Tuesday, April 19, 2016

Balkan energy security culminations, by Ioannis Michaletos

Note to readers: From time to time R.I.M.S.E will provide analysis and information on wider security issues not directly related to the main scope of research which is “Radical Islamism in Southeastern Europe”. R.I.M.S.E, strongly adheres in a holistic review of security subjects, so it provides to the readers other spectrums of the security analysis, in order to cover a wide range of sectors which may possibly be related to each other and in any case are of much use both to the specialized researcher, and to the general public as well.

Trends and threats ahead

Caucasus warnings

The recent mini-war between Armenia and Azerbaijan brought into attention a frozen conflict which could potentially develop into a proxy war between Russia-Turkey, involving also Iran and Israel indirectly. In such a scenario, the mega-project of the Southern Corridor (TANAP-TAP and possibly IAP) would be derailed since the starting point for all is Azerbaijan, whilst necessary infrastructure and gas flow would traverse close or from the war zone. In sort a 50 billion USD long-term investment is in peril if the worst scenario materializes. 

Refugee flow and energy flow

Southern Balkan region shares a common and explosive problem the one of refugee/immigration flow. For the moment the borders are partially closed, whilst Turkey refrains from "letting" more masses of immigrants exiting Anatolia until it gets the requests it demanded from the EU. Already Turkish Premier Davutoglu gave a deadline until early June for a visa-free regime for Turkish citizens travelling into Europe. Nonetheless these demands are not going to be accepted by at least the majority of EU states. 

Thus we could safely estimate that in mid-2016 a new massive outflow of Syrians and other nationalities, perhaps up to 10,000 people per day will start amassing into the Balkans and create new bottlenecks in the region between Greece-FYROM-Bulgaria and Serbia. In energy security terms that could further push away the materialization of projects such as the Tesla pipeline, ITGI, IGB and IAP. The first priority of local governments would be to close down borders, while brinkmanship in between them would develop. Internal destabilization in FYROM due to the upcoming 5 June elections is imminent and Greece's strained negotiations with its creditor have brought Grexit option back on the table. In such disarray Balkan related energy projects would take a second and third turn in the local political agendas.

East Med plot thickens

The East Med actual and more importantly perceived hydrocarbon reserves, face both long-standing and imminent concerns. The war in Syria drags on, the Cyprus negotiations become more complicated as months go by, while Egypt is surviving merely because of Saudi donations. Nearby Libya is on the brink of a renewed tribal-civil warfare with the added catalyst of an ISIS infiltration and the establishment of a new illegal immigration mega launch pad towards Italy. Situation in internal Lebanese politics is fragile as well, due to antagonism between Sunni and Shia local forces. Added to the above the instability in Turkey and the exploitation of East Med reserves takes a back seat for the time being.

No money in the pocket

Low hydrocarbon global price index hinders local exploration endeavors be it in Greece, Bulgaria, Albania or Montenegro and perceived multimillion investments simply won’t materialize any time soon, despite announcements. Political risk all across the region is set to increase adding another negative point in the business plan of any multinational energy company, while economic stagnation in local markets plays its own depressing role. Ukraine is another point of concern, economic, political and social situation is still volatile while the country remains a major gas transit route to Southeastern Europe. The elevation of political risk in the Black sea is coupled with Russo-Turkish brinkmanship which indirectly involves Ukraine as well, thus risk-pointers ahead are multiplying. Turkey’s domestic situation is of outmost concern since all projects will either pass through or close by this country and any deterioration of the situation there will ultimately destabilize long-term energy security plans. 

LNG as a solution?

LNG has been sought and discussed numerously as a sort of a "Deus ex machina", energy security tool for Southeast Europe with countries such as Croatia, Greece and Turkey seeking to elevate its role, one way or another. It should be noted though those countries in Northern-Eastern Europe who placed their bets in new LNG terminals for incoming US LNG have already experience serious drawbacks. Over the past 18 months in Lithuania an LNG terminal has been operational which actually elevated local energy costs, and the energy minister in October 2015 commented that the plant was operating below 20% of its capacity. In December 2015 the deputy Chairman of the Board at Bank of Lithuania, Raimondas Kuodis, stated in nationwide TV program that LNG would be significantly higher in cost that other gas options. As a consequence, so far there has been a definite economic black spot concerning that project. In fact US Brookings institution has assessed in its 2015 energy security report that US shale has exports could be commercially meaningful for large interconnected markets of the North-West Europe (i.e. UK, Netherlands, France, Belgium) rather than the small fragmented ones such as the Baltics or the Balkan ones. In the case of the latter ones, countries such as Greece and Bulgaria with a total annual consumption of not more than 6 bcm could not rely on LNG overseas imports. 

Clouds ahead for winter season 2016-17

In overall a state of instability throughout 2016 could be expected in terms of energy security in Southeast Europe. It is of interest that all countries, at least in their domestic energy rhetoric, fail to address one of the key questions when it comes to deal with energy and that is "how to secure long-term cheap priced energy product". Instead grandiose projects are being continuously announced that would elevate prices both for industrial units and consumers alike. 

Secondly countries, perceive projects in terms of "common good", turning a blind eye to obvious geopolitical machinations, from which they are going to be losers one way or another. Of interest is also the fact that despite rhetoric for friendship and collaboration, all local national capitals intensely antagonize one another in contrast with the energy markets in Western Europe and as prime example could be the former Benelux countries or the rather recent Visegrad group ones. In sort challenges are abound for the region between Adriatic and the Levant which is steadily amassing a great deal of issues, lack of energy security notwithstanding.