Faced with enduring financial misery and seemingly endless years of hardship to come in the wake of the Euro crisis, the Greek Government has been eyeing the potential of offshore oil and gas revenues to help offset the country’s economic woes. Although production is very low, and few major discoveries have been made, there is talk of large potential reserves to be found, with former Prime Minister Antonis Samaras having spoken of the possibility of 4.7 trillion cubic metres of gas that might one day supply 25% of European needs.
Only time will tell if his 2014 prediction does ultimately come true, but it feeds into speculation that Greece is sitting on major hydrocarbon resources which could make it the place for Europe’s next O&G boom, with some even suggesting that it might become the new Norway.
While Energean Oil & Gas, the country’s sole upstream company says that “it is pretty premature to say that Greece will be the next Norway”, they are undeniably leading the charge towards reviving Greek production – with help from the European Bank for Reconstruction and Development (EBRD).
In May this year, the EBRD signed a financing deal to help Energean develop the Prinos and Epsilon oil fields offshore northern Greece, extending its support two months later with an additional $20 million subordinated loan.
Energean has been running a $200 million investment programme in the Prinos oil field since May 2014, much of which has already been successfully completed.
Two supply and supporting vessels have been acquired, a 3D seismic survey has been undertaken – resulting in the acquisition of 340 km2 of data, according to Energean sources – the company has purchased its own drilling rig, the ‘Energean Force’, and 50 new direct jobs have been created.
A drilling programme is underway which will see 15 wells created between 2015 and 2018, three of which have already been completed, which the company says has tripled daily production to 4,500 barrels. The installation of a new self installing platform (SIP) for the development of the satellite Epsilon oil field in the Prinos License will follow.
So, how important is the EBRD’s support for the project? Very, it seems.
Energean says that its shareholders have already contributed more than $60 million in this investment programme and they have proved that they are committed and effective in implementing big investments. Over the period 2007–2014, some $300 million saw the company revive Prinos production, increase reserves and expand to new areas in Greece and the wider East Mediterranean and North Africa. EBRD financing will cover approximately 50% of the remaining investments.
According to a spokesperson for the oil company, “the EBRD support is crucial and guarantees that Energean will complete its investment programme which aims at production increase up to 10,000 barrels daily by the end of 2018.”
This investment clearly fits well with the EBRD’s founding principles to help promote and sustain market-based economies and underscores its commitment to local businesses as EBRD director for natural resources, Eric Rasmussen, explains.
“Through financing Energean’s further development of existing offshore oil fields in the Gulf of Kavala as well as exploration and appraisal at other fields for which the company holds licenses in Greece, EBRD is supporting the only national private company in its efforts to unlock the Greek oil and gas resources.”
However, not everyone thinks that it should be facilitating oil exploration – here or anywhere else.
The EBRD has been subject to particular criticism from some quarters for financing projects which they view as socially or environmentally detrimental, particularly in respect of carbon-intensive developments involving fossil energy production and transport.
Of course, all O&G projects inevitably face a degree of similar opposition, but in the context of ‘restructuring’ initiatives, carbon-intensive energy projects do seem particularly open to question, and it is something that the EBRD has been keen to address. At the end of 2013, after an extensive period of consultation, it adopted a new energy strategy, designed to promote energy efficiency and clean production, strengthen private participation in the market, support smart grids, advanced technologies and the low-carbon transition, set standards for the industry and encourage the sector to help build stronger economies.
In the case of Prinos, Rasmussen says the financing will support the project and also focus on project resource efficiency investments, the avoidance of gas flaring, introduction of new technologies and improving the approach to managing offshore environmental, social and health and safety issues. Like all EBRD financed initiatives, Energean also had to comply with the EBRD’s Environmental and Social Policy and undertake a comprehensive Environmental and Social Impact Assessment (ESIA).
“This is to ensure projects meet good international practice on environmental, social and health and safety issues, and to ensure that potential risks arising from clients and operations are appropriately assessed, avoided or mitigated,” he says.
Are fossil fuels a good enough investment?
While readily acknowledging that the ESIA package for the Prinos project is of a very high standard, Fidanka Bacheva-McGrath, EBRD campaign coordinator at the environmental NGO Bankwatch, believes that the bank needs to make a fundamental change of course.
Bacheva-McGrath says Bankwatch would like to see the EBRD phase out investments in fossil fuels altogether and direct its resources to helping its countries of operation transition to a low-carbon economy and sustainable development, within ecological limits.
“The current level of ambition of the bank to invest 40% of its portfolio by 2020 into sustainable energy and resource efficiency projects – the so-called ‘Green Economy Transition’ approach – is too little too late and is not based on a strategic assessment of the recipient countries’ needs, opportunities and commitments to climate action,” she says.
Returning to the narrower, specific issue of Prinos, despite the EBRD’s mandate to support economic recovery in Greece, Bacheva-McGrath has doubts over the sense of the deal.
“The economic rationale for investing in the Greek oil and gas sector is highly questionable at times when demand for these fossil fuels is decreasing and their low prices are causing shocks in the industry and in resource-dependent countries.”
She points to the International Energy Agency’s (IEA) regular reminders of a rocky road ahead for the oil and gas industry, the development of additional climate policies and the increasing economic viability of renewable energy, all of which can be expected to put further pressure on the economics of oil and gas projects.
“The EBRD's own country strategy for Greece notes that the country needs investment in increasing the share of renewables in the energy mix,” she says, “yet the EBRD’s old reflex to back up unsustainable industry and short-term growth with public funds apparently have prevailed in the case of Energean.”
Energean themselves admit that the EBRD-approved financing programme of $75 million as a Reserve Based Loan on the independently audited 30 million barrels proven and probable reserves of the Prinos field “is very rare in the upstream sector during the last two years, due to the adverse condition of the markets.”
However, given the current perilous state of the Greek economy, perhaps – at least for the immediate future – the real point does lie in those allusions to Norway and its model of energy security and supply for the domestic market. True self-sufficiency may remain an elusive goal – it would need Greece to find the ongoing equivalent of 15 Prinos fields – but as EBRD’s Rasmussen says, “for a country which almost entirely relies on importing for both oil and gas resources, any increase in production can be only welcomed.”