Opinion

Is the EastMed gas pipeline just another EU pipe dream?

Is the EastMed pipeline really a feasible project? The answer to this question is not simple, but the EastMed plan sounds unconvincing.

By: Date: May 10, 2017 Topic: Green economy

This blog post will be published in Il Sole 24 Ore and Kathimerini.

ilsole24ore

On Monday 3 April, the energy ministers of Cyprus, Greece, Israel and Italy met in Tel Aviv, warmly watched by the EU Commissioner for Climate Action and Energy. They had gathered to sign a preliminary agreement to advance a gas pipeline project aimed at linking their four countries: the EastMed pipeline. The project is ambitious, enormous and – at least today – probably unnecessary.

At first glance the EastMed is an impressive idea. The pipeline would transport 10 billion cubic metres per year (Bcm/y) of gas from eastern Mediterranean gas fields to Greece and Italy. About 1900km long, and reaching depths below 3km, it would be the world’s longest and deepest subsea pipeline. The estimated cost is €6.2 billion.

But for those who follow European energy security, Monday’s ceremony brought a kind of déjà vu. It was difficult not to remember a similar ministerial ceremony that took place in Vienna in June 2006, proclaiming next steps for the Nabucco pipeline.

The two projects have many similarities: huge gas transit capacity; long pipelines; connections between Europe and multiple gas supply sources (in the case of Nabucco, Azerbaijan, Turkmenistan, Iran and Iraq). Both were also predicted to be costly, although the EastMed pipeline is even more expensive than Nabucco’s €5 billion initial estimated pricetag. And in both cases, energy ministers and the European Commission promised that the project would contribute not only to the security of Europe’s gas supply, but also to wider regional cooperation.

As we know, the story of Nabucco did not have a happy end. The project soon proved to be more of a pipe dream than a realistic pipeline project.

So the question now is whether the EastMed pipeline is really a feasible project. Or is it just more wishful thinking from the EU? The answer to this question is not simple, but the EastMed plan sounds unconvincing.

Preliminary feasibility studies claim that the project is viable both technically and commercially. However, these studies make a double bet on future gas trends in the region. On the demand side, they assume a substantial increase in EU gas import requirements. On the supply side, they predict that large amounts of eastern Mediterranean gas will become available for export to Europe.

The first bet looks reasonable, albeit with a caveat. The EU’s gas import requirements are likely to grow in the future, partly due to rapidly declining domestic production. However, this does not necessarily mean that eastern Mediterranean gas will be best positioned to fill the gap. At the end of the day, cost competitiveness will be key. Will Europe satisfy its growing requirements with eastern Mediterranean gas, or simply by increasing deliveries from Russia and other traditional suppliers?

The second assumption, that the eastern Mediterranean is sure to become a major exporter, is even more doubtful. Over the last years various challenges have revealed the limits of the region’s gas potential: continuous investment decision delays in Israel; downward revisions of gas resources in Cyprus; major gas shortages in Egypt.

In fact, only the 2015 discovery of the large-scale Zohr gas field in offshore Egypt, the largest discovery in the Mediterranean, could revitalise the outlook. But Egypt is not interested in the planned EastMed pipeline, having at its disposal two large liquified natural gas (LNG) facilities that currently sit idle. And even if regional gas production accelerates, domestic demand might limit export potential. Egypt’s gas demand is set to rise from the current 50 Bcm/y to around 70 Bcm/y in 2030. Israel expects its gas demand to quadruple by 2040.

In short, the gas export potential of the eastern Mediterranean is still not clearly defined, and it will also depend on domestic gas demand.

With all these uncertainties, it seems premature to discuss such a large and costly project as the EastMed pipeline. EastMed could make sense in years to come, once European gas dynamics and the real export potential of the eastern Mediterranean become clearer. But for the time being it looks like another EU fantasy.

A more reasonable option for the eastern Mediterranean region would be joint use of the existing Egyptian LNG facilities. Indeed, the geographical proximity of Egyptian, Israeli and Cypriot offshore gas fields could well allow coordinated development. This might create the economies of scale needed to make the first gas exports from the eastern Mediterranean region competitive.

Such an approach would also offer eastern Mediterranean gas suppliers flexibility in terms of destination markets. For instance, through Egyptian LNG terminals, these fields could also serve the rapidly growing Turkish market – and not just southern Europe, as would be the case with the EastMed pipeline. Furthermore, a joint regional export scheme via the Egyptian LNG facilities could also provide a first opportunity to test commercial gas cooperation between Egypt, Israel and Cyprus.

If successful, this cooperation could then eventually scale-up in the 2020s, if new gas resources are found in the region and gas demand justifies the construction of additional infrastructure. Only then would it be worth considering grand projects like the EastMed gas pipeline.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Blog Post

REPowerEU: will EU countries really make it work?

By acting together, the European Union can optimise its response to the energy crisis in all scenarios but each country will have to make concessions.

By: Simone Tagliapietra Topic: Green economy Date: May 18, 2022
Read article
 

Blog Post

The EU needs transparent oil data and enhanced coordination

The EU lacks the coordination structure and transparent data necessary to most effectively navigate an embargo on Russian oil.

By: Agata Łoskot-Strachota, Ben McWilliams and Georg Zachmann Topic: Global economy and trade, Green economy Date: May 16, 2022
Read article More on this topic
 

Opinion

For Europe, an oil embargo is not the way to go

Even at this late hour, the European Union should consider taking a different path.

By: Simone Tagliapietra, Guntram B. Wolff and Georg Zachmann Topic: Global economy and trade Date: May 9, 2022
Read article More on this topic
 

Opinion

A tariff on imports of fossil fuel from Russia

A tariff on imports of Russian fossil fuels would allow Europe to hit Russia's energy sector without great suffering.

By: Guntram B. Wolff and Georg Zachmann Topic: Global economy and trade Date: May 2, 2022
Read article More on this topic
 

External Publication

How to weaken Russian oil and gas strength

Letter published in Science.

By: Ricardo Hausmann, Agata Łoskot-Strachota, Axel Ockenfels, Ulrich Schetter, Simone Tagliapietra, Guntram B. Wolff and Georg Zachmann Topic: Global economy and trade Date: May 2, 2022
Read article More on this topic
 

Opinion

A phase out of Russian oil may be less effective than a tariff at reducing Putin’s rents

A punitive tariff on all energy imports from Russia would be a better choice than a gradually phased-in embargo on selected fuels.

By: Simone Tagliapietra, Guntram B. Wolff and Georg Zachmann Topic: Global economy and trade Date: May 2, 2022
Read article
 

Blog Post

How a European Union tariff on Russian oil can be designed

The European Union should apply a tariff on imports of Russian oil; it can be accompanied by a quota for a gradual, conditional phase-out of all Russian oil imports.

By: David Kleimann, Ben McWilliams and Georg Zachmann Topic: Global economy and trade, Green economy Date: April 29, 2022
Read article
 

Opinion

EU risks letting Putin’s gas divide-and-rule strategy win

The 2 May meeting of EU energy ministers should deliver strong and common EU action. Failing to do so would undermine Europe’s unity, energy security and foreign policy.

By: Agata Łoskot-Strachota, Simone Tagliapietra and Georg Zachmann Topic: Global economy and trade, Green economy Date: April 29, 2022
Read article More by this author
 

Opinion

Europe must get serious about cutting oil and gas use

As energy security risks increase, European governments must stop subsidising oil and gas, and ask people to consume less.

By: Simone Tagliapietra Topic: Global economy and trade, Green economy Date: April 29, 2022
Read article Download PDF
 

Working Paper

Cutting Putin’s energy rent: ‘smart sanctioning’ Russian oil and gas

The most efficient way for Europe to sanction Russian energy would not be an embargo, but the introduction of an import tariff that can be used flexibly to control the degree of economic pressure on Russia.

By: Ricardo Hausmann, Agata Łoskot-Strachota, Axel Ockenfels, Simone Tagliapietra, Ulrich Schetter, Guntram B. Wolff and Georg Zachmann Topic: Global economy and trade, Green economy Date: April 28, 2022
Read article More on this topic
 

Blog Post

A sanctions counter measure: gas payments to Russia in rubles

A requirement for gas to be paid for in rubles is a way for Russia to side-step central bank sanctions.

By: Maria Demertzis and Francesco Papadia Topic: Global economy and trade Date: April 19, 2022
Read article
 

Opinion

Cutting Putin’s energy rent: ‘smart sanctioning’ Russian oil and gas

Three ways Europe could limit Russian oil and gas revenues.

By: Axel Ockenfels, Simone Tagliapietra and Guntram B. Wolff Topic: Global economy and trade, Green economy Date: April 11, 2022
Load more posts