By Dr. Theodoros Tsakiris

The decision of the Greek government to privatize –following the pressure its EU and IMF lenders- the near totality of its controlling block in the Natural Gas Public Company or DEPA offering 55% of its current 65% stake, along with the decision to fully separate DESFA, the Greek TSO (Transmission System Operator), from DEPA’s assets, will unavoidably revolutionize the balance of power within the Greek natural gas market; a market that had remained as late as April 2010 under absolute state control. 

The government’s decision to sell 55% of DEPA and up to 31% of DESFA is not without controversy given the fact that both companies were perceived as a means of national economic policy which had strategic implications for the country’s foreign relations. Moreover one could convincingly argue that given the privatization of Hellenic Petroleum by 65%, and of the Public Power Company (PPC) or DEH by 49%, the natural gas sector had remained far too long under state control.  

Yet this state control did not have the usually negative –if not outright destructive- repercussions that state control had over other public service companies such as Olympiaki or OSE, the Greek Trains Transportation S.A. Both DEPA and DESFA were among the most profitable companies in Greece and played a significant role in boosting both national and regional development. Of course in DEPA’s case this economic prosperity emanated from its erstwhile monopolistic position as the only supplier of natural gas to Greek industrial production and more importantly to Greek electricity generators, both public and private, that account for almost 2/3 of domestic gas consumption.

Interview of Dr. Theodore Tsakiris to Isotimia correspondent Ms. Giota Iliou, as published in the issue of 27-28 August 2011, (p. 1 and p. 21)

Q: A new era for Libya, what does it mean for Europe energy-wise? Who are rubbing their hands with joy?

A: The first ones rubbing their hands with joy are those that rushed to assist the Benghazi rebels to overthrow the regime. In the post-Qaddafi period, the European and probably global power that will have the first say most clearly is Paris. France led in all the phases of his diplomatic, military and economic isolation, pushing also the Italians and the British, who had much higher energy and financial interests in the country, in the same direction.

From the energy point of view for Europe, Libya remains one of the most important sources of imported oil. The E.U. states covered about 12% of their total oil imports from Libya, rendering the North African country the fourth most important oil exporter to Europe after Russia, Norway and Saudi Arabia. Yet, how soon Libyan oil will return in the international market depends on two factors:

(i) The type and speed of the country’s internal political re-stabilization, something bound to take many months to clarify whereas the eventuality of a Qaddafi guerilla war remains extremely possible especially if members of the Colonel’s family remain at large within Libya, and

(ii) The degree of damage in the oil and natural gas production fields, as well as the refining the export infrastructure during the conflict. From what we know, the damaged incurred is not especially extensive, but given the fact that the combat continues, nobody may exclude a “scorched earth” policy by those forces remaining loyal to Qaddafi.

In any case, the return of Libyan exports to the levels attained before January 2011 (ca. 1.6-1.7 million barrels/day) will be a procedure that will last for many months, if not 1 to 1½  years, especially in case, as it is almost certain, of a reshuffling of the oil “deck of cards”

Q: What is the view of Greece, but mainly of Europe, towards the natural gas deposit in the EEZ (Exclusive Economic Zone) of Cyprus?

A: This particular deposit is of great strategic importance first of all for Cyprus itself and secondarily for Greece but also in a wider sense for the E.U. By the end of the year or the beginning of the next, following the completion of the exploratory drilling set to begin on 21 September, we will have a very clear picture of the morphology and the exploitable reserves of this specific deposit. The initial seismographical research mentioned the existence of a potential reserve of about 280 billion cubic metres (bcm). To understand what this number means, Block 12 would be able to cover the needs of Greece for more than seven decades – were internal consumption of natural gas to remain at today’s level of approximately 3,65 bcm.

Yet, the dynamic of the reserve is more important as it is possible that geographically it extends also under the neighboring Israeli EEZ. If this is proved, we will be able to talk about a potential reserve of about 730 bcm, by including the Leviathan deposit, which lies about 40 km off the Cypriot field. For comparison, the proved natural gas reserves of Libya amount to 1.54 trillion cubic meters (tcm), while the reserves of the Shah Deniz field, on which depends the materialization of the ITGI, Trans Adriatic & Nabucco pipelines, are estimated at 1.2 tcm.

These particular deposits may by 2019-2020 provide the European market exports of about 20 bcm/year, at a time that Libyan and Egyptian natural gas exports to Europe in 2010 hovered at about 15.5 bcm, whereas the maximum amount of Azeri exports to reach Europe through Turkey is very possible to not surpass 10 bcm until 2020. Beyond that, the Cypriot-Israeli exports do not contain, if conducted by gas tanker ships, any substantial transport risk, something which is not valid in the case of pipelines with lengths of many thousand km, crossing geopolitically volatile areas such as Transcaucasia and the Kurdish regions of Turkey.

Q: How do you outline the interest for Israel?

A: Israel obtains through Cyprus a European strategic and energy linchpin, through which it may extend its political-economic influence in the E.U. and emerge as a major hydrocarbon exporter based on the utilization of the Leviathan field and its unification with Block 12 into a single export system. The construction of such a system (pipelines and liquefaction unit) is expected to cost around $10 billion and will be the largest investment in the modern history of Cyprus.

Q: What does Block 12 mean for Greece?

A: If Greek demand reaches about 7-8 bcm by 2020, Block 12 can comfortably cover 50% of this Greek consumption. Beyond reducing your energy dependence, you obtain as a country an additional advantage. You have much less need to subtract gas from the pipelines crossing through Greece to reach Europe as well as a stronger bargaining position against Turkey, Russia and Azerbaijan and any other joint venture would like to pass pipelines through Greek territory, strengthening in parallel the potential of further exploration of both Greek and Cypriot seas, which we should not forget that are also European seas.

Q: Greek deposits. Do they exist? What do they secure? Who claim them?

A: At this moment I want to believe we lie 12-18 months before the start of the first drillings in the Ionian and the Libyan sea. The Greek Regulatory Corporation for Hydrocarbons is expected to be staffed by the end of December. At the same time, the Hellenic Ministry of Environment, Energy and Climate Change has forwarded the to public consultation the relevant maps of the areas where the first seismic surveys since 1997 are to be carried out, while the tender for the selection of seismographic companies is expected to proceed within the following months. There is interest by French, Norwegian and American companies. Based on the seismographic results the following steps should be accelerated so as to -within a visible horizon spanning 3-4 years- be able to increase the local production, reduce our deficient balance and reap the first advantageous impacts from the increase of foreign investment.

By Charalampos Tsitsopoulos

Since last March, Syria has been the theatre of internal strife, violence and bloodshed. Although, naturally, much ink has been spilled on the regional and international repercussions of the events, the reaction of the international community and the future of the Syrian regime, the answer might very well be interlocked with the country’s energy needs. Recent events might also bear heavily on regional energy politics and a scenario where the regime’s final response is a reflection of its energy security state is not at all unlikely, as Syria’s location is strategic in terms of regional security and prospective energy transit routes.[1]

Syria’s oil reserves are not important by global standards and have been in constant decline over the last 15 years. In January 2011, they were estimated at 2,500,000,000 barrels.[2] Syria is not a member-state of OPEC or the Gas Exporting Countries Forum Organization. It produces around 390,000 bpd, of which 148,000 are exported daily, mainly to Europe and in particular France, Germany, Italy and the Netherlands.[3] However small its reserves, oil is very important for the Syrian regime as oil exports are a principal source of foreign currency. According to the International Monetary Funds, oil reserves accounted for 22% of GDP in 2008 and that figure may very well increase given that tourism has been severely hit by the upheaval and is unlikely to be revived any time soon. Moreover, about 60% of Syria’s electricity is generated from oil.[4]

Syria’s gas reserves define a similar situation. With reserves currently estimated at 240,700,000,000 cubic meters,[5] all gas is used domestically. Most of it goes to electricity generation and what is left is used in reinjection as an enhanced oil recovery (EOR) technique.[6] In late 2008, gas accounted for 31.2% of Syria’s electricity production.[7] Interestingly, Syria is not self-sufficient in gas and until 2009 imported 13% of its consumption from Egypt through the Arab Gas Pipeline. Some of the electricity generated is exported, and in 2010 domestic output increased by 7.2% to 46.4 billion kilowatt-hours[8]. It is worth mentioning that an important part of Syria’s power infrastructure was built with the support of the EU in the context of the Euro-Mediterranean Partnership,[9] either by loans given by the European Investment Bank[10] or by direct corporate foreign investments. Indicatively, the Greek company METKA SA and Italy’s Ansaldo were awarded a $650 million contract for the construction of a combined cycle power plant in Deir Ali, which is located to the south of Damascus.[11] The same companies have been working on the construction of a gas-fired power plant in Deir Ez-Zor since 2010.[12]

With oil revenues constituting a salient source of state income and Western multinationals and technology indispensable for exploration and production, the Syrian state is thus very vulnerable to potential oil sector pressures and embargo. Thus far, the latter recourse has been avoided, both because of European fears that it might constitute a ‘collective punishment’on a par with UN oil sanctions on Saddam Hussein’s Iraq[13] and because of lucrative contracts that are already in place. For example, Royal Dutch Shell has been chastized over its recent Syrian oil exports as it is seen to work ‘hand in glove’ with the regime.[14] In addition, amidst the recent turbulence, 12 international companies have bought terms of tender for exploration of oil and gas in Syria’s Exclusive Economic Zone (EEZ).[15] At the end of the day an EU embargo might not even be necessary as the Syrian army has started to show signs of exhaustion[16] and overstretch.[17]

by Dr. Theodoros Tsakiris

The apparent lack of any tangible progress on the Turkish-Azeri negotiations regarding the finalization of a June 2010 agreement on the transit of 10 bcm/y from Shah Deniz Phase 2 to Europe has again frustrated the leaders of the three competing consortia who are running in the Southern Gas Corridor “marathon”. The visit of Turkish PM Recep Tayyip Erdogan to Baku in July 27-29 failed once more to resolve a series of nagging disagreements between Botas and SOCAR which could undermine an October 1st deadline set by the Shah Deniz consortium for the submission of the final transportation proposals by the ITGI, Trans-Adriatic and Nabucco consortia. Yet, the gridlock on the Turkish-Azeri “front” gives away an image of “standstill” that is far from the truth. In reality every major player of the Southern Gas Corridor game is –to say the least- very active.

On 8 June 2011, the partners of the Nabucco Gas Pipeline International GmbH, Botas, Bulgargaz, Transgaz, MOL, OMV and RWE, signed in the south-central Anatolian city of Kayseri, which is also the electoral district of Turkey’s Energy Minister Mr. Taner Yildiz, the final Project Support Agreement or PSA that consolidated the legal framework securing the priority status of the project vis-à-vis the permitting and bureaucratic process of all transiting states. The PSA reconfirms the special priority transit status enjoyed by Nabucco within Turkey and the EU, protects the investment from any modifications in existing tax regimes, and the precise regulation to be followed for land acquisitions along the pipeline’s route.

Reinhardt Mitschek, the Managing Director of the consortium, noted that “The signing of the PSAs is a further vital milestone for our project and cements our partnership with the governments of the transit countries…Today also marks the first meeting of the Nabucco Political Committee, which will ensure effective coordination between the transit countries. We are satisfied with the unique solid basis of the project and welcome the support the project is receiving from both political and financial quarters”

Mitschek appeared particularly upbeat about the prospects of the project in the ensuing press conference noting that he was not at all worried about the availability of gas supplies which could fill the 31 bcm/y capacity project and expressed his certainly that the first gas contract will be available by the end of the current year. He also brushed aside any criticism that suggested a steep increase in Nabucco expenses, as “speculations”. EU Energy Commissioner Gunther Oettinger, who announced in May 2011 that Nabucco would cost anywhere from around EUR 12-15 billion, told an international conference held in Baku on 8 June that a historic decision time approaches for Azerbaijan as it would be the first country to implement the EU’s Southern Gas Corridor Strategy.

“Europe purchases gas from Norway, Russia and Algeria”. The demand is increasing and Europe researches the perspectives on gas imports from other regions. Azerbaijan may be both supplier and transit country”, the Azeri Press Agency quoted Oettinger as saying. Oettinger also said, according to RIA Novosti, that the EU was not attempting to dictate Azeri options regarding the best probable export route for Shah Deniz 2, “The European Union is not trying to exert pressure on Azerbaijan…nobody was accusing Azerbaijan of anything”, the Commissioner was reported as saying. Meanwhile on Kayseri, Mr. Stefan Judisch the head of RWE’s Gas Supply & Trading division, who is spearheading Nabucco’s efforts to secure the necessary gas supplies, was confident that Nabucco would be able to get gas from a variety of sources in due time to consolidate the financial viability of the project: “Turkmenistan has a growing interest in supplying Nabucco, because Russia is buying just one fifth of the Turkmen gas it used to. They have more gas than they can sell”, he told DowJones on 8 June. 

The RWE executive also noted that apart from Turkmenistan both Uzbekistan and Israel [?] have also approached the consortium as potential future shippers while trying to convey the “blame” for the postponement of Nabucco’s FID by one year, to the delays of the Shah Deniz consortium tendering process.  "Shah Deniz initially said it would announce who gets the gas (from the field) by March 2011. They haven't made this decision, and consequently we delayed our construction because we will not build an empty pipeline," Judisch said.

It is also interesting to note that the RWE executive appeared convinced that the cost of the pipeline will only marginally increase, despite the fact that it will expand its length by 500 km to a total of 3.900km. "What we can already say is that the costs will increase to reflect the fact that the pipeline is now planned to be longer because of the [new] feeder to Iraq…But on a like-for-like basis--excluding the Iraqi feeder--the final construction costs will be marginally higher than our present estimate".

Synopsis: Alasdair Cook, a senior BP executive and the head of the Shah Deniz (hereafter SD) Consortium responsible for making the final proposal to the SD Shareholders on the best pipeline transportation alternative regarding the 10 bcm/y to be transported to Europe via Turkey, details the criteria for the final selection process in an exclusive interview with Dr. Theodoros Tsakiris.

Q1: Given the fact that the Shah Deniz PSA was recently extended by 5 years to 2036 when would you need to start producing natural gas in order to be able to make a healthy rate of return on your investment?

A1: What we are doing towards the end of this year is to take a go or no go decision on the project. That occurs before we enter the front-end engineering design (FEED) phase. At the point of entering the FEED phase our spending rises very sharply, so it is very important for BP and the other Shah Deniz participants to be very confident, ahead of that decision, on where our gas is going to go to. That is why amongst other things we have asked all the pipeline companies to provide us with their offers for pipeline transportation by 1^st October 2011.

Beyond that we have to take our final investment decision in 2013 and beyond that we expect to start the platform and the production by 2017, so when you look 2036 as a deadline that may look quite far away but actually to sell the gas into Europe in particular, but also into other countries, we need to be able to offer twenty-year contracts, so that period of 2017 to 2036 is a very important period. Beyond that we have signed a Memorandum of Understanding (MoU) on Shah Deniz Gas with Turkey in June of last year that envisages production starting in 2017 and that was further supported by the signing of an Intergovernmental Agreement (IGA) between Azerbaijan and Turkey less than a month ago, which also supported that period of 2017 to 2036. For all these reasons is it crucial for us to start production by 2017.

Q2: What is the financial cost for the development of Shah Deniz 2 and its associated infrastructure and how do you plan to raise the necessary funds? How much for upstream and how much for mid-stream?

A2: We are talking in terms of a $20 billion project. There is a lot of ways for expressing the cost of the project, is it real dollars is it money of the day, does it include all the pipelines, does it exclude all the pipelines, but overall $20 billion is a good figure to use as a benchmark. I would say that in broad terms, of that amount, around $3 billion is for the pipeline and the associated compressor stations in the Sangachal terminal and the remaining $17 billion is for the upstream project including the underwater pipeline connections to the terminal. Yet I need to stress that as we refine these broad terms estimates, the cost will be refined as well and move up or down over the next 1 ½ as we reach the Final Investment Decision.

Q3: What percentage of the SD2 contract will be carried out by Azeri companies?

A3: It is very high indeed and actually much higher that Shah Deniz I and that’s because vast amounts of Shah Deniz 2 related infrastructure and components are going to be manufactured and build in Azerbaijan, so in the past for instance in Shah Deniz I we have to bring in the platform. Now we are to build it in Azerbaijan and that does a couple of things. First, it will create around 10,000 Azerbaijani jobs as we build the project and secondly, a huge amount of spent will be in country and our policy is to make as much as everything in country as we can. It is hugely important as we build Shah Deniz 2 that we demonstrate that it is very good for the country of Azerbaijan and that starts with the construction and continues with the production, so what that means is training up Azerbaijani workers. One of the things I am deeply pleased about is that we just recruited the first Azerbaijani workers who are going to be working on the new Shah Deniz 2 platform, so they have just started their training in Sangachal and we plan to bring a lot more as the project develops to supplement these technicians.

Q4: Is the consortium open for additional members to the project?

A4: The current Production Sharing Agreement between Shah Deniz 1 and the government of Azerbaijan was set up in the 1990s and we do not envisage any change to that going forward.

Q5: Given the relative advantages and disadvantages of the three major pipeline consortia battling to secure the 10 bcm/y of SD2 gas that will eventually flow to Europe, which of the three appears at the moment, to be the most attractive option?

A5: Right now we are focusing on the examination of the three main consortiums, namely Nabucco, IGI/Poseidon and TAP. Between the three of them they have some very good engineering offers and what we need to make sure is that each of them meets all the other standards we have set including commerciality, scalability and so on. As you very well aware of it takes a long time to develop a pipeline proposal, so I would be surprise if we get an entirely new offer between now and the 1^st of October.

Q6: Is there a possibility that by your choice of the Shah Deniz 2 “winners” you could create a new consortium that would integrate part of the existing pipeline proposals?

A6: We head the questions today and the proposal of Mr. Maniatis for a potential combination of offers, about finding different ways in which offers can be enhanced, but we have not head so far anything about consolidation. Certainly we are excited by the idea of enhancing the offers and there is a couple of important ways for the consortiums to achieve that, such as demonstrating the ability to provide a gas supply to the countries of Southeast Europe as a whole, in states like Bulgaria, Romania, Hungary, Serbia and Croatia, and secondly demonstrating the ability of being scalable.

It is very difficult to bring on tens of billions of cubic meters of gas per year at the same time if this comes from multiple fields. However, we in BP have no doubt that there are tens of billions of cubic meters per year that can flow from the Southern Corridor in due time. So one thing we are encouraging the pipelines to do is to scale their capacity over time and upgrade their transportation capacity as additional gas supply becomes available. I was delighted today to see the proposals of Harry Sachinis of DEPA and Kjetil Tungland of TAP demonstrating how they can expand their pipelines over time and we certainly think that this is a very important enhancement to the project offers as they move forward towards October.

NOTE: The Shah Deniz Consortium is comprised from: BP (25,5%), Statoil (25,5%), LukAgip (10%), SOCAR (10%), NICO (10%), Total (10%) and TPAO (9%)

NOTE: This interview was initially published in the 20 June 2011 issue of the Middle East Economic Survey

By Dr. Theodoros Tsakiris

On 29 May the Majlis Energy Committee’s Eleven Members unanimously decided to report to the Plenary of Iran’s Parliament that President Ahmadinejad’s decision to dissolve the Petroleum Ministry, merge it under the auspices of Energy Ministry and appoint himself as caretaker Minister, were illegal. The report accused Mr. Ahmadinejad of issuing "orders that are blatant example of illegal takeover of state assets" Ahmadinejad’s decision to dismiss a personal appointee, Dr. Masood Mirkazemi in late April, would not have caused shockwaves within Iran’s professional oil technocrats if it was not followed by a decree to merge the Petroleum and Energy Ministries.

The move is perceived as a highly offensive and insulting slap against Iran’s oil technocrats who have been replaced since 2005 by Ahmadinejad loyalists who have little considerable practical experience in the oil industry. The following day 165 Majlis Members out of a 198 quorum voted in favor of referring the president to the judiciary and only one voted against it, with the remaining MPs abstaining. This is the beginning of a formal impeachment process that can nonetheless be blocked, as will be most likely the case, by the Supreme Leader or the Council of Guardians, a Supervisory Body of 12 Senior Clerics appointed by the Supreme Leader and the Majlis, which acts as the country’s Supreme Constitutional and Criminal Court. On 20 May the Council of Guardians decreed that Mr. Ahmadinejad cannot serve as the caretaker Oil Minister but did not go as far as to question the legitimacy of his act to merge the two ministries.

Despite the fact that the impeachment process is unlikely to even begin, Mr. Ahmadinejad’s conservative opponents who have been appalled at his handling of the economy and accuse the President of sloppy foreign policy initiatives that have resulted in ever hardening international and US/EU led sanctions, are steadily increasing the pressure on the embattled President. Majlis deputies have recently vetoed a scheduled visit to Saudi Arabia by Iran’s Foreign Minister Ali Akbar Salehi who was summoned to testify on 31 May in the Majlis National Security and Foreign Policy Committee for his decision to visit Riyadh at a time when “Saudi Arabian troops have been killing innocent people in Bahrain”, the Mehr News Agency reported on 30 May.

The Parliament’s recent assertiveness primarily emanates from the humiliating disciplining of President Ahmadinejad by Supreme Leader Ayatollah Khamenei over the former’s attempt to sack the country’s Intelligence Chief Heydar Moslehi. Ahmadinejad was forced to revoke its decision and abstained from all cabinet meetings for eleven days as a sign of protest to Khamenei. Following the loss of this political battle over Moslehi, several Presidential aides have been arrested including Abbas Amirifar, the head of the President’s Cultural Affairs Office while Hamid Baghaei, Ahmadinejad’s top Vice-President was forced to step down after four years in office of a number of non-specific “violations”.

The conservative opposition movement against Ahmadinejad, which is concentrated in the Majlis, but is gaining supporters throughout Iran’s political system, springs out not only from his attempt to tactically question the primacy of Khamenei’s role, but also from Ahmadinejad’s perceived attempt to return to power in 2017 after “appointing” his senior advisor Esfandiar Rahim Mashaei as a “caretaker” President when his term expires in 2013. Such an attempt would constitute a dramatic modification of Iran’s internal power balance allowing for the emergence of a semi-permanent alternative power pole at the helm of the political system.

That would be unacceptable to Khamenei and even the IRGC (Iranian Revolutionary Guards Corps) that Ahmadinejad has favored over any other institution of the Islamic Republic since he begun his tenure in 2005. Such a provocation could not be left unanswered and appears to have strengthened the hand of more pragmatic conservatives at the helm of the Iranian establishment who are coalescing once more around former President and former Head of the Expediency Council Ali Akbar Hashemi Rafsanjani. The tide appears to be shifting against Mr. Ahmadinejad for the first time since the highly contested June 2009 elections that almost overthrew the theocratic regime in a prelude of the still unfolding Arab Spring Revolutions of 2011.

On 20 June the official website of the Iranian Parliament posted a statement by MP Hossein Sobhani-Nia, a member of the Majlis Management Committee, noting that a review subcommittee of President Ahmadinejad’s proposal on 15 May to merge the Oil and Energy Ministries has concluded that “The merger of the two ministries has been cancelled and taken off the government's agenda”.

Mr. Sobhani-Nia said that the review subcommittee was consisted of representatives from both the Majlis Oil Committee and the Ahmadinejad Administration without providing any additional details. So far there has been no confirmation whatsoever from the President’s office to Mr. Nia’s announcement which also stated that the government had “come to the conclusion that the oil ministry should remain independent because of its significance”.

Meanwhile Emad Hosseini, the speaker of the Majlis Oil Committee attacked Mr. Ahamadinejad for the delays in the development of South Pars Phases 15 & 18, the Aftab News portal noted on 17 June. The Senior MP said that the initiation of production from the aforementioned phases will not meet the original deadline of March 2012, noting that “Unstable management of the Oil Ministry and appointment of non-experts have had negative impact on the joint South Pars [oil and gas] field as well... We are ten years behind our partners meaning Qatar”.

The apparent reversal of Ahmadinejad’s attempt to merge the Oil Ministry with the Energy Ministry was not the only evidence of the President’s reduced political influence after a showdown with Supreme Leader Ayiatollah Ali Khamenei forced Ahmadinejad to accept the reinstatement of the country’s Intelligence Chief Heydar Moslehi on 17 April and the humiliating removal of his close confidant and brother-in-law Esfandiar Rahim Mashaei from the office of the President’s Chief of Staff on 9 April. The ongoing purge against Mr. Mashaei’s “current of deviation” who has been accused of attributing nearly “heretical” admiration for the country’s pre-1979 history has led to dozens of arrests of Mashaei’s confidants the last one being, Ali-Asghar Parhizkar, the Managing Director the Arvand Free Trade Area.

Nevertheless it is not just the Oil Ministry issue that has concentrated the fire of Ahmadinejad’s opponents in the Majlis. On 21 June The Parliament’s Foreign Affairs Committee forced the Foreign Minister Ali Akbar Salehi to demand the resignation of the recently appointed deputy foreign minister for administrative and financial affairs, Mohammad Sharif Malekzadeh, in order to avoid an impeachment motion tabled against him by 33 MP on 19 June. The impeachment resolution signed by the MPs noted that “the appointment of Mohammad Sharif Malekzadeh… as deputy foreign minister for administrative and financial affairs, will jeopardize foreign interests of the system due to his not very good background.” Malekzaden is known to be a close political ally of Rahim Mashaei.

It is not yet clear how far is the Majlis willing to take his political melee with President Ahmadinejad, even though there are signs that Majlis leaders may be itching for a direct assault on the President, since on 23 June over 100 MPs have seconded a notion “demanding” the President’s immediate appearance in the Majlis in order to “answer questions” over a series of contending issues (Iran News Round-Up, AEI, 24/06/2011). With the Majlis elections coming up in March 2012 the situation is unlikely to de-escalate without the personal intervention of the Supreme Leader.

Already violent means are being introduced in a political cul-de-sac that was never too far away from outright civil unrest of the most volatile degree as the repression of the June 2009 protests has vividly reconfirmed. On 24 June, the police department of Tehran, whose mayor Mohammad-Baqer Qalibaf has joined the anti-Ahmadinejad coalition, announced that it has issued warrants for the arrest of two suspected arsonists who attempted to set on fire Rafsanjani’s office at the Expediency Council.

By Charalampos Tsitsopoulos,
M.A. in Islamic Studies, University of Edinburgh, &
Research Fellow, EKEM European Energy Policy Observatory

Immediately after taking office on 7^th March, the new Egyptian oil minister Abdullah Ghorab asserted that Egypt is trying to modify its gas exports agreements with all countries, especially with Israel.[1] On 27^th April, the North Sinai gas pipeline transporting natural gas from Egypt (El Arish region) to Israel (Ashkelon) was bombed for the second time this year. The first explosion took place on 5^th February, while on 27^th March planted explosives failed to detonate. Although the perpetrators remain unknown and are speculated to be either Bedouins displeased at government neglect or militants opposed to gas exports to natural gas to Israel, their identity bears little significance compared to the potential repercussions of a sustained upheaval 50 kilometers from the Israeli border.[2]

Background

Although Egyptian-Israeli energy relations were established in 1979 following the peace treaty between then Presidents Anwar Sadat and Menachem Begin, the treaty did not mention gas.[3] By contrast, Egypt was only responsible for providing Israeli with around 10% of its annual crude oil needs. In addition, the then known gas reserves in the Sinai Peninsular were estimated to be very modest. The exclusion of gas issue from the Camp David/Sinai Accords gave credence to the perception of several Egyptian that their gas exports to Israel were the product of US pressures which climaxed following by a Free Trade Agreement signed between the three countries in December 2004. By 2005, Egypt agreed to sell 1.7 billion cubic meters to Israel and by 2008 a 20-year agreement was in place whereby the East Mediterranean Gas Company (a joint Israeli-Egyptian venture) would export up to 7 billion cubic meters to Israel annually, via the Arish-Ashkelon pipeline.

The latter is a 100km long pipeline that became operational in 2008 in order to connect the Trans-Arab Gas with Israel, and whose capacity reaches 9bcm per year. It’s operated by the East Mediterranean Gas Company, which consists of the Mediterranean Gas Pipeline Ltd (28%), the Israel Merhav Co. (25%), the Thai PTT (25%), EMI-EGI LP (12%) and the Egyptian General Petroleum Corporation (10%).

by Dr. Theodoros Tsakiris

The leaders of the South Stream project presented the $21.5 billion undertaking to European Commission authorities in Brussels on 25 May in an attempt to boost its chances of receiving an equal treatment with other Southern Gas Corridor projects, namely Nabucco, ITGI and Trans-Adriatic. Marcel Kramer the project’s CEO started his presentation by noting that South Stream “will not increase Gazprom's share on the European market. Some of the gas which it will carry to the EU, is now being delivered via other routes". 

He then went on to enumerate the advantages of the project vis-à-vis other pipeline alternatives in an indirect comparison with Nabucco’s perceived deficiencies. “South Stream has all the ingredients to become a success” Kramer noted. “There is gas to fill the pipeline and the required demand from customers. With our partners we have the experience, know-how and the financial strength to move this project forward, and we are doing so”, he said. 

The former Gasunie CEO who led the company’s participation in Nord Stream also underlined the steady pace of the project’s progress “By now, South Stream has made good progress on several fronts: with the Consolidated Feasibility Study being completed as well as with BASF / Wintershall Holding joining the construction of the gas pipeline offshore section”. Kramer noted that a new shareholders agreement which will formally incorporate EDF and BASF should be completed by the end of 2011, even though by that time another major German company, E.ON, which already controls 15% of the Trans-Adriatic Pipeline, could also join in the project, Gazprom’s CEO Alexei Miller told a press conference held in Brussels on 25 May. “Such a big project can not stay unnoticed by such a big company. It is possible that one more participant might join the project," Miller said according to RIA Novosti. 

On 23 May Russian Energy Minister Sergei Shmatko called on EC authorities to grant South Stream TREN-E (Trans European Energy Project) priority status by characterizing it an interconnector pipeline that will allow for its exemption from the obligation to provide non-consortium members indiscriminate access to the pipeline’s capacity. The permit, called in Euro-jargon TPA-E (TPA-Exemption) has been granted, in a various degrees, to all Southern Gas Corridor projects which have been characterized as TREN-E. I.e. IGI/Poseidon has received a TPA-E permit for 8bcm/y of the first 9 bcm/y of its transit capacity while Nabucco has a TPA exemption for 50% of its overall transportation capacity. Shmatko said, according to Interfax that he proposed to the EC to “consider South Stream as a continuation of our trans-border trunk gas pipelines and ban the access of third parties to it". 

The Russian Energy Minister is concerned that a failure of South Stream to receive TPA-E permit may render it financially unattainable “Creation of a new long-distance gas pipeline system is a massive project requiring substantial amounts of capital. If companies aiming to implement such projects are deterred from initiating them or face restrictions over the returns they can expect on their investments, the result will be detrimental, above all, to the interests of European consumers,” Shmatko according to a statement posted on South Stream’s website.

Granting complete TPA-Exemption to any cross-border pipeline within EU territory is illegal under EU Competition Law that is incorporated in the so-called Third Package of gas & electricity liberalization. It would be close to impossible for South Stream to get a 100% TPA-E permit from the time that Nabucco received a TPA-E for no more than 50% of its technical transit capacity.

As EC Energy Commissioner Gunter Oettinger noted in his speech to the South Stream leaders “we [EC] we will not impose any unreasonable or unjustified level of administrative or regulatory requirements. We will act as fair partners. This leads me to the subject of the legal framework; South Stream, when it is on EU territory, it will be subject to the 3rd package, and as a transmission pipeline, it will be subject to the internal market rules”.

Market Rules means that South Stream partners will (a) be forced to allow access to any interested party over a very considerable amount of the transported gas volume, (b) transit tariffs will be regulated by the Energy Regulatory Authorities of each EU transit state, even though a unified transit/tariff regime may be allowed to emerge following Nabucco’s precedent and (c) South Stream partners will have to introduce a reverse-flow capacity at least in parts of the vast onshore pipeline system, something that could further increase the final cost of the project.