The profitability of transnational energy infrastructure: A comparative analysis of the Greenstream and Galsi gas pipelines

Abstract

This paper explores how the profitability of European transnational gas infrastructure is affected by (i) alternative ways to organize the gas supply chain; and (ii) different forms of energy diplomacy. In particular, through a case study, the paper analyses how these factors determined the realisation and success of the Greenstream pipeline and the stalemate of the Galsi pipeline, despite the potential for both projects to be profitable. The issue is important in view of the full transition to the EU Single Market, of which unbundling and privatisation are policy pillars. In fact, before the transition, vertical integration in the foreign upstream and energy diplomacy were key elements for infrastructure profitability. The paper argues that these elements are still important, as constraints to gas procurement and binding contractual relations with producers have not changed substantially. Nevertheless, securing those advantages within the EU Single Market framework requires significant innovations. In particular, the paper suggests forms of EU energy diplomacy, based on bilateral trade deals, which could achieve forms of vertical integration for energy firms as well as help EU and non-EU counterparts align their interests. This paper may prove particularly relevant for the recent debate on how to shape EU energy diplomacy.

Under pressure: A qualitative comparative analysis on the factors contributing to the success and failure of cross-border gas pipeline construction in Europe and Turkey

“…[13] indicates the use of a government-to-government mechanism in the energy sector to promote projects. This is also found in the Nord Stream 2 project as economic and supply benefits attributed to political support from Germany and Austria, tied to economic and supply benefits [14], and the Green Stream pipeline that benefited from close diplomatic relations between Libya and Italy [15]. This support extends to transit countries, as found by [16].…”

“…This support extends to transit countries, as found by [16]. Conversely, an unstable political climate between stakeholders can negatively impact pipelines, as found in Indian pipeline projects [17][18][19] and the Galsi project [15]. A study by [6] found that 'the Nabucco consortium's biggest failure probably was that it drew up a gas pipeline infrastructure without the participation of key producer countries'.…”

“…A third condition can be found in the role of the European Commission. In the past, the planned Galsi project was hampered by a misalignment between the objectives of the European Commission and Algeria [15]. [11] also addressed the EU's (the Commission) growing political, regulatory and financial support in the Trans Adriatic Pipeline (TAP) and Nabucco projects, that might contribute to the successful completion of these projects [11].…”

“…Second, we will examine whether support of powerful states, such as Germany, France, Italy, the United Kingdom (UK) and Turkey, have a positive impact on pipeline completion. 3 Specifically, the economic and supply benefits for powerful states are analyzed, as they seem to play an important role [9,[14][15][16]19,21]. A physical (a more direct supply benefit) or an economic (company headquartered in powerful state) connection to one of these powerful states results in a "1" score.…”

5. Trends and Patterns in Public Investment in Spain

“…This issue is important in view of the recent progress in the EU energy policy reforms, which envision a full transition to models based on short-term transactions in spot markets. In fact, in an energy-deprived area such as Europe, the full reliance on models based on short-term transactions is likely to increase the bargaining power of non-EU exporters, potentially threatening energy security and price affordability for consumers (Cardinale 2019). The fact that the transition to renewable gas will not guarantee energy independence suggests the need to carefully monitor the collateral changes that accompany the low carbon transition, especially for what concerns commercial relations between exporters and importers and their respective bargaining power.…”