Gazprom and SOCAR: The Greek Gas Market
Russia's Gazprom and Azerbaijan's SOCAR are the movers and shakers of the Greece's natural gas market due to their dominant position of supplying the bulk the country's gas needs. Two developments of interest are taking place that will certainly add to this existing model.
Gazprom sent a delegation to Athens to finalize a conclusive deal that aims to decrease import prices at the request of Greece, whilst a new long-term agreement is expected to be signed. The previous contract expires in 2016. Greece requested a decrease of at least 20% however at the moment Russia is offering 10%.
Presently Greece buys gas for 50% more than the cheapest rate offered by Gazprom (to the UK) and Greek ministry of energy officials relay to the local press that they are optimistic of a generous price cut.
The two sides have until the end of the year to finalize the deal as well as renewing a possible 20 year contract so that supply from Russia will continue until 2036.
In case an agreement is not reached, negotiations will settle through an international arbitrary court, although local officials expect such a development to be "highly unlikely."
Moreover, supply agreements with Greece are partially oil-indexed. More specifically, the calculation is 70% liquid gas price and 30% mazut price indexed in Northwestern European markets.
The Greek side states that this price formula should change as it was first agreed upon in the early 90's when the market was just budding. Consumption has grown considerably and will continue to do so at a pace of more than 5% per year, despite the ongoing economic crisis.
Athens is pressuring Gazprom to make a long-term commitment to lowering prices for fuel demand to grow even more, without compromising Gazprom's turnover or reach in the country.
Meanwhile, SOCAR finally agreed on paying €400 million to aquire 66% of Greek gas network manager DESFA, a move that was greeted with great enthusiasm by the government.
Nevertheless some overlooked details should be stretched. The Directorate-General for Competition (European Commission) and the European energy regulator will now have to certify the status of DESFA as an independent national system for the transfer of gas as SOCAR is also a producer and commercial gas company.
It is interesting to note that for the first time in the EU, a company coming from a third country, acquires such a network manager corporation like DESFA, hence regulatory procedures are expected to last for at least another 4 months, before the final "green light" is given to SOCAR.
The Azeri company has agreed upon and notified Brussels that it will not use DESFA as a supply entity for its own gas to the Greek market. That role is taken by the commercial company DEPA, which was about to be sold to Gazprom during the recent privatization process, but the competition failed and the company remains in state hands.
SOCAR's main interest is to push for the completion of the Trans-Adriatic Pipeline (TAP) and views DESFA as an ideal vehicle to implement via Greece a series of interconnectors and strategic storage facilities, as well as LNG to expand its regional reach both to the EU and also to international markets.