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: Macroeconomic policy

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.

Read article More on this topic
 

Blog Post

Can Europe survive painlessly without Russian gas?

If Russian gas stops flowing, measures to replace supply won’t be enough. The European Union will need to curb demand, implying difficult and costly decisions.

By: Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra and Georg Zachmann Topic: Green economy Date: January 27, 2022
Read about event More on this topic
 

Past Event

Past Event

Where is Biden's climate policy?

A year after his inauguration, what has President Biden really achieved on climate?

Speakers: Samantha Gross, Dan Lashof, Michael Mehling and Simone Tagliapietra Topic: Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 25, 2022
Read article Download PDF More on this topic
 

Policy Contribution

Decarbonisation of the energy system

Our analysis highlights that the current national energy and climate plans (NECPs) of EU countries are insufficient to achieve a cost-efficient pathway to EU-wide climate neutrality by 2050.

By: Georg Zachmann, Franziska Holz, Claudia Kemfert, Ben McWilliams, Frank Meissner, Alexander Roth and Robin Sogalla Topic: Green economy Date: January 13, 2022
Read article
 

Blog Post

European governanceInclusive growth

12 Charts for 21

A selection of charts from Bruegel’s weekly newsletter, analysis of the year and what it meant for the economy in Europe and the world.

By: Hèctor Badenes, Henry Naylor, Giuseppe Porcaro and Yuyun Zhan Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: December 21, 2021
Read article More on this topic
 

Blog Post

How serious is Europe’s natural gas storage shortfall?

Europe may not have enough natural gas in storage for the coming winter; close monitoring of the situation will be essential.

By: Georg Zachmann, Ben McWilliams and Giovanni Sgaravatti Topic: Green economy Date: December 21, 2021
Read article More on this topic More by this author
 

Opinion

Inflation ideology: camp permanent or camp temporary?

Policy focus should be on tackling uncertainties by being able to tackle as many scenarios as possible.

By: Maria Demertzis Topic: Macroeconomic policy Date: December 9, 2021
Read article More on this topic
 

Blog Post

Rising energy prices: European Union countries’ views on medium-term policies

Alongside short-term measures to shield consumers from rising energy prices, EU countries have set out their positions on medium-term measures to prevent recurrence. Here we summarise those positions.

By: Giovanni Sgaravatti, Simone Tagliapietra and Georg Zachmann Topic: Green economy Date: November 29, 2021
Read about event More on this topic
 

Past Event

Past Event

Role of innovation in decarbonisation

A fireside conversation with Eni CEO Claudio Descalzi on decarbonisation.

Speakers: Claudio Descalzi and Guntram B. Wolff Topic: Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 29, 2021
Read article
 

External Publication

European Parliament

Decarbonisation of energy

Determining a robust mix of energy carriers for a carbon-neutral EU

By: Ben McWilliams, Georg Zachmann, Franziska Holz, Alexander Roth, Robin Sogalla, Frank Meissner and Claudia Kemfert Topic: European Parliament, Green economy, Testimonies Date: November 22, 2021
Read article More on this topic More by this author
 

Opinion

Keeping the energy policy triangle in balance is key to reach net-zero

Delivering policies that address energy security, competitiveness and sustainability is one of the most formidable challenges facing governments in the 21st century.

By: Simone Tagliapietra Topic: Green economy Date: November 9, 2021
Read article More on this topic
 

Blog Post

A new economic geography of decarbonisation?

Energy transitions manifest themselves across space and time. While necessary targets for decarbonisation are apparent, the accompanying shifts in spatial organisation of economic activity are perhaps not as well understood.

By: Ben McWilliams and Georg Zachmann Topic: Green economy Date: November 8, 2021
Read article More on this topic
 

Opinion

The only quick-fix to Europe’s energy price crisis is saving energy

The only thing Europe can quickly do to prevent a potentially difficult winter is to actively promote energy conservation in both the residential and industrial sectors.

By: Simone Tagliapietra and Georg Zachmann Topic: Green economy Date: October 7, 2021
Load more posts