Grand ambitions, complex realities for the energy landscape east of the Mediterranean

Turkish anger over the joint Cyprus-Greece-Israel-Egypt gas bloc has led to reports that the East Med might provoke conflict.
Sunday 28/01/2018
Grand ambitions. (From L-R) Cypriot Energy Minister Georgios Lakkotrypis, Greek Energy Minister Giorgos Stathakis, Israeli Energy Minister Yuval Steinitz and Ambassador of Italy in Cyprus Andrea Cavallari attend a meeting for the East Med Pipeline in Nicosia, last December.                                                                            (AFP)
Grand ambitions. (From L-R) Cypriot Energy Minister Georgios Lakkotrypis, Greek Energy Minister Giorgos Stathakis, Israeli Energy Minister Yuval Steinitz and Ambassador of Italy in Cyprus Andrea Cavallari attend a meeting for the East Med Pipeline in Nico

LONDON - Lebanon is eagerly anticipating its share of expected revenues from vast gas reserves found in the Levantine Basin that encompasses Egypt, Cyprus and Israel.

Geopolitical, commercial and technical obstacles need to be overcome and proceeds from the find are years away but expectations are high and private universities in Lebanon are offering a range of degrees in geological disciplines.

“Too many private universities are offering geological science and petroleum courses that are very expensive with no job guarantees at the end,” said Valerie Marcel, an associate fellow at the Royal Institute of International Affairs or Chatham House. “I’m still waiting for the government to moderate the expectations of its people.”

It is not only Beirut that has grand ambitions. At a signing ceremony in December in Nicosia, Cyprus, Israel, Italy and Greece agreed to back the construction of a 2,000km gas pipeline from the eastern Mediterranean to Europe. The project, known as East Med, could cost $7.34 billion.

Analysts say a cheaper option would be a pipeline via Turkey but the Israeli-Palestinian conflict makes fraught any path through Lebanese and Syrian waters. A route closer to Cyprus was ruled out given its dispute with Turkey, which supports the breakaway northern part of the island.

These difficulties have led to hopes that Egypt could emerge as the most commercially viable option to export gas from the eastern Mediterranean. Gas started flowing last month from Egypt’s Zohr gas field, the largest gas discovery in the region.

“It will completely transform Egypt’s energy landscape, allowing it to become self-sufficient and to turn from an importer of natural gas into a future exporter,” Claudio Descalzi, CEO of ENI, the Italian company leading the $12 billion project, said in a statement.

If Egyptian domestic demand for energy continues to grow, however, there might not be much gas available for export. Gas from elsewhere in the region could go to Egypt for liquefaction and export. This is probably the most economically viable option for Egypt’s neighbours in the short run but it, too, has problems, said Emmanuel Karagiannis, associate professor at King’s College London.

“The potential obstacle is the security situation in the Sinai Peninsula,” he said. “Terrorist groups could target energy infrastructure and undermine Egypt’s role as an energy hub.”

Nonetheless, governments and companies are forging ahead with big plans. This, despite questions about commercial viability as there is plenty of cheap gas, particularly from Russia, on the international market.

The Lebanese government has approved the bid by a consortium of three companies — ENI, France’s Total and Russia’s Novatek — for two offshore blocks. Potential gas reserves have not been confirmed by drilling and exploration will not start before 2019 but the public’s expectations of a revenue windfall are high.

“The Lebanese public… will call the government’s bluff if there are dry wells, if future discoveries are not commercially viable or the sector does not deliver the transformative impact that was promised,” said Marcel.

Turkish anger over the joint Cyprus-Greece-Israel-Egypt gas bloc has led to reports that the East Med might provoke conflict. Analysts are watching closely to see if Ankara provides a naval escort for its first new drilling vessel, the Deepsea Metro II. If it does, that would heighten the potential for confrontation with ships carrying out exploration and drilling operations off Cyprus on behalf of Total and ENI.

Turkey insists the Greek Cypriot administration cannot unilaterally exploit natural resources on behalf of the entire island because it does not represent Turkish Cypriots. “Turkey’s position is very clear: this issue should be a part of the comprehensive settlement in Cyprus,” said a statement on the Turkish Foreign Ministry’s website.

This has led to “significant tensions related to the Cyprus

dispute” said Gareth Winrow, an energy analyst. He cautioned that “reports of war are somewhat exaggerated,” adding that “on the one hand, there are governments and companies in the region seeking profits and that seek to exploit these reserves but there are also political, commercial and technical factors pushing in the other way.”

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