Scramble for gas in eastern Med begins to overheat

A tanker carrying liquefied natural gas in the Eastern Mediterranean, where tension is growing between regional powers over sub-sea gas reserves. (Reuters)

LONDON: Tensions are building in the eastern Mediterranean as the dash for gas is fraying tempers in a region of significant geopolitical tension already.
Gas exploration and development in the energy-rich Levant Basin and adjacent areas has raised fresh issues as countries scramble to make discoveries, sometimes in disputed waters.
In recent days, Egypt has delivered strong words to Turkey and warned Istanbul to step back from explorations near Cyprus where it negotiated concessions wth the Greek Cypriots in 2013.
Last month, Israel described as “very provocative” a Lebanese offshore oil and gas exploration tender in disputed territory on the countries’ maritime border, and said it was a mistake for international firms to participate, according to Reuters.
Elsewhere, a US-backed initiative to build an undersea natural gas pipeline between Israel and Turkey has run into the sand as Turkish President Tayyip Erdogan escalates his public denunciations of the Jewish state. The pipeline in question would have conveyed gas from Israel’s Leviathan gas field — still under development — to Turkey for export to Europe.
Leviathan is no small find, but it is worthless unless Israel can get the gas to export markets. Its own energy needs are largely taken care of by its Tamar field 80 kilometers from Haifa.
Egypt’s massive Zohr gas field faces no such problem as it can depend on sales to its huge domestic market. Israel is too small. It must export the gas overseas to justify a commercial outlay on Leviathan running into billions.
Greek Cyprus has a similar problem. It has discovered the Aphrodite field off its south coast, but its home market is tiny and so it, too would be reliant on exports.
Pipeline construction is expensive and both Israel and Cyprus lack any meaningful infrastructure. So, the big question is how to get gas to consumers in Europe where governments fret about being over-reliant on Russian gas.
Only Egypt looks to have a clear run. For a start, it has substantive liquified natural gas (LNG) terminals, a captive consumer market and — crucially — Zohr is already delivering, following a development push spearheaded by ENI of Italy that has also involved infrastructure investment.
Zohr mean Egypt no longer needs to buy in expensive foreign gas, and could make the country a net exporterone day — making it one of the biggest energy success stories in the Middle East for years.
Challenges faced by Israel and Cyprus also turn on geopolitics and longstanding animosity with neighboring states.
For instance, even if Israel could patch up things with Turkey, it would not be able to run a new pipeline to Turkey via Lebanese and Syrian territory as these countries view it as as enemy state.
Greek Cyprus also has problems with Turkey. The Turks have warned Cyprus, as well as foreign energy companies supporting Nicosia’s offshore exploration and development program, that assets in Cypriot territorial waters belong to both Greek and Turkish Cyprus, not one side or the other.
Matters look even more complicated after Eni confirmed last week that it had tapped into a “promising” natural gas discovery near Cyprus. Named Calypso, the block confirmed the extension of a ‘Zohr like’ play in the Cyprus Exclusive Economic Zone (EEZ), said ENI.
Unconfirmed media reports suggest Calypso might hold as much as 6-8 trillion cubic feet (tcf), which some commentators believe could transform the energy landscape in the eastern Mediterranean.
If the two Cypriot finds — Calypso and Aphrodite — are pooled with Leviathan, they could bolster the commercial case for a 1,900 km EastMed gas pipeline to export Mediterranean gas to European markets.
Supported by a group that includes Cyprus, Greece, Israel and Egypt, the estimated $6 billion subsea project could take years to complete, assuming it could get sufficient financing. But co-operation on transportation attract foreign private capital. Cyprus, Egypt and others must be able to sell gas to Europe at rates on a par with international prices that have fallen dramatically as the LNG market takes off and the US shale revolution changes energy sector economics around the world.
Whether they can is open to question. Speaking to Arab News, Jonathan Stern, a Senior Fellow at the Oxford Institute for Energy Studies in the UK, said: “Everything is hugely complicated [excluding Zohr] geopolitically, but also commercially.
“One of the problems is that the gas is at an inconvenient place. Its either very far from the Turkish mainland (one obvious energy hub) or quite a long way from the Egyptian LNG terminals (another potential hub). Even leaving out the politics, that makes it difficult,” said Stern.
He added Zohr was a simple project in comparison to others as it was “about producing gas close to the Egyptian mainland, in Egyptian sovereignty and selling it into the Egyptian market.”
Egypt could be critical to any solution involving other countries. A report from the European parliament last year said that a more realistic option than the EastMed pipeline would be for Israel and Cyprus to feed gas into Egyptian LNG terminals via much shorter pipelines than those proposed to Italy and Turkey. “Egypt seems to hold the key to the eastern Mediterranean’s gas future,” the report said.
Tarek El-Molla, Egypt’s Petroleum Minister, told the Financial Times last year that his country was eager to become a regional gas center, and to work with neighbors. El Molla added: “We are ready to receive this gas, liquefy it and it sell it to the international market.”
And yet, despite all the reservations about the difficult economics facing eastern Mediterranean producers, foreign energy multinationals are not reluctant to come forward. Bloomberg reported last year that Royal Dutch Shell was in talks to buy natural gas from Leviathan, combine it with output from Cyprus’s Aphrodite field, in which it has a 35% stake, and pump it into an LNG plant in Egypt.
In December, Lebanon approved a license bid led by a consortium of France’s Total, Italy’s ENI and Russia’s Novatek to begin a drilling program in 2019. Qatar Petroleum and ExxonMobil will start drilling for oil and gas off the southern coast of Cyprus, the Qatari firm said last year, after signing an exploration and production sharing contract with Nicosia.
Clearly, an easing of geopolitical tensions would help. For instance, a settlement of the Cyprus question could bring Turkey onside, reducing the potential for friction.
Max Hess, a senior analyst at geopolitics consultancy AKE, told Arab News: “I think there are still prospects for a deal on Cyprus. Yes, we need another international push, but it could be what Erdogan uses when he realizes he needs to rebuild relations with Europe… solving the Cypriot issue could be a way to do so,” he said.