Blog Post

Will natural gas cooperation with Russia save the Greek economy?

In the midst of profound turbulence in the negotiations between Greece and its international lenders, Prime Minister Alexis Tsipras flew to Moscow last week for an official visit to President Vladimir Putin. This meeting, portrayed by many commentators as a bargaining chip with its European creditors, was officially intended to improve the bilateral relations between the two countries in various economic sectors.

By: and Date: April 20, 2015 Topic: European Macroeconomics & Governance

In the midst of profound turbulence in the negotiations between Greece and its international lenders, Prime Minister Alexis Tsipras flew to Moscow last week for an official visit to President Vladimir Putin. This meeting, portrayed by many commentators as a bargaining chip with its European creditors, was officially intended to improve bilateral relations between the two countries in various economic sectors. Greece had high expectations from this meeting, in terms of financial assistance, potential gas discounts and a lift of the Russian ban on the food imports from Greece.

However, during the press conference that followed the meeting it emerged that Russia had something else to offer to Greece: strong cooperation on natural gas projects. This prospect was presented by President Putin as a sort of potential game changer for the Greek economy. Firstly, he stated that Greece could earn “hundreds of millions of euro” through natural gas transit annually. Secondly, he declared that Greece could use these revenues to pay off its debt to international creditors. Prime Minister Tsipras reacted favourably to this proposal, by saying that this might also boost jobs and investment in Greece. But is there any evidence that a strong natural gas cooperation with Russia would have a considerable impact on the Greek economy? This blog is intended to provide insight on this controversial issue.

Source: Bruegel

During the press conference, President Putin declared that Russia would consider the option of providing loans to Greece for joint large-scale natural gas projects. This was a reference to Turkish Stream, a project launched in December 2014 by the Russian President himself, intended to deliver substantial volumes of Russian gas to Turkey and Europe while completely bypassing Ukraine from 2019.

According to President Putin, Greece would primarily benefit from the pipeline project by enjoying significant transit revenues. Let’s try to figure out whether this statement has a solid basis. Turkish Stream is set to have a capacity of 63 billion cubic metres per year (bcm/y). Considering that 14 bcm/y will be exclusively devoted to the Turkish domestic market, the maximum volume that might transit through Greece would be 49 bcm/y. Considering that Slovakia applies a transit fee of about EUR 7.8 per thousand cubic metres (tcm) for the natural gas transit from Ukraine to Austria via its 400 km-long transit route, Greece might collect about EUR 380 million annually in transit charges.

According to Prime Minister Tsipras, the construction of a pipeline connecting the arrival point of Turkish Stream at the Turkish-Greek border with the Greek-Macedonian border (from where natural gas might flow northwards to Austria via Macedonia, Serbia and Hungary) might have a considerable impact in terms of job creation in Greece. To put it into perspective, Trans Adriatic Pipeline AG, the company working on a similar pipeline project -TAP- optimistically projects the creation of around 2,000 directly related new jobs and a further 10,000 peripheral new jobs in Greece. These numbers indicate the limited impact of these projects on the Greek labour market.

Furthermore, Greece hopes that enhanced natural gas cooperation with Russia will also lead to a significant discount on its imports of Russian gas, at a level of around 10 percent. Considering that the average price paid by Greece for Russian gas was around EUR 440 per thousand cubic metres in 2013 and that Greece annually imports from Russia around 2.4 bcm of natural gas, the annual natural gas bill of Greece vis-à-vis Russia could be estimated at about EUR 1 billion. A 10 percent discount would thus represent a net saving of about EUR 100 million.

To put it into perspective, we compare the “Russian gas package” with Greece’s actual bailout package. In short, the sum of the potential annual transit charges of EUR 380 million and the potential annual savings on the natural gas bill of EUR 100 million have a net present value of EUR 4.8 billion (calculated with the current long-term interest rate of 10 percent). This is two orders of magnitude smaller than the Second Economic Adjustment Programme approved by euro area finance ministers in 2012 which foreseen financial assistance of EUR 164.5 billion until the end of 2014.

Furthermore, considering that Eurostat estimates Greece’s total annual government spending at EUR 107 Billion, the impact of the “Russian gas package” on the country’s total annual government spending would be limited, at 0.5 percent.

Following on from the enthusiastic tones of the Moscow meeting, over the next week Russia and Greece will sign a memorandum of cooperation concerning these gas issues. However, as the previous figures illustrated, the overall impact of Turkish Stream on the Greek economy will be rather limited in macroeconomic terms.

In other words, Russian-Greek gas cooperation might have an impact on the political and geostrategic relations of the two players (and on that of other countries), but it will surely not have a direct structural impact on the Greek economy.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic

Opinion

Integrity of official statistics under threat

Andreas Georgiou has unwittingly become an international icon for statistical integrity. His continuing politically-motivated persecution is highly damaging for Greece, and more broadly for the credibility and reputation of the euro area.

By: Edwin M. Truman and Nicolas Véron Topic: European Macroeconomics & Governance Date: August 10, 2018
Read article More on this topic More by this author

Blog Post

Beyond Nord Stream 2: a look at Russia’s Turk Stream project

Since 2015, Nord Stream 2 has been at the centre of all European discussions concerning the EU-Russia relations. But as endless political discussions in Europe are being held on this pipeline project, the pipes of another similar Russian pipeline project – Turk Stream – are already being laid by Gazprom at the bottom of the Black Sea. This piece looks at these developments, analysing their strategic impacts on Europe.

By: Simone Tagliapietra Topic: Energy & Climate Date: July 4, 2018
Read article More on this topic More by this author

Blog Post

Ukraine: The struggle for reforms continues

The modernisation of the Ukrainian economy and state continues to develop at an unsatisfactory pace due to a lack of pro-reform political consensus. The two upcoming election campaigns in 2019 (presidential and parliamentary) make the reform process even slower and additionally put its effectiveness and sustainability under risk. The international community has a limited toolkit to overcome this stalemate.

By: Marek Dabrowski Topic: Global Economics & Governance Date: July 4, 2018
Read article More on this topic More by this author

Opinion

Griechenland braucht einen Neuanfang

This was first published by Die Zeit. Acht Jahre nach Beginn des ersten Hilfsprogramms für Griechenland ist es soweit – Griechenland soll wieder auf eigenen Füßen stehen. Die Eurogruppe soll heute das Ende des dritten Hilfsprogramms beschließen und die Modalitäten für die Zeit danach definieren. Ziel sollte es jetzt sein, einen tragfähigen Ausstieg aus dieser für alle Seiten […]

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: July 3, 2018
Read article More on this topic More by this author

Blog Post

The European Union must defend Andreas Georgiou

Andreas Georgiou’s case raises disturbing questions about the integrity of European statistical processes. Forceful action by EU authorities on Mr Georgiou’s case is long overdue. The European Union also needs to consider reforming its statistical framework to ensure a similar scandal cannot recur.

By: Nicolas Véron Topic: European Macroeconomics & Governance Date: June 26, 2018
Read article More on this topic

Blog Post

Is the ECB collateral framework compromising the safe-asset status of euro-area sovereign bonds?

Central banks’ collateral frameworks play an important role in defining what is considered as a safe asset. However, the ECB’s framework is unsatisfactory because it is overly reliant on pro-cyclical ratings from credit rating agencies, and because the differences in haircuts between the different ECB credit quality steps are not sufficiently gradual. In this note, the authors propose how the ECB could solve these problems and improve its collateral framework to protect its balance sheet without putting at risk the safe status of sovereign bonds of the euro area.

By: Grégory Claeys and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 8, 2018
Read article

Blog Post

The Iran nuclear deal crisis: Lessons from the 1982 transatlantic dispute over the Siberian gas pipeline

A US president taking a unilateral decision that affects European interests; European policymakers outraged at US interference in their affairs; European businesses fearing losing access to some international markets – sound familiar? This is the story of a crisis that took place in 1982 regarding the Siberian gas pipeline project; its outcome should inspire optimism in the Europeans’ capacity to counteract Donald Trump’s decision to withdraw the US from the Iranian nuclear deal.

By: Emmanuel Mourlon-Druol and Angela Romano Topic: Energy & Climate, European Macroeconomics & Governance Date: May 23, 2018
Read article More on this topic More by this author

Opinion

Greece must capitalise on its growth momentum

Better-than-expected growth performance reflects the underlying positive changes in the Greek economy – but net investment is in fact negative, while Greece has various institutional weaknesses. Further improvements must be made regarding Greece’s attractiveness to foreign direct investment. A new (at least precautionary) financial assistance programme would improve trust in continued reforms and also address eventual public debt financing difficulties.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 26, 2018
Read article More on this topic More by this author

Opinion

The clock is ticking: Ukraine’s last chance to prevent Nord Stream 2

Ukraine is running out of time to provide western gas consumers with the necessary trust to abandon the Nord Stream 2 gas pipeline project.

By: Georg Zachmann Topic: Energy & Climate Date: January 24, 2018
Read article More by this author

Opinion

EU should pay member states to get rid of coal

The European Union should act to ensure the continued transformation of its energy system, and encourage member states to overcome their dependence on coal for supplying electricity. Helping coal-mining regions with the transition should require €150 million per year – a mere 0.1% of the total EU budget – and the EU would not even need to establish a new fund to support it.

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: December 5, 2017
Read article Download PDF More by this author

Policy Brief

Beyond coal: facilitating the transition in Europe

Europe has a dirty energy secret: coal is producing a quarter of the electricity, but three-quarters of the emissions. The EU should propose that its member countries speedily phase out coal and put in place a scheme to guarantee the social welfare of coal miners who stand to lose their jobs, making a better use of the European Globalisation Adjustment Fund (EGF)

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: November 23, 2017
Read article More by this author

Blog Post

The impact of Brexit on the Irish energy system – pragmatism vs. principles

Brexit promises pain for Ireland that could be cut off from the EU internal market and be left exposed to market instability in the UK. Georg Zachmann assesses the scale of the possible damage for Ireland, and how the UK and EU might use the special energy relations on the Irish island to commit to a pragmatic solution.

By: Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance Date: November 21, 2017
Load more posts