FT: Egypt is most viable route for Europe to exploit East Med gas

The opportunity that Levantine gas provides: Egypt is the most viable route politically to exploiting this resource.

Gas pipelines often turn out more pipe dream than reality. Or, in the case of those that cross borders, they can involve projects that take so long to negotiate that by their completion the rationale for them has changed.

It would be a huge waste of opportunity should this become the case in the eastern Mediterranean. Substantial recent discoveries in a corner of the earth bedevilled by conflict could become a catalyst for greater regional co-operation and economic integration.

For Europe, the proximity of these gasfields provides a chance to reduce dependence on Russian energy supplies, although Moscow has taken strategic stakes in some of the region’s projects to ensure its influence is not unduly diluted. It could also provide some European leverage to sway the region in a more peaceful direction.

It will not be easy. The Levantine Deep Marine Basin spans the waters of Israel, Lebanon and Turkish and Greek Cyprus. Some of the discoveries have also been made offshore from the Gaza strip, introducing an Israeli-Palestinian dimension that could complicate things further.

Egypt, which has made its own vast recent discoveries, is in pole position to take a lead. Italy’s Eni has started production at the huge Zohr gasfield, as has BP in the West Nile Delta. Egypt already has a well developed domestic gas market that, having recently become a net importer, will easily soak up initial output.

These resources could be transformational. They should ultimately allow the country to achieve energy self sufficiency. The availability of abundant and cheap electricity could meanwhile allow Egypt to host more energy intensive industries.

In the development of its gas, Egypt is right to have prioritised its domestic market. But it has two liquefied natural gas plants, which are more or less mothballed, from which to export once production is ramped up.

The development of the Israeli, Lebanese and Cypriot fields is more fraught. With limited domestic markets all three will need to find external buyers at a time when world gas markets are close to saturated. The most pragmatic and practical near term path to outside markets would be to build a network of short pipelines and tap into Egypt’s LNG plants.

In the medium term there may also be a case for a pipeline that transits through Turkey. The EU, meanwhile, is pushing for an alternative route: a 2,000km long and 3km deep pipeline from the eastern Mediterranean to Italy.

The preferred EU option, however, has questionable commercial logic. It would also see the EU squandering a chance to promote greater economic integration in the region. Worse, it would undercut the other pipeline deals.

Gas was an important catalyst in furthering talks over the status of Cyprus. Negotiations broke down last year. But gas could lure the conflicting parties back to the table. The reverse could also be true. In the absence of a deal, Turkey could make it difficult to develop the Cypriot field. Any attempt to exploit it without Ankara’s involvement would risk inflaming tensions and further souring relations between the EU and Turkey.

Pipelines require huge investments. So the economic logic of building them in collaboration is obvious. It is the politics that are, in this case, delicate. Egypt, at least initially, provides the most pragmatic route to reap the economic benefits without exacerbating regional tensions.

(Source: Financial Times)