Eastern Mediterranean Gas: What Prospects for the New Decade?
The last decade has seen the eastern Mediterranean region become a hotspot of the global natural gas industry, attracting increasing attention from multiple stakeholders also as a result of its high geopolitical stakes. Notwithstanding this momentum, progress has been bumpy.
The eastern Mediterranean gas saga started in 2009-2011, with the discovery of the Tamar and Leviathan fields off the shore of Israel and the Aphrodite field off the shore of Cyprus. To exploit this potential, an increasing number of export options were progressively put on the table, ranging from pipelines (one to Greece, another to Turkey) to LNG plants (respectively in Cyprus, Israel and Egypt). Great expectations characterised those years, as the new gas discoveries were also promoted as a tool to foster a new era of economic and political stability in the region.
But the initial high expectations have since then been dampened. In Israel a long-lasting internal political debate on the management of gas resources created a climate of uncertainty that contributed to the delay of key investment decisions. In Cyprus – where the gas discovery was welcomed as a godsend to relieve the country of its financial troubles – the initial enthusiasm was cooled by successive downward revisions of the expected resources. These developments raised scepticism of the general idea that the eastern Mediterranean might become a gas-exporting region.
2015 represented a turning point, as initial high hopes suddenly bounced back when the Italian energy company ENI discovered the Zohr gas field off the shore of Egypt – the largest gas discovery ever made in the Mediterranean. Due to an unprecedented fast-track development, gas production at Zohr started in December 2017, allowing Egypt to recover its self-sufficiency in gas after turbulent years. Zohr also marked a new phase of exploration activities in the country’s offshore waters, leading to the discovery of other important fields. All this allowed Egypt to also resume some gas exports, notably to Jordan.
The significance of Zohr and other offshore fields goes well beyond Egypt’s boundaries, as geographical proximity with other fields off the shores of Israel and Cyprus can put in place a competitive regional gas-export infrastructure based on the existing Egyptian LNG export facilities in Idku and Damietta. The two facilities have a combined capacity of 19 billion cubic metres per year, which roughly represents – to put it into perspective – twice the capacity of the Trans-Adriatic Pipeline (TAP).
This option would enable prompt exportation of substantial volumes of gas from Egyptian, Israeli and Cypriot fields once all domestic needs are covered. Developers would also enjoy flexibility in this manner, as LNG can be directed to any market and not just to the region or to Europe. In addition, should additional volumes of gas become available for export in the future, both LNG plants could be expanded.
In January 2019, the energy ministers of Cyprus, Egypt, Greece and Jordan, along with representatives of Italy and the Palestinian Authority, met in Cairo to discuss how to foster regional cooperation in the development of offshore gas discoveries in the eastern Mediterranean. The result was the establishment of the Eastern Mediterranean Gas Forum (EMGF), a platform aimed at developing a regional gas market, starting by taking advantage of the existing LNG infrastructure in Egypt. Throughout the year, additional meetings contributed to further developing the initiative, seeking its upgrade to the level of an international organisation, and expanding it to either state and/or private energy companies from member countries. After nearly a decade of speculation about the potential export options for the region’s gas resources, all this represented an important step in the right direction.
Meanwhile, in January 2020 Israel commenced to export its gas to Egypt in the framework of a large deal entailing the delivery – through existing pipelines – of 85 billion cubic metres of gas over 15 years, for a total estimated value of $US 19 billion. This gas is primarily aimed at feeding Egypt’s domestic market, but it could also feed Egypt’s LNG exports in coming years. This is the first deal of its kind and scope since the 1979 Egypt–Israel Peace Treaty, and goes in tandem with the two countries’ rising security cooperation in the Sinai Peninsula, aimed at fighting ISIS terrorists and also at preventing attacks on the regional gas pipeline infrastructure.
Over the last few years, another regional gas export project has increasingly attracted international attention: the EastMed pipeline. At first glance the project is an impressive idea. The pipeline would transport 10 billion cubic metres per year (i.e. the same volume as TAP) of gas from eastern Mediterranean gas fields to Greece, where another pipeline would finally link the whole infrastructure to Italy. About 1900km long, and reaching depths below 3km, it would be the world’s longest and deepest subsea pipeline. The estimated cost goes beyond €6 billion. In January 2020, Israel, Cyprus and Greece signed an inter-governmental agreement anchoring the commitment of the three countries to the establishment of the EastMed project. The absence of Italy must be outlined, as the Italian government seems doubtful about the economic and environmental viability of the initiative. In any case, such political declarations can do little to advance a project like the EastMed. The pipeline project must prove that it can attract the necessary capital for its construction and be economically sustainable – also considering that no financing can be obtained from the EU institutions any more. Back in 2015, the project was included in the EU’s list of Projects of Common Interest (under which the EU financed the project’s feasibility studies), but today the situation is different. In times of the European Green Deal, there is indeed no room for public support for fossil-fuel projects any longer in Europe. The pipeline project must also prove that it can be competitive vis-à-vis other sources of gas to Europe, starting with Russian supplies.
In addition to all this, the role of Turkey should also be taken into consideration. Since the dawn of the eastern Mediterranean gas saga, Turkey has indeed tried to play a role in regional developments through a double action: i) pursuing its own gas exploration activities offshore of Cyprus, activities considered illegal by the EU; ii) promoting itself as a corridor for regional gas supplies to Europe, in line with its classic geopolitical and energy narrative. However, this vision proved to be unrealistic, and regional players (from Israel to Cyprus, from Greece to Egypt) indeed moved forward with their respective strategies and activities without being influenced by Turkey. The signature of a maritime border agreement between Turkey and Libya in January 2020 opened a new chapter in Ankara’s attempts to influence the regional gas developments. The deal, considered illegal by the EU and the US, primarily aims at preventing the EastMed pipeline project from being developed. However, as previously illustrated, economic and commercial factors are likely to prevent the EastMed project from being implemented, not Turkey. The move with Libya might then simply end up being another ineffective attempt by Turkey to influence regional gas dynamics.
So, all in all the plan of creating an eastern Mediterranean gas market based on the existing LNG infrastructure in Egypt does look like the most logical course, as it would present economic and commercial benefits for all regional players involved – and as it would also avoid unnecessary geopolitical tensions. Such an approach would also offer eastern Mediterranean gas suppliers flexibility in terms of destination markets in the future, a key element considering the uncertain role of gas in the decarbonising EU energy system.
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