Russia's Gazprom Counting On...Greece?

APR 12, 2015 @ 7:14 PM 11,100 VIEWS

Kenneth Rapoza

CONTRIBUTOR

http://www.forbes.com/sites/kenrapoza/2015/04/12/russias-gazprom-counting-on-greece/

Greece’s prime minister Alexis Tsipras has stepped up to help Turkey be the new Ukraine.  Tsipras and his Energy Minister Panagiotis Lafazanis reportedly signed a “memorandum of cooperation” with Gazprom and the Russian government to help with a pipeline to Turkey that will diversify natural gas shipments to Europe away from Ukraine.  Greece will be a transit hub.

Tsipras was in Russia last week and photographed by reporters shaking hands with Russian president Vladimir Putin, announcing pledges to tilt Athens a wee bit more towards Moscow than Berlin.  Part of that promise includes allowing Russian natural gas pipelines to connect to Europe via Greece in what was once dubbed the South Stream project.  This is more of a real estate and political deal than an investment, as Greece is hardly a capital player in today’s market. Greece might not look like the perfect ally, but its geographic location will help Turkey and Russia gas companies get their goods to Europe.

Gazprom was hoping to partner with a number of south European companies to build the South Stream line. The natural gas pipeline was an important diversification strategy for Gazprom, which accounts for nearly a third of all foreign deliveries of natural gas into Europe.  But sanctions against Russian oil companies last year put a stop to that project and sent Gazprom and its government owners looking for new partners.

Gazprom and its Ukrainian partner, Naftogaz, have been at each others throats for  years over deliveries to Europe. But a recent political battle between Moscow and Kyiv have caused a canyon sized rift between the two former Soviet allies and cultural compatriots.  As a result, Russia has been supporting anti-government separatist groups in the industrial hubs of east Ukraine and annexed Crimea, a Black Sea peninsula once owned by Ukraine.  Sanctions were flung at Russia ever since that annexation in March 2014.

That’s led Gazprom to scramble for a new partner. It found Turkey within less than a year.

Connecting to Europe via routes around Ukraine is a necessary expense for Gazprom.  The European Union accounts for well over half of Gazprom’s profits. Turkey is fully on board with this new development. And now Tsipras, still scaring the bejesus out of the E.U. and German banks, is biting the hand that feeds it by wooing a sanctioned company.

Lafazanis told Russian media that the pipeline would be be an important Russia entry into Europe.

“The meeting of Tsipras and Putin open the way for the pipeline which will begin at the border with Turkey and end at the border with Macedonia in the direction of Central Europe. This pipeline is extremely important for energy security and cooperation in Europe,” Lafazanis reportedly said. He also said that Greece expected to “receive significant financial dividends for the pipeline’s operations,” — as in rent payments from Gazprom. Russian natural gas covers 66% of Greece’s energy needs.

In return, Russia’s government said it will remove its ban on Greek agricultural goods from entering the country. Russia sanctioned E.U. agribusiness last year in retaliation for sanctions against its banks and energy companies.

In December, Gazprom CEO Aleksey Miller announced that after European companies like Eni killed the South Stream deal, Turkey’s Botas Petroleum Pipeline Corporation hopped on board to build the new Turkish Stream pipeline instead. The pipeline to Turkey will have an annual capacity of 63 billion cubic meters of gas. Around 14 billion cubic meters are for Turkey alone, with the rest going to a facility on the Turkish-Greek border for E.U. clients of Gazprom.