By Charles Ellinas
This was the subject of a workshop organised by the German think-tank Konrad Adenaouer Stiftung (KAS) between June 8 and 9 in Malta.
It was attended by regional and international experts in the field, who made incisive presentations that enabled detailed discussions of the key issues.
KAS managed to bring together representatives from countries and entities that do not usually sit at the same table or even speak to each other.
These included Cyprus, both Greek and Turkish Cypriots, Egypt, Greece, Israel, Lebanon and Turkey. In addition to KAS, the workshop was attended by experts from Germany and UK.
Offshore discoveries of hydrocarbons in the East Med in recent years are expected to considerably change regional dynamics.
Whether these will increase the potential for peace and regional cooperation or will rather create new sources of conflict remains to be seen.
The workshop’s purpose was to produce tangible conclusions on new dynamics in the East Med and come up with concrete recommendations for policy-makers on how to utilise the current momentum in order to foster political and economic cooperation and sustainable peace in the region. These form the basis of this article.
New Discoveries and Regional Cooperation
The key question posed was: are the new discoveries likely to act as catalysts for regional political and economic cooperation, and how does this influence traditional rivals and allies in the region?
In Israel, following discovery of Tamar in 2009 and Leviathan in 2010, Noble and its partners started investigating export options, including LNG, first through Israel and then through Cyprus. But after 3-years of fruitless negotiations this did not progress. FLNG followed, but regulatory issues in Israel eventually put an end to this option as well.
More recently, with resolution of the regulatory issues, other options are being considered, such as exports to Egypt and Turkey. Even though these are facing challenges, they have contributed to improving bilateral relations between Israel-Turkey and Israel-Egypt, even though the ICC arbitration award against Egypt is still blocking progress.
The possibility of a pipeline to Europe through Greece has also opened-up closer cooperation between Israel, Cyprus and Greece.
But even greater success, in terms of cooperation, was achieved with gas sales to NEPCO in Jordan, as part of the Phase 1 development of Leviathan. The deal is helping build trust between Israel and Jordan.
Similarly, discovery of Aphrodite in Cyprus has contributed to improving cooperation and strengthening of ties between Cyprus, Israel and Egypt. However, the unfinished business of the Cyprus-Israel unitisation agreement remains a concern.
On the other hand, discovery of gas offshore Cyprus, instead of acting as a catalyst for cooperation, has brought discord between Greek and Turkish Cypriots and increasing confrontation by Turkey.
In the meantime, Turkey changed its energy policy, lessening dependence on natural gas, by increasing reliance on indigenous energy sources such as lignite, hydro, renewables and nuclear.
Turkey’s interests are no longer driven by gas needs in the East Med, but by geopolitical factors. Coupled with the receding chances of the country acceding to the EU and, thus, the loss of EU leverage in Turkey, the two key factors, which might in the past have been considered to be incentives for Turkey to resolve the Cyprus problem, may have lost their significance.
More recently, Lebanon’s decision to include three blocks disputed by Israel and one disputed by Syria in its first licensing round, may potentially add to future disputes with its neighbours.
Greece is also trying to rekindle its hydrocarbons sector in response to the recent interest by ExxonMobil and Total to explore south of Crete. But it still has to deal with unresolved EEZs. It is hoped that, this time, efforts and actions will be more concerted.
East Med gas discoveries have created opportunities for regional cooperation, but also for disputes. It was agreed that key to this is active dialogue between the key players in the East Med if conflict is to be avoided.
Evolving Energy Supplies and Economic and Political Outlooks
The workshop discussed how changing market forces and timing affect the development of hydrocarbons in the East Med, the role of oil&gas companies and to what extent they may be constrained by geopolitical factors. It also considered the prospects for the establishment of an energy-hub in the East Med.
There is also a big push to increase use of coal and renewables in power generation. These are contributing to a massive increase in the development of new gas resources, with Egypt now expecting to become self-sufficient by 2018 and to resume LNG exports by 2020-21. Egypt also aspires to become a regional gas-hub.
Apart from the now-resolved regulatory issues in Israel, oil and gas companies are not hindered from carrying-on with the business of exploration and production and are increasing investments in the region.
At present any constraints they face are not geopolitical, but caused by oversupplied global energy markets and low gas prices.
With ENI’s central involvement in developing gas-fields in Egypt, including Zohr, and gas flowing into Italy from Libya and Algeria, and soon from Greece through TAP and possibly through Turk-Stream, and exports to Europe, Italy is increasingly becoming a strong candidate to host the southeast Europe gas-hub.
The Role of External Actors in the Energy Field in the Eastern Mediterranean
A key subject of the workshop was the importance of the development of energy reserves in the East Med for the EU and whether gas supplies from the region can help diversify energy imports of EU member states. It also considered what roles the US, Russia and other possible external actors play in the export of gas from the region.
EU’s needs for additional gas are limited and it has plentiful supplies from a number of sources. With Gazprom now compliant with EU regulations and trading norms, the EU has access to vast gas resources at low prices, around $5/mmBTU.
If East Med gas is to penetrate EU markets, it has to compete in this low price environment. As a result, new pipeline exports to the EU are not realistic and are becoming unlikely. The market for East Med gas is probably through LNG to Asia, but even then it is challenging.
The change in the US Administration has created a US vacuum in the region. It remains to be seen if and how this is to be filled. Russia is not yet rushing to take advantage of this, but it is increasing its involvement in the region opportunistically.
Towards Peace or Conflict?
This remains to be seen. But the spoiler may be that a permanent global gas-glut and low prices, due to the continuous shift in the global energy mix towards renewables, are making export of East Med gas very difficult.
And gas in the ground does not contribute to peace or conflict. Its development may, though, benefit domestic and regional markets, which makes it timely to start considering other potential uses of East Med gas.
Dr Charles Ellinas @CharlesEllinas is a Nonresident Senior Fellow at the Eurasian Energy Futures Initiative Atlantic Council