Enhancing Greece’s strategic and commercial position through natural gas storage capacity development

In recent years, Greece has taken proactive steps towards a more influential role in global energy developments. Here, Dr Valentina Dedi, Lead Economist at KBR Consulting International, and Panagiotis Mavroeidis-Kamperis, Member of the Executive Board, Greek Energy Forum, delve into Greece’s efforts to assert itself in energy advancements, particularly considering its historic commitment to achieving net-zero emissions by mid-century. This commitment has paved the way for various energy policies and strategies, aiming not only at positioning Greece as an emerging player in climate discussions, but also helping it build competitive markets, including that of natural gas.

Realising national energy ambitions

In May 2022, by adopting the National Climate Law, Greece made a historic commitment to net-zero emissions by 2050 – a pivotal move in the fight against climate change. To achieve this, the country has introduced several policies and strategies, which aim not only to solidify Greece’s standing in climate discussion, but also create competitive energy markets, including that of natural gas.

One of the key policies was the binding commitment to cease coal-fired power generation by 2028, elevating the role of natural gas in Greece’s energy portfolio. However, with the Russian invasion of Ukraine and the persistent rise in natural gas prices, the question of supply security has become paramount. The Greek government is now re-evaluating not only the role of natural gas in securing the domestic market, but also its potential to position Greece as a key European hub.

If these ambitions are to be realised, Greece will need to dramatically increase its gas storage capabilities. Currently, the domestic gas market faces a significant lack of dedicated storage facilities at a time when the country is entirely dependent on imports from third-party nations. Adequate storage is pivotal in safeguarding against supply disruptions from geopolitical tensions or market fluctuations. It also provides a stable foundation for domestic consumption and regional energy distribution.

The structural failure of the current gas system

Greece is one of the few European countries that does not have dedicated natural gas storage facilities. The LNG storage in Revythoussa – with a capacity of 1.54 TWh/year – covers only 2.7% of the total domestic consumption (2022). While additional LNG storage facilities are expected, including the Alexandroupoli FSRU, as well as the potential Dioryga Gas FSRU station, these are projected to cover only 4% of total demand (2.6 TWh/year).

According to the European gas storage regulation, Greece needs to cover 15% of its annual consumption to secure its natural gas reserves, which implies that the country must look for storage sites in other member states.

The structural failure of the national gas system came back to the fore last year when Europe was faced with the nightmare of gas shortages due to the war in Ukraine. While security of supply in other European countries was helped by the significant amount of natural gas storage capacity, Greece had to increase its lignite stocks as a safety reserve and tap into Italy’s storage areas to meet winter gas demands.

According to DESFA, the storage of natural gas in facilities in Italy and the leasing of an LNG ship for a year for use as storage incurred a total cost of 300 million euros. In contrast, estimates suggest that the expense of converting the nearly depleted natural gas field south of Kavala into an underground natural gas storage facility ranges from 400-450 million euros.

Nonetheless, the possibility of another gas crisis looms. Outlined below are three scenarios where the Greek natural gas market, the local economy and, consequently, society, could once again find themselves in an emergency situation, without the cushion of strategic reserves and exposed to the global LNG market:

• If natural gas flows from either Azerbaijan or Turkey are stopped, thus minimising the flow of natural gas at the entry point of New Mesembria.

If the Asian market is in a state of gas shortage due to fundamental conditions, Greece will find itself in the uncomfortable reality of following prices, unable to compete with this huge market. The distant Fukushima incident still evokes memories of panic in the market, just as it did with the war in Ukraine.

Increased demand due to winter conditions, either at normal levels or with lower temperatures; not unlikely scenario in Europe and thus in Greece, considering the historical data at our disposal.

Building a strategically resilient future

Natural gas is expected to be a major energy source, maintaining an important role in electricity generation as a base load source and in industrial sectors. Therefore, if Greece wants to shield its economy and mitigate the risks of a possible energy crisis, as well as play a more strategic role in the regional natural gas market, it needs to build sufficient storage capacity, as well as regulate the relevant framework for mandatory reserves between the state and the participants in the natural gas market.

Simultaneously, it is important to highlight the commercial value of storage facilities for both domestic and regional players, where natural gas can be stored based on price dynamics and seasonal demand fluctuations. Moreover, there exists the opportunity to harness cross-border trade, particularly towards Central Europe and Italy.