vis-à-vis Nabucco and South Stream.

3. THE GAS PIPELINE PROJECTS
3.1 Introduction
Recognising Europe’s growing thirst for natural gas imports and the need to diversify EU’s gas
supplies, a significant number of infrastructure projects in the gas sector are in various stages
of development (Figure 3.1). The European Commission has introduced various mechanisms
to support this process.
One of the priority axes of development for the EC is the opening of the Southern Gas Corri-
dor, which has the potential to connect the European market with the largest deposits of gas
in the world with estimated 90.6 trillion cubic meters (tcm), situated in the Caspian region
and the Middle East. There are, however substantial geopolitical obstacles, such as Iran’s po-
litical seclusion and territorial disputes in the Caspian Sea, together with strong competition
with Chinese, Russian and potentially Indian demand, which might limit the availability of gas
along the Southern Corridor in the foreseeable future. Nevertheless, the amount of gas that
would be readily available by 2016 from the second phase of Azerbaijan’s Shah Deniz devel-
opment project is sufficient to contribute to the security of supply objective.
Figure 3.1: Pipelines for natural gas transmission in Europe
Source: IEA, Natural Gas Review 2009
Shah-Deniz has estimated recoverable resources of approximately 1.2 tcm. It is located in the
Caspian Sea, 70 km south-east of the capital Baku with a contractual area of 860 km². The
leading partners of the Shah Deniz consortium are BP (United Kingdom) and Statoil (Norway)
- both with a share of 25.5% (Figure 3.2).

3. The gas pipeline projects
Figure 3.2: Shah Deniz consortium ownership
T PA O ( T ur key)
9%
B P ( UK)
T otal (Fr ance) 2 5 .5 %
1 0%
Nioc (Ir an)

1 0%
L ukoil ( Russia)
10 %
Statoil ( Nor way )

2 5 .5 %
Socar
( A zerbaijan)
10 %
Shah Deniz Phase I started operations in 2006. In 2010 the field continued its production
from four wells in order to deliver gas to the markets of Azerbaijan, Georgia and Turkey. To-
tal production from Phase I is estimated at 120 bcm, i.e., 10% of the field’s total recoverable
resources. According to IEA, the Phase II development of Shah Deniz is expected to bring the
total production of all Azeri gas fields to 36 bcm by 2020, of which two thirds, 24 bcm, will be
available for export. In addition, according to the IEA projections by 2035 gas production will
triple relative to the 2010 level (50 bcm) with incremental gas production sustained from the
Shah Deniz field after Phase II.[3]
The Azeri gas supplies are transported to the European market mainly through the South
Caucasus Pipeline (SCP), which runs through Azerbaijan and Georgia (near Tbilisi), connect-
ing to the Turkish grid in Erzurum. The SCP, also known as the Baku-Tbilisi-Erzurum pipeline,
is expected to provide an export route for gas upon the full development of the Shah Deniz
field. The pipeline, which was constructed by a consortium led by BP and Statoil transports
currently gas from Shah Deniz I. Gas transportation through the 691 km length pipeline be-
gan in 2006 with a capacity of 8 bcm per year. A decision on expanding the pipeline in syn-
chronisation with Phase II of Shah Deniz – at the end of 2016 - will incorporate a new pipe-
line in Azerbaijan and the construction of two additional compression stations in Georgia that
will enable the tripling of the exported gas volumes to over 20 bcm per year.
Turkey is undoubtedly the key transit country along the Southern Gas Corridor. Greece on the
other hand, given its strategic location, can play an important role in Europe’s attempt to di-
versify its routes of gas supply, but Greece’s participation should not be taken as given.
Transmission projects, such as IGI, TAP, and South Stream’s southern branch are planned to
pass through Greek territory. Yet, the participation of Greece in this process is not guaran-
teed since other projects, such as Nabucco and South Stream’s northern branch, bypass

Greece altogether. In addition, there are alternative ways to alleviate energy security prob-
lems, in case no project materialises.
Pipeline natural gas is injected to Greece’s natural gas transmission system (NGTS) through
the Greek-Bulgarian border with gas originating in Russia on one hand, and through the In-
terconnector Turkey-Greece (ITG) on the other (Figure 3.3). An LNG terminal with storage
and gasification facilities on Revythousa Island constitutes the third natural gas entry point
for NGTS.
In the case where the Southern Gas corridor utilises a Greek route, the gas will be trans-
ported over ITG. The interconnector was put to operation in November 2007. It comprises of
the expansion of the Turkish gas network from Karacabey in northwest Turkey to Komotini in
northeast Greece. Natural gas is injected in the Greek transportation system near Kipoi in Ev-
ros (at the Greek-Turkish border). The total length of the pipeline is 296 km, of which 210 km
runs over Turkish territory - 17 km under the Marmara Sea - and 86 km are in the Greek sec-
tion.
Figure 3.3: Interconnector Turkey-Greece
The pipeline’s transport capacity is estimated at 11.5 bcm of natural gas per year. The project
was developed by BOTAS (The Turkish state-owned oil and natural gas pipeline and trading
company) and DEPA and is operated DESFA. Currently, ITG carries small gas volumes to
Greece (0.70Bcm), mainly from the Shah Deniz field.

3.2 IGI Poseidon
The IGI Poseidon project aims to transport Azeri gas to EU markets through Greece and Italy.
The Italy-Greece Interconnector (IGI Poseidon) has total length of 807 km. The interconnec-
tor essentially consists of two interdependent projects:
i) Komotini-Thesprotia onshore pipeline): a high pressure pipeline of 42” diameter

with a length of 590 km and 15 bcm planned capacity, running through Greek territory
from the industrial area of Komotini to the Ionian coast of Thesprotia. The Thesprotia-
Komotini section will be constructed by DESFA, the Greek national gas transmission sys-
tem operator, which currently is 100% subsidiary of DEPA, and will become part of the
Greek NGTS upon its completion. It incorporates a series of ground facilities - compres-
sion stations at Nea Messimvria and Thesprotia, a metering station in Thesprotia and an
operation-maintenance station - necessary for the pipeline’s operation.
Figure 3.4: Italy-Greece Interconnector
ii) Poseidon offshore pipeline: a 207 km offshore pipeline with 10 bcm planned capacity
that crosses the Ionian Sea in order to connect the gas networks of Italy and Greece
(Figure 3.4). Eight bcm of its capacity is exempt from third-party access, while additional
1 bcm has been auctioned as open season capacity. The construction of the offshore Po-
seidon pipeline has been undertaken by IGI Poseidon SA, a company owned equally by
Edison – Italian electricity and gas company - and DEPA. The scope of the company is to
design, fund, construct and operate the segment between Greece and Italy. The Posei-
don pipeline has gas compression and metering stations both in Thesprotia and at the

landing point of Otranto in Italy. The project will be funded by DEPA and Edison 50%
each, whilst the rights over the capacity have been set at 80% for Edison and 20% for
DEPA respectively.
The investment cost of the project will be covered with bank loans and equity while financing
could also be provided by the European Investment Bank. IGI received positive preliminary
environmental impact assessment and evaluation for the Greek section in September 2010,
while the permitting procedure in Italy was concluded in May 2011. The pipelines are ex-
pected to be constructed and commercially operated by the end of 2015, in time to transport
the gas coming from phase II of the Shah Deniz development project. Under the Trans-
European Energy Network (TEN-E) guidelines IGI is classified as a “Project of European In-
terest”.
IGI Poseidon SA is also involved in the developing of a spur pipeline interconnecting Greece
and Bulgaria. The proposed pipeline connects Komotini (Greece) with Stara Zagora (Bulgaria).
It is 168 km long, mostly on Bulgarian territory, and capacity between 3 to 5 bcm per year.
The project, nicknamed “mini-Nabucco” can be considered supplementary to the Southern
Gas corridor projects, drawing gas from the ITG pipeline or a future LNG terminal near Kavala
along the North Aegean coastline. In November 2010, a Memorandum of Understanding was
signed between the Bulgarian Energy Holding and IGI Poseidon SA to form a joint venture
that will implement the project.
3.3 TAP
The Trans Adriatic Pipeline (TAP), similarly to IGI Poseidon, aims to transport gas originating
in the Caspian region through Greece and Albania to the Italian market (Figure 3.5). The total
length of the pipeline was recently extended, in order to start near Komotini, avoiding the risk
of DESFA not upgrading the Komotini-Thessaloniki section on time. With the new route, the
pipeline is approximately 784 km long, including 466 km over Greek territory and an offshore
section of 115 km in the Adriatic Sea. The diameter of the onshore pipeline is 48 inches,
while the offshore section will have 42 inch diameter.
The initial transportation capacity of the pipeline is estimated at 10 bcm per year, with the
ability to expand to 20 bcm per year as additional gas volumes become available from the
Caspian basin. The pipeline capacity can be doubled by installing another compressor station
at the Greek-Albanian border, without the need to construct additional offshore pipeline and
at marginal cost. The TAP project involves also the ability of physical reverse flow for most of
the pipeline’s total capacity (approximately 80%), in order to cover unexpected gas supply
interruptions in Greece and/or the SEE region. The project is also considering the develop-
ment of gas storage facilities in central Albania, using underground salt formations that will
be connected to the pipeline’s infrastructure.

Figure 3.5: Trans-Adriatic Pipeline
The TAP consortium consists of the Swiss company EGL (42.5%), Norway’s Statoil (42.5%)
and E.ON Ruhrgas of Germany (15%). It is worth noting that Statoil has a significant share in
the Shah Deniz consortium (25.5%), which will deliver the planned 10bcm of gas from Azer-
baijan, and in the South Caucasus Pipeline from Baku in Azerbaijan to Erzurum in Turkey,
while the company also operates the fields and the pipelines that supply Norwegian gas to
the EU. The construction of TAP will be mainly financed by the consortium’s own capital.
The pipeline’s schedule is aligned with the phase II of the Shah Deniz field development. TAP
submitted Preliminary Environmental Impact Assessment to the Greek authorities and Single
Authorisation Application to Italy’s Ministry of Economic Development in September 2011,
while in Albania it began the formal Environmental and Social Impact Assessment process in
April 2011. In September 2011 TAP also applied for third-party access exemptions in Albania,
Greece and Italy.
TAP will have the ability to expand gas transportation in the Balkan countries through the
Ionian Adriatic Pipeline (IAP). According to the plan, IAP – a 516 km pipeline with 5 bcm ca-
pacity – will connect to TAP in southwest Albania and through Montenegro will terminate in
the Dalmatian sea port of Split (in Croatia).
Compared with Poseidon, TAP’s offshore segment between Albania and Greece is shorter by
almost a half, and is crossing the Adriatic through shallower waters. TAP is recognised under
the Trans-European Energy Network (TEN-E) guidelines as a “Priority Project”. Initially, the
pipeline was routed through difficult and protected mountainous terrain in Albania, which was

perceived as a disadvantage for the project. Since then TAP has been rerouted in order to
minimise its environmental impact, securing in parallel the political support from all major
political parties in Albania.
Another important difference to the Komotini-Thesprotia pipeline is that TAP is an independ-

ent natural gas system (INGS). This means that the pipeline would not be part of the Greek
NGTS.
3.4 Nabucco and SEEP
The Turkey-Austria pipeline, known as Nabucco, aims to transport gas from Caspian and Mid-
dle Eastern reserves to central Europe. It has a total length of approximately 3,900 km, pass-
ing through five countries – Turkey, Bulgaria, Romania, Hungary and Austria (Figure 3.6).
Nabucco is a joint-venture of the energy companies OMV (Austria), MOL (Hungary), RWE
(Germany), Bulgarian Energy Holdings (Bulgaria), Transgaz (Romania) and Botas (Turkey)
with each shareholder holding an equal share of 16.7%.
Figure 3.6: Nabucco
The pipeline's planned capacity is 31 bcm per year, which renders Nabucco the pipeline with
the largest capacity among the proposed projects in the Southern gas corridor. This raises
the issue whether adequate gas volumes will be available in order to make the project viable.
The construction of the pipeline is expected to begin in 2013 and first gas inflows to take
place in 2017. The total investment is estimated at 7.9 billion euros (the assessment however
is currently under revision), with two-thirds of the required capital provided by financial insti-
tutions. It should be also mentioned that unlike IGI and TAP that utilise the existing Turkish
network for the transportation of Azeri natural gas, the Nabucco project entails the construc-

tion of a new pipeline on Turkish territory that follows existing routes for 75% of its length.
Nabucco seems to enjoy strong support from the European Commission and DG TREN in par-
ticular.
A few days before the deadline of the procedure to collect formal proposals for gas evacua-
tion from Shah Deniz to Europe via Turkey from the second phase of the field’s development,
BP announced a new candidate - South East Europe Pipeline. SEEP has more or less the same
route with Nabucco, but is designed specifically to carry the capacity that will be initially
available from Shah Deniz II (10 bcm to Europe + 6 bcm to Turkey). Together with the fact
that SEEP utilises existing infrastructure along the route, SEEP is considerably cheaper than
Nabucco, while serving the same markets. Even though it is still not a complete project, but
still simply an option, BP Azerbaidjan, the technical operator of Shah Deniz, announced that it
will take SEEP into consideration as a candidate export route for its gas.
3.5 Southern Gas Corridor Alternatives
The key purpose of the Southern Gas Corridor projects is to increase the flow of gas to the
European markets and to diversify EU’s gas supply routes and sources. The materialisation of
projects along this route, however, is riddled with geopolitical, economic and social complexi-
ties. A number of alternatives that bring more gas in South East Europe and the wider region
are promoted in parallel.
3.5.1 South Stream
While the European Union member states strive to diversify their sources of gas supply, the
Russian government is seeking options to diversify the routes through which its gas is sup-
plied. The South Stream and Nord Stream projects, which bypass Ukraine and Belarus respec-
tively are promoted mainly for that purpose.
The purpose of the South Stream project is to develop a cross-border pipeline that will trans-
fer Russian gas to South-East and Central Europe directly through an offshore pipeline. Com-
pared to existing routes, it bypasses Ukraine, while compared to Nabucco, ITGI and TAP, the
pipeline bypasses Turkey.
The pipeline’s planned capacity was doubled recently to 63 bcm from 31 bcm per year. Its
route starts at a compressor station near either Anapa or Dzhubga on Russian territory,
crossing the Black Sea to connect with Varna, Bulgaria. The offshore section will extend for
900 km with a depth reaching up to 2,250 metres. The project is implemented by South
Stream AG – a joint venture of Gazprom and Eni originally while recently new share holders
joined the project (EdF, Basf and Wintershall).

Figure 3.7: South Stream
Source: [12]
Several options are under consideration (Figure 3.7). Under one of the options the pipeline
runs from Bulgaria to Italy through Greece and the Adriatic Sea and at the same time north
through Serbia and Hungary to Austria and/or Slovenia. Alternatively, the pipeline includes
only the northern branch. In Austria, the pipeline is scheduled to terminate at the Baumgar-
ten hub, which is the projected endpoint for Nabucco as well. Alternative options are also
considered for the project’s route through the Black Sea (in order to bypass Ukraine’s eco-
nomic zone), while opting for Romania instead of Bulgaria is also on the table. Several gas
laterals, connecting the pipeline with Croatia and FYROM are also under consideration.
For the implementation of the onshore pipeline section, Russia has signed intergovernmental
agreements with Bulgaria, Greece, Serbia, Hungary, Slovenia and Austria. In Greece a JV
company was created between DESFA and Gasprom to develop the South Stream project.
The agreements concern feasibility studies for the pipeline construction and the establish-
ment of partnerships between Gazprom and the national energy company of each transit
country. According to the South Stream consortium, the investment cost will be estimated
after the completion of the consolidated feasibility study.
3.5.2 Extraction in the Mediterranean basin
While the Southern Gas Corridor and South Stream aim to bring gas from the Caspian region,
the Middle East and Siberia to South-East Europe, Italy and beyond, there is a possibility that
there is significant amount of gas available much nearer to these markets. Eastern Mediterra-
nean countries (Israel and Cyprus, in particular) can become significant gas suppliers in the
following decade. Israel currently imports about 1.7 bcm of gas per year from Egypt via the
Arish-Ashkelon pipeline with plans of doubling the specific capacity. However, the discovery
of the Leviathan offshore field in early 2010, which is one of the largest hydrocarbon findings
of the previous decade, has raised hopes that the country can become self-sufficient in gas
supplies and become net exporter to the European market.

The field, located in Israel’s Tamar block, has estimated reserves of 16 tcm. It is developed
by a consortium of four shareholders, led by the US company Noble Energy. Full commercial
operation is expected to start by 2016.
Cyprus can also benefit significantly from the development of the Leviathan field, which lies
within 60 km from the country’s exclusive economic zone. Agreements between Israel and
Cyprus on their maritime borders have been signed with each country accepting the exclusive
economic zone of the other.
The investment plans set by Delek Group – a partner of the Leviathan project in Israel – en-
visage LNG export station in Cyprus with ability to process Israeli gas and possibly gas from
Cypriot fields. Meanwhile, Noble Energy has undertaken the exploration rights for gas and oil
fields at Block 12 of Cyprus’ exclusive economic zone and commenced drilling in October
2011.
3.5.3 LNG, storage facilities and other pipelines
A number of other projects, also aiming at supplying more gas and boosting the energy secu-
rity of Italy and Central Europe are under development. Large number of LNG projects along
the Italian coastline are at various development stages. The new offshore terminal at Rovigo
with a capacity of 8 bcm/pa, is operational since 2009. The construction of two more termi-
nals – in Brindisi with 8 bcm/y capacity and Livorno with 3.75 bcm/y capacity – is nearing
completion. Meanwhile, eight more LNG projects are in the authorisation phase.
We can add to this a number of underground natural gas storage facilities. The planned new
storage capacity in Europe amounts to approximately 45 bcm per year, with approximately a
third of the required investments being committed or under construction.[9] In Italy, storage
facility at the Cotignola – San Potito field with capacity 0.9 bcm is currently under construc-
tion. Meanwhile, 5 more projects in Italy with 4.36 to 4.76 bcm total capacity are collecting
the necessary permits.
The pipeline projects that aim to supply gas to Italy through Greece (IGI Poseidon, TAP and
South Stream’s southern branch) face competition from the pipeline projects that connect the
Italian market with North Africa gas. The Trans-Mediterranean pipeline (TRANSMED II),
which connects Algeria with mainland Italy via Tunisia and Sicily, is operational since 2008
with capacity 6.5 bcm/y. Meanwhile, the Galsi pipeline, with 8 bcm/y capacity, which would
connect Algeria with the Tuscany coast of Italy, passing through Sardinia and Corsica has
entered the final stage of the authorisation process.
The progress of these projects does not preclude the construction of the Greece – Italy inter-
connectors. The economic viability of the interconnectors ultimately depends on the price
(adjusted for quality and other relevant characteristics) of the gas that will reach the Italian

system, relative to that of the other options. Nevertheless, it is important to note that there is
no room for complacency – Europe is not desperate for solutions that pass through Greece
and there are alternatives to mitigate Europe’s energy security concerns that do not involve
Greece’s participation.
3.6 Conclusions
The Southern Gas Corridor will contribute to the diversification of energy routes in the Euro-
pean market, improving subsequently the security of its gas supply. Most pipeline projects in
the region compete with one another to varying degrees. Nabucco, IGI and TAP compete
over securing gas from Shah Deniz II, as the supply of these projects realistically would come
from the specific field, at least given the current geopolitical situation in the Caspian basin
and the Middle East. In addition, IGI, TAP and the south branch of South Stream compete to
supply gas more or less through the same entry point of the Italian gas transmission system.
Intensely competitive over the same gas demand are also the north branch of South Stream
with Nabucco and to a lesser extent with smaller interconnector projects, such as IGB.
Not all South Corridor pipeline projects are planned to pass through Greek territory, while
South Stream also encompasses alternative routes. Meanwhile, a number of alternative solu-
tions, such as North Africa pipelines, LNG terminals and underground storage facilities are
actively promoted. This implies that Greece’s participation in the diversification of Europe’s
gas supplies is not guaranteed. The stakeholders in Greece should take this into account, as
long as they are eager to benefit from the pipeline construction and to allow the country to
become a strategic Energy Highway.

4. Comparative Analysis of The Projects
4. COMPARATIVE ANALYSIS OF THE PROJECTS
4.1 Introduction
Azerbaijan is currently the only country in the Caspian basin and the Middle East region that
is able to supply gas to the EU market through the Southern Corridor within a reasonable
timeframe and without significant geopolitical changes. This implies that there is not enough
room for the implementation of all the projects along the Southern Gas Corridor. In theory, a
social planner would compare the projects along a number of established criteria that would
enable the selection of the project or projects that maximise net social benefit, given the gas
supply constraint.
In practice, however, such a procedure is not feasible and the pipeline selection process is
much more complex. The relative importance of various desirability criteria depend on each
stakeholder’s standpoint and there is no “objective” way to arbitrate among these interests.
Meanwhile, there is a multitude of obstacles that delay the implementation of the projects,
affecting them to a different, often unforeseeable, degree (Table 4.1).
Table 4.1: Main obstacles and reasons for delay along the NG3 corridor
• Complexity of legal and regulatory framework (numerous authorisation procedures at

different administrative levels: federal, regional, local)
• Time-consuming permitting procedures (incl. EIA report) and synchronisation of dif-
ferent public hearings
• Coordination with upstream pipelines projects
• Market issues (finalisation of natural gas sale, purchase agreements and transit
agreements)
• Synchronisation of gas transmission grids upgrade along the pipeline route
• Managing protected natural areas
• Crossing existing infrastructures (e.g. tunnels, underwater pipelines etc)
• Crossing densely populated areas, military areas and natural barriers (e.g. Mediterra-
nean Sea)
• Supply chain price evolution
• Financing sources scarcity
Source: [1]
The evaluation criteria differ across the stakeholders. For instance, the EU has emphasized as
key priority criteria the objectives of i) strengthening security of energy supply, ii) enhancing
the internal market competition and iii) increasing the use of renewable energy sources.[9] In
contrast, the criteria of selecting an export route, announced by the Shah Deniz consortium
focus on technical and operational limitations (Table 4.2). Each project has submitted for as-

sessment to the Shah Deniz consortium information regarding the technical and economic
details of the project. The consortium’s decision is expected to be announced this autumn.
Table 4.2: Shah Deniz consortium criteria for the export route selection
Commerciality – based principally on full export chain value, including market prices
and infrastructure access charges and tariffs;
Project deliverability – technical and organisational capability to execute the project
plans on schedule and within budget;
Financial deliverability – ability to cover development costs through equity, loans,
grants or other funding;
Engineering design – scope and quality of the engineering plans
Alignment and transparency – willingness to cooperate technically with Shah Deniz
and to align with the timeline of Shah Deniz FFD;
Operability – the long-term capability to manage physical and commercial operations
safely, efficiently and reliably;
Scalability – the potential for expansion or addition of export facilities to allow trans-
portation of increased volumes as further gas supplies become available;
Public policy considerations – meeting the EC’s stated objective of enhancing sup-
ply diversity of European natural gas markets, and ensuring sustained support from
all stakeholders.
Source: [10]
In this study, we compare the projects along three dimensions – probability of materialisa-
tion, impact on Greek economic activity and impact on the Greek state’s cash position. The
probability of materialisation comparison follows closely the selection principles, laid out by
the Shah Deniz consortium, which reflects the importance of their forthcoming decision for
the projects’ success. The impact assessment is based on a quantification exercise, using in-
put-output methodology.
4.2 Probability of materialisation
Given that the combined capacity of the projects by far exceeds the quantities of gas that
would be made available along the South Corridor in the next decade or so, it is clear that
only the projects that secure binding sale and purchase agreements stand a chance to mate-
rialise. Thus, the implementation of the Nabucco, White Stream, IGI or TAP projects is di-
rectly related to the decision of the Shah Deniz consortium on which project will undertake to
transport gas extracted from the specific basin. In this section we evaluate the major projects
of interest to Greece (IGI Poseidon, TAP and South Stream’s south branch) along a set of
criteria that draw on Shah Deniz’s list, but are not limited to it.

4.2.1 Evaluation criteria
Financial deliverability: IGI Poseidon is penalised for the low credit rating of the Greek
State, as the state-owned DESFA is responsible for the construction of the Komotini-
Thesprotia section (Figure 4.1 and Table 7.2 in the appendix). Moreover, the credit rating of
Edison, which is the highest-ranking partner for the Poseidon section, is lower (BBB, Long-
term S&P), compared with TAP’s highest-ranking shareholder (Statoil with AA-).
Figure 4.1: Scoring of projects competing for Greece-Italy Interconnection, ac-

cording to specified criteria
Stakeholder support - EC
3
Stakeholder support Stakeholder support

Other host countries Greek government
2
1
Stakeholder support
Offshore risk
Local communities in Greece
0
Strategic positioning
Transit country risk
Upstream
Experience in pipeline Financial

construction & operation deliverability
IGI TAP Southstream
Experience in pipeline construction & operation: The three projects evaluated here
involve considerable challenges, including mountainous terrain and offshore sections. Signifi-
cant technological expertise will be required to build this gas transportation infrastructure.
Both TAP and South Stream benefit by the participation of companies with vast experience in
pipeline construction and operation. Statoil is involved in the construction of pipelines across
the globe (~8,000 km of offshore pipelines) and it operates Norway’s intricate offshore pipe-
line network that exports substantial quantity of gas to the EU market, while E.ON. operates
the extensive onshore pipeline network of Germany (~11,000 km of onshore pipelines)
through its subsidiary Open Grid Europe GmbH. Gazprom, in turn, owns and operates Rus-
sia’s vast Unified Gas Supply System, while the company was also involved in the construction
of the technically challenging Blue Stream project. The combined experience of Edison and
DEPA is considerably less extensive. Experience is particularly important, as it is linked to at
least three of Shah Deniz’s criteria (project deliverability, operability and engineering design).

Offshore risk: From a technical perspective, an offshore installation involves additional chal-
lenges and costs related to the depth range and the diameter of the pipeline. Higher depth
requires pipelines of smaller diameter and higher safety standards, which substantially in-
creases the required capital and operating expenses. South Stream involves the deepest off-
shore section of the three projects, exceeding 2000 meters under the Black Sea. Poseidon is
routed to pass through a maximum depth of 1370 meters in a steep terrain. In contrast,
TAP’s maximum pipe laying depth is estimated to reach 820 meters crossing a smooth ter-
rain.
Stakeholder support – EC: IGI has been listed among the projects of European interest,
and for that purpose it is better positioned (according to the specific criterion) relative to TAP
and South Stream. TAP is supported by the European Commission as a priority project under
the TEN-E guidelines. Meanwhile, South Stream is a project of Russian interest and is not
considered as a project eligible for priority funding.
Stakeholder support – Greek government: IGI is enjoying political support from both
Greece and Italy and is rewarded as it is promoted by the Greek state-owned gas company
(DEPA). As a result, it has already secured TPA exemptions for most of its planned capacity,
while its licensing applications are at a more advanced stage. South Stream would also be
implemented with the participation of DESFA, but the support that it meets is less enthusias-
tic, as this project creates tension with EU’s diversification goals.
Stakeholder support – Local communities in Greece: IGI and South Stream are penal-
ised due to the strong reaction to pipeline projects by local communities along the Greek
Ionian coast. Despite the active efforts of IGI Poseidon to win public support, which included
organising trips for local community leaders to natural gas facilities along the Italian coasts,
the local councils of Perdika, Parga and Igoumenitsa have remained opposed to the project,
as in their view it conflicts with tourism development in the area. In contrast, after branching
off the national pipeline network close to Thessaloniki, TAP passes mainly through Western
Macedonia, an area with heavy industrial development. In addition, the border community of
Kastoria seems to find the prospect of having access to natural gas for its consumption needs
appealing.
Stakeholder support – Other host countries: While TAP seems to coordinate well with
Albania, having signed two Memoranda of Understanding and Cooperation with the Albanian
government (one for the TAP project and another for the Ionian Adriatic Pipeline), the south
branch of South Stream is experiencing some difficulties with the current Bulgarian govern-
ment, whereas its offshore section in the Black Sea requires coordination with the very coun-
tries that it bypasses, as it should cross through either the Ukrainian or the Turkish exclusive
economic zones.

Strategic positioning upstream: Securing gas supplies for the new pipelines is essential
for their financial viability. On commercial grounds it can be argued that TAP and South
Stream are better positioned given that they are scheduled to be operated (technically and /
or commercially) by energy companies with direct access to gas supplies. One of TAP’s major
shareholders, Statoil, has a stake of 25.5% in the Shah Deniz consortium. Similarly, South
Stream is backed by the vast supply base of Gazprom. In contrast, IGI Poseidon does not
involve the participation of a company with access to the upstream resource it plans to trans-
port.
Transit country risk: TAP receives a lower score along this criterion given the fact that the
pipeline is scheduled to pass through Albania. Albania experienced a period of political insta-
bility in its recent past. On the other hand, TAP represents a large foreign direct investment
in the country, with a significant contribution to its economic activity and employment. In ad-
dition, the project would contribute to the development of strategic energy infrastructure,
turning the country into an energy hub for supply of its northern neighbours, which was rec-
ognised in the latest Memorandum of Understanding and Cooperation between TAP and the
Albanian government, signed on 21 July 2011.
4.2.2 Impact of the Greek government’s privatisation programme
The comparative analysis of the alternative pipeline projects presented in Section 4.2.1 is
based on the assumption that the Greek State will remain the main shareholder and manager
of DEPA and DESFA. However, the Greek government has announced an ambitious, front-
loaded privatisation programme, which includes DEPA and DESFA and the remaining stake in
Hellenic Petroleum.
It is obvious that if DEPA and DESFA are sold to strategic investors – most probably interna-
tional energy groups – with strong credit rating and extensive experience in pipeline construc-
tion, this will strengthen IGI Poseidon’s prospect. It is doubtful, however, whether this priva-
tization process can occur before the Shah Deniz consortium make its final decision. Transac-
tions of such type involve long lead times. The successful completion of such a sale will re-
quire a thorough business, legal and financial due diligence of the targeted company.
The privatisation process of DEPA and DESFA faces the following additional issues and diffi-
culties:
The current adverse macroeconomic environment has resulted in the collapse of eq-
uity values in Greece and this decreasing trend has not stopped yet. International in-
vestors are quite reluctant in investing in Greece currently. A foreign investment in a
Greek entity would involve high risk premium and high expected rate of return, thus

offering relatively low valuations. In this environment, the risk that the Greek gov-
ernment will reject all price offers for being not high enough, resulting in delay or
even cancellation of the privatisation process, is substantial.
The potential value of the IGI project is an important element of DEPA/DESFA’s priva-
tisation deals. It would be very difficult to reach an agreement on the value of these
companies prior to Shah Deniz consortium’s final decision, which in turn depends on
the identity of the new investors.
The Greek state-owned electricity company PPC currently holds a 30% call option on
DEPA’s equity. The Greek State has not solved this issue yet, which could further de-
lay DEPA/DESFA’s privatisation. Even though the current strategy of PPC does not in-
clude exercising the option - recently it was announced that PPC will appoint a con-
sultant to evaluate the price of the call option – the legal possibility that large part of
the shares can end up in the hands of a major energy player on the Greek market
can scare away potential investors.
Another parameter in this complex equation is the stance of the other major share-
holder of DEPA - Hellenic Petroleum – which have not announced yet their strategy
as to whether they will sell their share in DEPA to a third Party, keep it or even take
part in the process as buyers..
Based on the above issues, it is very doubtful that an acquisition of such magnitude can be
negotiated and carried out in less than 3 months. In addition, in order for any newly acquired
enterprise to approach the efficiency standards of its buyer, it has to undergo a restructuring
process. Reasonably fast post-M&A restructuring can last for up to 18 months. Therefore,
even if DEPA and DESFA are sold quickly to a solid investor with relevant expertise, IGI Po-
seidon is still associated with higher risk of meeting Shah Deniz’s timeline criterion, at least
until a swift restructuring process has been accomplished.
4.3 Impact on Greece
Large-scale infrastructure projects have considerable impact on various sections of the society
and pipelines are not an exception. Interests vary across stakeholder groups, which imply
that the impact of such projects is quite heterogeneous. In this section we focus on quantify-
ing the impact of selected projects on the economy as a whole and the cash position of the
Greek State in particular.
We limit our attention to IGI Poseidon and TAP, as both projects compete for gas coming
from the same entry point (ITG) and going to the same destination (Italy). South Stream is

not included in the impact assessment for a number of reasons, including lower probability of
materialisation, similar route with IGI Poseidon and different time frame.
4.3.1 Impact on economic activity
To quantify the economic impact of the pipeline projects, we modelled their construction as a
positive shock to investment, using an input-output model of the Greek economy. The input-
output methodology forms an essential building block of the complex multisector computable
general equilibrium models and the European System of Accounts (ESA 95), which is used for
the generation of national account statistics (including GDP) in the EU.
For the purposes of this study, we used a simple input-output model, assuming fixed technol-
ogy (no factor substitution), constant returns to scale and sufficient excess capacity to ac-
commodate positive demand shocks. As our estimation is limited to the period of pipeline
construction (3 years), which is a fairly short period of time for significant technological
change to take place, the use of this model, in our view, involves a reasonable approxima-
tion.
Figure 4.2: Direct, indirect and induced effects
Direct effects Indirect effects Induced effects

from higher in- from increased
termediate de- household income
mand (suppliers
of suppliers)
We did not quantify the impact of the pipeline’s operation after construction on economic ac-
tivity for a number of reasons. Firstly, the economic lifetime of a pipeline extends for at least
25 years, while its technical lifetime is even longer – the use of input-output techniques for
such a long time span is not well substantiated. More importantly, the operation of a pipeline
does not require substantial input of labour or materials (other than imported gas, of course),
thus its impact on domestic economic activity is significantly lower during its operation phase.

Finally, the impact of the pipeline operation on the Greek State’s cash position in terms of tax
revenue and potential dividends (assuming current shareholder structure) is quantified in sec-
tion 4.3.2.
The results presented here refer to additional economic activity, taking as given that a par-
ticular project materialises, without taking into account the difference in the risk profile of the
two projects. Thus, our results refer to impact, conditional on a project’s materialisation,
rather than expected impact, weighted with probabilities of materialisation.
The Input – Output model, in addition to the increased economic activity in the sectors di-
rectly involved in the construction of the pipeline (Figure 4.2), quantifies spill-over effects to
other sectors of the economy from the increased demand for intermediate goods (indirect
effects) and increased final consumption due to higher household income (induced effects).
This is achieved by utilising a Leontief matrix, which takes into account the interdependencies
across the various economic sectors. For this exercise we used 59 sector Input-output tables
from the Eurostat database.
Figure 4.3: Investment cost breakdown

Real estate services C omm unication
1% equipment 0.4%
Building m aterials
Catering &
1% accomm odation
Transport 2% 0.2%
O ffice equipment
Insurance 4% 0.2%
O ther services 7%
Machinery 9% Construction 40%
Banks 13%
Pipes 22%
The investment cost for the construction of a pipeline is spent on the purchase of goods and
services over the construction period. We assumed that 40% of the investment cost is ab-
sorbed by the construction sector, 22% of the cost corresponds to the purchase of pipes and
13% corresponds to interest during construction and other banking expenses. The remaining
cost is spent on machinery, insurance, transport and other relevant goods and services
(Figure 4.3).
Not all of the investment cost translates into increased domestic activity, as part of the pur-
chased goods and services are imported. We used input-output tables to split the investment
cost per sector between imports and domestic production. Indicative results for €1 billion

pipeline investment are shown in Figure 4.4. Imports have large share of the cost of pur-
chased machinery and pipelines, while construction is predominately domestic.
Figure 4.4: Cost breakdown between imports and domestic production for €1 bil-
lion pipeline investment
Construction
Pipes
Banks
M achinery
O ther services
Insurance
Transport
Building materials
R eal estate services
Com m u nication equipm ent
O ffice equipment
Catering & accom m odation
0 50 100 150 200 250 300 350 400 450

€ million
Dom estic Im ported
Given that the onshore section of IGI is longer by 124 km (compared to TAP’s Greek section),
it is reasonable to expect that its construction will provide slightly stronger stimulus on activ-
ity. The impact from the construction of the offshore sections of the pipelines is not quanti-
fied here, as the likelihood of Greek enterprises winning supply contracts for this technically
challenging and very specific activity is rather low, given their lack of expertise.
Figure 4.5: Annual impact on domestic output during the pipelines’ construction
period Impact on Domestic Output Impact on Domestic Output
900 900
398 814
800 800 369 755
700 700
600 600
€'09 million
€'09 million
500 500
153
142
400 400
300 264 300 245
200 200
100 100
0 0
The construction of the onshore section of IGI would generate € 814 million of additional
output per year, compared with € 755 million for the construction of the onshore section of
TAP that passes through Greek territory. Almost half of this impact (€ 398 million for IGI and
€ 369 million for TAP) corresponds to induced effects due to higher household income. The
direct effect on annual domestic output from the construction of the pipeline amounts to
€ 264 million for IGI and € 246 million for TAP.

Figure 4.6: Annual impact on domestic Value Added during the pipelines’ construc-
tion period
500 500
240 445
450 450
223 413
400 400
350 350
€'09 million
€'09 million
300 300
250 250
77 71
200 200
150 128 150
119
100 100
50 50
0 0
Not all additional output translates into additional GDP, as part of it absorbed by increased
intermediate consumption. Both projects are expected to generate in excess of €400m/pa.
The estimated value added generated by the construction of Komotini – Thesprotia amounts
to € 445 million, against € 413 million for TAP. More than half of this amount corresponds to
induced effect on value added (€ 240 million for IGI and € 223 million for TAP).
Figure 4.7: Additional tax revenue per year of construction

30 30
7 24
25 25
7 23
20 20
€'09 million
€'09 million
5
5
15 15
12 11
10 10
5 5
0 0
Higher economic activity generates additional tax revenue (Figure 4.7). The construction of
IGI would generate € 24 million additional tax revenue, against € 23 million for TAP, out of
which € 12 million comes directly from the construction activities (€ 11 million for TAP). The
estimates for the tax revenue should be considered conservative, given the recent hike in tax
coefficients, which are not reflected in the historic input-output data that we used for this
exercise.
Figure 4.8: Annual impact on GDP during the pipeline’s construction period
500 248 469 500
230 435
450 450
400 400
350 350
€'09 million
€'09 million
300 300
250 82 250
76
200 200
139 129
150 150
100 100
50 50
0 0

As a result of higher domestic value added and higher taxes, Greek GDP would be higher by
€ 469 million from the construction of IGI, compared with € 435 million for TAP (Figure 4.8).
The direct effect on GDP from the pipeline construction amounts to € 139 million for IGI and
€ 129 million for TAP.
Figure 4.9: Additional annual labour income during the pipeline’s construction pe-
riod
180 180
76 165
160 160 70 153
140 140
120 120
€'09 million
€'09 million
100 33 100
31
80 80
57 53
60 60
40 40
20 20
0 0
Part of the generated value added corresponds to higher capital consumption, while the re-
mainder is distributed as labour income and operating surplus. The labour income of the
Greek households would be higher by € 165 million, if IGI is constructed and by € 150 million
if TAP materialises (Figure 4.9). Out of this, € 57 million (€ 53 million for TAP) corresponds to
wages to be paid by enterprises directly involved in supplying goods and services for the con-
struction of the pipeline.
Figure 4.10: Additional employment in Greece during the pipeline construction pe-
riod
14,000 14,000
12,000 5,818 11,606 12,000

5,396 10,765
10,000 10,000
8,000 8,000
1,927
6,000 6,000 1,787
3,862 3,582
4,000 4,000
2,000 2,000
0 0
Lastly, the construction of the onshore section of IGI is expected to increase employment by
more than 11,600 jobs, compared with more than 10,700 jobs for TAP (Figure 4.10). Out of
this, more than 3,800 people (3,600 for TAP) would be employed for the construction of the
pipeline in the enterprises contracted to provide the project with goods and services.
4.3.2 Impact on the cash position of the Greek State
TAP and IGI Poseidon compete for gas coming from the second phase of the Shah Deniz de-
velopment project, which is not expected to start operation before 2016. Synchronisation of
the pipeline’s construction with Shah Deniz’s timeline is a significant criterion for the consor-
tium that develops the Azeri gas field. This implies that whichever project materialises, its

construction should take place in the next four years or so, which is a crucial period both for
the reigniting of the Greek economy and the taming of the course of the Greek government
debt (Figure 4.11).
Figure 4.11: Projected Fiscal Developments
10 180
160
5
140
0 120
2009 2010 2011 2012 2013 2014 2015
100
% GDP
% GDP
-5
80
-10 60
40
-15
20
-20 0
Budget deficit (left axis) Primary budget balance (left axis) Gross debt (right axis)
Source: IOBE Medium Term Scenario, 30 June 2011
The Greek state has large equity participation in both the onshore (Komotini – Thesprotia)
and the offshore (Poseidon) sections of IGI. The sponsor of the onshore section (DESFA) is
fully owned by DEPA, where the Greek state holds 65% stake and indirectly further 12% as a
35% shareholder of Hellenic Petroleum (Figure 4.12). Similarly, the shareholding structure of
DEPA determines the participation of the Greek State in Poseidon.
Figure 4.12: Participation of the Greek State in IGI’s pipeline projects
Greek State
65% 35%
DEPA 35% Hellenic Petroleum
100% 50%
DESFA IGI Poseidon
Komotini – Thesprotia Poseidon Pipeline

Pipeline (77%) (39%)

As a shareholder of DEPA and Hellenic Petroleum, the Greek state should provide its share of
the equity capital required for the project in order to maintain its participation in these com-
panies intact. The impact of operation cash flows on the cash position of a company’s share-
holders is a more complicated matter, as it depends on the company’s dividend policy and the
country’s accounting conventions. Even if part of the investment would come from accumu-
lated capital reserves, it can still be considered cash outflow for its shareholders, given that in
principle capital reserves can be handed out as dividends to the company’s shareholders. For
this exercise we assume that positive net cash flows are fully handed out as dividends to the
shareholders.
The structure of the cash outflows of the two projects is similar – there is a sizable outlay for
capital expenditure during the construction phase, followed by smaller outlays to cover ex-
penses occurred during operation and to service the projects’ loans. There is a difference on
the revenue side, however, as the onshore section of IGI forms part of the national gas
transmission system.
We modelled the revenue of Komotini – Thesprotia based on current regulated tariff regula-
tion, which envisages that through the regulated tariff the transmission operator recovers its
operating and financing expenses, together with an apposite return on the invested equity
capital. In contrast, we assumed that the revenue from Poseidon comes from trading gas for
the capacity exempt from third-party access, together with a transit fee for the open season
capacity.
Using benchmark cost data and assuming that one third of the project’s investment cost
would come from equity capital, the maintenance of the current shareholder structure of
DEPA and Hellenic Petroleum would imply that the Greek State might have to endure annual
cash outflow for the construction of IGI Poseidon in excess of 200 million €’09 during the first
12 months of the construction phase (Figure 4.13).2 Assuming that the investment during the
first year of Komotini – Thesprotia is included in DESFA’s regulated asset base, part of the
capital outlay in the second and third year (including interest during construction) will be par-
tially compensated by revenue from the regulated tariff.
Meanwhile, the net cash inflows that will remain as profits available for dividend handout in
the first 10-15 years of operation (depending on the loan terms) will be relatively low, given
the need to repay the borrowed capital. This implies that the payback period can be quite
large. With the parameters that we used for this quantification, the Greek State will not re-
cover fully its investment until early 2030s (Figure 4.14).
2
The parameters for these estimates are presented in the Appendix (Table 7.3 - Table 7.8)

Figure 4.13: Impact on the cash position of the Greek state
IGI Poseidon
150
100
50
0
€'09M
-50
-100
-150
-200
-250
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
TA P
1.0
0.9
0.8
0.7
0.6
€'09M
0.5
0.4
0.3
0.2
0.1
0.0
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
The large payback period does not imply, of course, that the investment is not profitable. Af-
ter all, the regulated tariffs for the national gas transmission system are set in a way that en-
sures reasonable return on the invested capital. Nevertheless, given the current shareholder
structure of DEPA and Hellenic Petroleum, the construction of IGI Poseidon does seem to
bear a burden on the effort to consolidate the public finances of the Greek State over the
next 4-5 years. This implies that the privatisation of DEPA and DESFA, together with the sale
of the State’s share in Hellenic Petroleum would not only generate revenues, but would also
free the State from the obligation to provide funds for the IGI Poseidon project.

Figure 4.14: Payback period on Greek State’s equity investment in IGI Poseidon
1,000
800
600
€'09M 400
200
0 2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
-200
-400
-600
-800

5. CONCLUSIONS
Despite the depressed economic activity, the boom of shale gas extraction and the push for
renewable energy, Europe is still in need of new upstream pipelines and interconnectors. The
demand for pipeline gas might not rise as much as expected in the past, yet indigenous pro-
duction is set to fall, which implies that EU’s import dependency will continue to increase.
This trend heightens the community’s energy security concerns.
Opening the southern gas corridor will boost Europe’s energy security, as it would link the EU
market with the largest deposit of proven gas reserves in the world. And there is an opportu-
nity for Greece to benefit from this development by becoming a highway for Europe’s gas
supply, which involves the construction of interconnectors with the neighbouring markets,
such as the Italy-Greece Interconnector (IGI Poseidon) and the Trans-Adriatic Pipeline (TAP).
The construction of such major infrastructure projects would provide a much needed boost
for the Greek economy. Looking specifically at the options involving Greece, both IGI and TAP
would provide strong stimulus on the activity of Greek manufacturing & services.
Regarding the probability of materialisation, TAP meets with somewhat weaker support from
the Greek government as, unlike IGI, it does not involve the participation of the Greek State,
while IGI is ahead in the licensing process (TPA exemptions, positive environmental impact
assessments, etc.). Nevertheless, TAP is more likely to gain the support from the Shah Deniz
Consortium companies (which includes TAP’s shareholders Statoil), as its shareholders enjoy
higher credit rating (financial deliverability criterion) and have considerably stronger expertise
in the construction of onshore and offshore pipelines (project deliverability, operability and
engineering design criteria).
Looking at economic activity, IGI covers a slightly larger distance over Greek territory com-
pared to TAP. Consequently, stimulus is expected to be slightly higher. The construction of
the onshore section of IGI is expected to boost GDP by € 469 million, and TAP with € 435
million, during the construction phase. In terms of job creation, this is expected to have an
impact of 11,600 and 10,700 jobs throughout the Greek economy respectively for IGI and
TAP, taking into account the effects on sectors not involved directly in the pipeline projects
and the induced effects from the boost of household income.
As concerns the cash position of the Greek state, the construction of IGI seems to impose
significant burden on the fiscal consolidation effort. The Greek State is a shareholder in both
the onshore section and the Poseidon offshore pipeline through its participation in DEPA,
DESFA and indirectly through its stake in Hellenic Petroleum. In order to meet its obligations
as a shareholder, the Greek State will have to provide funds in the range of €170-210 million

5. Conclusions
per year during the projects’ construction and the payback period for the Government is ex-
pected to reach 2030. This implies that there are benefits to the swift privatisation of DEPA
and DESFA to strategic investors with appropriate experience in construction and operation of
offshore and onshore pipeline networks that extend beyond the immediate cash revenue from
the privatisation deal, which should also be taken into account.
The benefits for Greece from becoming an energy highway are sizable. However, this out-
come is far from guaranteed. Some of the projects that aim to provide Caspian gas to Europe
do not consider a Greek route, but bypass Greece (e.g. Nabucco, SEEP and South Stream’s
northern branch) altogether. Also, the development of gas storage and LNG terminals in the
EU outside Greece could further ease Europe’s energy security concerns.
Greece is endowed with favourable geopolitical position. There is no guarantee, however,

that the country can reap the gains from this position. In order to rejoin the path of economic
and social progress, the Greek society should leave behind the indolence, protectionism and
hostility to private initiative and foreign capital that has crippled its productive forces and em-
brace the openness that comes with international energy market integration. Fast-track pro-
cedures and mentality are essential to ensure the required efficiency of the administrative
processes.
Timing is crucial. The Greek state should make sure that its position does not impede, but
actively supports, the realisation of any and all projects along the Greek route of the South-
ern Corridor.

6. BIBLIOGRAPHIC REFERENCES
[1] European Commission, Report on The Implementation of The Trans-European Energy

Networks in The Period 2007-2009, SEC(2010)505, 4.5.2010
[2] International Energy Agency, Are We Entering a Golden Age of Gas?: Special Report,
World Energy Outlook 2011
[3] International Energy Agency, World Energy Outlook 2010
[4] Mott MacDonald, Supplying the EU Natural Gas Market: Final Report, November 2010
[5] European Commission, A Roadmap for Moving to a Competitive Low Carbon Economy
in 2050: Impact Assessment, SEC(2011) 288, 8.3.2011
[6] Chester L. (2010), ‘Conceptualising energy security and making explicit its polysemic
nature,’ Energy Policy 38: 887-895
[7] European Commission, Regulation No. 994/2010 concerning measures to safeguard
security of gas supply, October 2010
[8] European Commission, The January 2009 Gas Supply Disruption to the EU: An As-
sessment, SEC(2009) 977, 16.07.2009
[9] Ramboll Oil & Gas, MERCADOS, T E N - ENERGY Priority Corridors for Energy Trans-
mission, November 2008
[10] Shah Deniz Co-Venturers, Principles for the selection of an export route to Europe for
Shah Deniz gas, 23.02.2011
[11] MIT Center for Energy and Environmental Policy Research, Russia’s Natural Gas Ex-
port Potential up to 2050, July 2011
[12] South Stream, Energising Europe: Presentation, 25 May 2011
[13] Trans Adriatic Pipeline, Scoping Report for the Environmental and Social Impact As-
sessment, Albania, April 2011

6. Appendix
7. APPENDIX: ASSUMPTIONS
Table 7.1: Gas pipeline projects

Length
Pipeline Route Annual Planned Capacity Shareholders of the Consortium
(km)
Interconnector Tur- Turkey (Karacabey), Greece (Komotini) 296 11.5 bcm Botas, Desfa
key-Greece (ITG)
Interconnector Greece (Komotini-Thesprotia), Italy 797 • 15 bcm (Komotini- Komotini-Thesprotia: DESFA(100%),

Greece-Italy (IGI) Thesprotia) Poseidon: DEPA & EDISON (50%
• 9 bcm (Poseidon) each)
Trans Adriatic Pipe- Greece (Komotini-Kastoria), Albania, Italy 784 • 10 bcm EGL, STATOIL, E.ON
line (TAP) • Possible expansion in the
future up to 20 bcm
Nabucco Austria, Bulgaria, Hungary, Romania, 3,900 31 bcm OMV, MOL, RWE, BEH, Transgaz,
Turkey BOTAS
White Stream Azerbaijan, Georgia, Romania, Ukraine : 8 bcm White Stream Co. Lim., GUEU Inc
SouthStream Russia, Bulgaria, Greece, Italy, Hungary, 2,500- • 63 bcm at the entry point in Gazprom, ENI. Also joint ventures be-
Serbia, Slovenia, Austria 3,440 Bulgaria. tween Gazprom and energy companies
• 20-22 bcm at the endpoint of from the countrys that overpass
the pipeline.
South Caucasus Azerbaijan, Georgia, Turkey 692 8 bcm currently (Expansion in BP, Statoil, SOCAR, LUKOIL, TOTAL,
(in operation) the future up to 20 bcm) NIOC, TPAO
42
 Foundation for Economic and Industrial Research
Table 7.2: Scoring of projects competing for Greece-Italy Interconnection, according to specified criteria
Projects’
Criterion score* Explanation
IGI TAP SS
Financial deliverability 1 3 2 IGI is penalised for the low credit rating of Komotini-Thesprotia’s owner
(Greek state), while TAP is rewarded for the high credit rating of Statoil (AA-)
Experience in pipeline construction & operation 1 3 3 The experience of Statoil & Gazprom in pipeline construction and operation is
considerably more extensive, compared with DESFA, DEPA & Edison
Transit country risk 3 2 3 TAP is penalised as it passes non-EU member country (Albania)
Offshore risk 2 3 1 TAP has the smallest and shallowest offshore section
Stakeholder support - EC 3 2 1 IGI is a project of European interest, TAP is a priority project, while South
Stream is not backed by EC funding
Stakeholder support – Greek government 3 2 2 IGI is rewarded, as it is promoted by the Greek state-owned gas company
(DEPA)
Stakeholder support – Local communities in 2 3 2 IGI and South Stream are penalised due to the strong reaction to pipeline
Greece projects by local communities along the Greek Ionian coast (although there is
some recent progress).
Stakeholder support – Other host countries 3 3 1 South Stream’s offshore section in the Black Sea requires coordination with
the very countries that it bypasses, as it should cross through either the
Ukrainian or the Turkish exclusive eco-nomic zones.
Strategic positioning – Upstream 1 3 3 IGI is not well placed upstream, while one of TAP’s members holds 25.5%
stake in Shah Deniz field (Statoil)
 Foundation for Economic and Industrial Research

43
6. Appendix
Table 7.3: Benchmark cost data

Diameter €M/km
(Inches)
Onshore pipeline 22 0,79
26 0,88
30 1,02
36 1,31
42 1,76
48 2,16
56 2,48
Offshore pipeline 20 8,4
22 9,68
26 10,72
32 11,89
36 12,5
42 13,69
Compression per MW 0,72
Source: Mott MacDonald (for DG TREN), Supplying the EU Natural Gas Market, Final Report, November
2010
Table 7.4: Sources of capital
Poseidon
TAP
Parameters Units
Equity % of investment cost 1/3 1/3 1/2

EIB Loan % of investment cost 1/3 1/3 0
Commercial bank loan % of investment cost 1/3 1/3 1/2
Greek state participation: Equity % 77% 38.7% 0%
Greek state participation: Exempt Capacity % 77% 15.5% 0%

Table 7.5: Technical parameters

Parameters Units Source
IGI Oshore
TAP
Poseidon
Length: Onshore km 570 0 674 IEA (2008), Energy in the Western Balkans
Length: Onshore: Greek terri- km 570 0 466 Company presentations and websites
tory
Length: Offshore km 0 207 110 IEA (2008), Energy in the Western Balkans
Total length km 570 207 784 IEA (2008), Energy in the Western Balkans
Diameter: Onshore inch 42 0 48 Company presentations and websites
Diameter: Offshore inch 0 32 42 Company presentations and websites
Compression stations: Initially No. 2 1 2 Company presentations and websites
Compression stations: After No. 2 1 3 Company presentations and websites

rescaling
Initial capacity bcm 15 10 10 IEA (2008), Energy in the Western Balkans
Full capacity bcm 15 10 20 IEA (2008), Energy in the Western Balkans
Capacity exempt from TPA bcm 0 8 0 Company presentations and websites
Table 7.6: Lending terms
Komotini –
Thesprotia
Poseidon
Institutions Parameters Units
EIB Interest rate (nominal) % 8.55% 3.05%

Duration years 15 15
Grace period years 3 3
Commercial Interest rate (nominal) % 99.0% 66.0%
banks
Duration years 1515 1515
Grace period years 33 33

6. Appendix
Table 7.7: Cost of capital
Komotini –
Thesprotia
Parameters Units
Cost of equity % 12.0%

WACC (post-tax, nominal) % 9.1%
WACC (post-tax, real) % 6.4%
WACC (pre-tax, nominal) % 11.3%
WACC (pre-tax, real) % 8.6%
Table 7.8: Other assumptions
Parameters Units Value

Depreciation method Linear
OPEX % of investment cost 1%

Economic lifetime years 25
Technical lifetime years 50
Operation start date date (year) 2016
Rescaling milestone year of operation 10
Inflation rate (2011-2050) % 2.5%
Gross margin % 20%
Transit fee (operator revenue) €'09/mcm/km 5
Transit tariff (tax) €'09/mcm/km 2
Income tax % over profit 20%

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Ι∆ΡΥΜΑ ΟΙΚΟΝΟΜΙΚΩΝ & ΒΙΟΜΗΧΑΝΙΚΩΝ ΕΡΕΥΝΩΝ

FOUNDATION FOR ECONOMIC & INDUSTRIAL RESEARCH

GREECE AS EUROPE’S ENERGY HIGHWAY:

Copyright  2011 Foundation for Economic & Industrial Research

Foundation for Economic and Industrial Research (IOBE)

 Foundation for Economic and Industrial Research ii

RESEARCH HIGHLIGHTS ........................................................................................................... V

 Foundation for Economic and Industrial Research iii

Figure 2.1: Origin of gas imports in the EU-27 ..................................................................2

 Foundation for Economic and Industrial Research iv

 Foundation for Economic and Industrial Research v

2. Does Europe need more pipelines?

Figure 1: Origin of gas imports in the EU-27

 Foundation for Economic and Industrial Research vi

Figure 2: EU-27 demand, production and import dependency

Net Imports Import Dependency

Reference PRIMES 2009

3. The Southern Gas Corridor

 Foundation for Economic and Industrial Research vii

Figure 3: Pipeline projects on Greek territory

 Foundation for Economic and Industrial Research viii

Non Greek route competitors

 Foundation for Economic and Industrial Research ix

4. Comparative criteria between the Greek pipelines

Figure 4: Scoring of projects competing for the Greece-Italy Interconnection

Stakeholder support Stakeholder support

Experience in pipeline Financial

IGI TAP Southstream

 Foundation for Economic and Industrial Research x

Impact on Greek economic activity

Figure 5: Impact on Domestic Value Added

Figure 6: Additional employment in Greece during the pipeline construction phase

 Foundation for Economic and Industrial Research xi

Impact on the cash position of the Greek State

Figure 7: Impact on the cash position of the Greek state

IGI Poseidon TAP

 Foundation for Economic and Industrial Research xii

Figure 8: Payback period on Greek State’s equity investment in IGI Poseidon

 Foundation for Economic and Industrial Research xiii

 Foundation for Economic and Industrial Research xiv

 Foundation for Economic and Industrial Research 1

2. DOES EUROPE NEED MORE PIPELINES?

2.1 Current situation

Figure 2.1: Origin of gas imports in the EU-27

 Foundation for Economic and Industrial Research 2

 Foundation for Economic and Industrial Research 3

Figure 2.3: Issues and Solutions

Issues Solutions Projects

More gas Yamal – Europe II

Other LNG (NG4)

 Foundation for Economic and Industrial Research 4

2.2 Consumption trends

 Foundation for Economic and Industrial Research 5

400 Primes 2009 Reference

Eurogas 2010 Environmental

2.3 Production trends

 Foundation for Economic and Industrial Research 6

Figure 2.5: Projection of EU27 indigenous gas production

Primes 2009 Reference

2.4 Net imports

 Foundation for Economic and Industrial Research 7

Figure 2.6: Projected net gas imports in the EU

Primes 2009 Reference