By Nicoló Sartori.
The recent discoveries give the region an unprecedented opportunity to foster cooperation on energy and its exports, as well as to reach for diplomatic ways to handle the region’s conflicts.
The gas discoveries in the East Mediterranean have generated an outburst of enthusiasm, fostering an image of the region as a global future gas producer. Potential export trajectories for the East Mediterranean resources include a range of options from inter-regional gas trade with Turkey and Egypt to exporting gas to the EU, whose current priority is to diversify its gas suppliers. However, encouraging stability and political cooperation among the countries of East Mediterranean is a primary goal for regional stakeholders (EU included), given the tense relations between virtually all future gas producer and transit countries in the area.
Gas discoveries in Egypt: the cornerstone of the East Med Gas Hub?
Abundant gas resources have fostered Egypt’s emergence as a regional gas exporter by the beginning of 2000s. However, as a result of diminishing production and growing domestic demand (partly triggered by generous energy subsidies), in 2015 Egypt had to cease its pipeline gas exports to Jordan and Israel as well as its global LNG trade and begin importing gas supplies from abroad at global prices.
The discovery of the giant Zohr field (an estimated 850bcm) in offshore Egypt gives the country’s gas industry a sound reason to rejoice, since production from Zohr alone could cover 40% of Egypt’s natural gas output in 2015 and produce around 20-30 bcm/y of gas for two decades. Certainly, great discoveries require great responsibility and careful planning: successful Zohr gas extraction and exports largely depend on the government’s capacity to tame Egypt’s rampant domestic gas demand.
In order to achieve this vital objective, the Egyptian government has to prevent that the discovery of Zohr to reverse its efforts to reform the energy sector and curb demand for gas, as the newly-discovered abundance of gas resources instil a deceptive sense of security regarding Egypt’s economic and energy sectors. European cooperation, in this context, may play an essential role.
The emerging gas industry in Cyprus & Israel: a pursuit of energy independence
Contrary to Egypt, Cyprus’s ambitions for becoming a regional gas hub are entirely dependent on how successful the exploitation of the newly-discovered Aphrodite gas field turns out to be. Albeit the field’s size is relatively modest in comparison to Egypt’s Zohr – ranging between 130 bcm to 220 bcm – it would suffice for the country’s future domestic gas needs (an estimated 0.7-0.95 bcm/y) as well as some exports.
From a number of issues hindering the gas industry development in Cyprus, the first and foremost is related to Turkey: undefined Exclusive Economic Zone (EEZ) borders as well as the decades-long conflict between the Greek and Turkish sides of the Cypriot island prevent the country from shaping a realistic export strategy. Turkey’s assertiveness over the Cypriot conflict and its belligerent stance towards the development of Cyprus’s gas industry makes Ankara’s calculations for future policy direction hardly predictable. Despite, at the end of the day, gas-thirsty Turkey would benefit from progress on a peaceful conflict solution and full exploitation of local resources.
The significance of Israel’s discovery of the Tamar and the Leviathan fields is magnified in light of the country’s crave for energy security. An estimated 200 bcm of gas reserves does not only ensure Israel’s self-sufficiency for years to come, but also gives it a chance to become a gas exporter. However, major obstacles for gas extraction in Israel are not only external but also of internal nature: companies, which hold concessions to develop the Leviathan gas field, are under scrutiny of the country’s regulatory authorities amid concerns of market monopolisation, which will delay the field exploitation, currently estimated to begin in 2019.
Export opportunities: a promise of cooperation or increased tension in the region?
The East Mediterranean gas revolution gives the region an unprecedented opportunity to foster cooperation on energy and its exports, as well as to reach for diplomatic ways to handle the region’s conflicts. The huge gas demand of Egypt will most likely consume a huge chunk of the Zohr gas production, limiting the potential of the gas export. On the other hand, both Cypriot and Israeli gas resources are too little for the countries to construct export facilities on their own.
This is why symbiotic cooperation between Egypt – which already owns the necessary export facilities – namely the Idku and the Damietta LNG terminals – Cyprus and Israel, which plan to export excess gas supply, is one of the more realistic ways to materialise the potential of East Mediterranean gas discoveries. As a proof of mutual intent for future collaboration, Cyprus and Egypt signed an agreement in 2016, which paves the way for their future cooperation on gas production and exports.
Turkey stands out as the most convenient recipient of the East Mediterranean gas due to its geographical proximity, domestic gas demand as well as gas transit routes to Europe. Nevertheless, it is also one of the most difficult partners in the East Mediterranean gas development landscape, fiercely opposing the Cypriot pursuit for energy independence. Finally, both Cyprus and Israel eye the EU as a potential client for their gas reserves, through the East Mediterranean gas pipeline, since reducing gas import dependence on Russia is high on the EU agenda. Despite political convergence, the fate of this initiative will largely depend on its commercial and technical feasibility.
In conclusion, the golden gas age for the East Mediterranean might be just around the corner. However, in context of the turbulent environment for large-scale fossil-fuel infrastructure investments, the future regional gas producers must work on double track: securing the most economically and technically-rational decisions, while continuing working to create broader political cooperation mechanisms.
Senior Fellow and Coordinator of the Energy Program at the Istituto Affari Internazionali (IAI)