The Eastern Mediterranean has already become a significant source of natural gas production, but fully developing the region’s gas reserves, as well as finding ways to move that gas to market, has been extremely challenging. The technical, economic and regulatory obstacles have slowed development, but the geopolitical rivalries of so many players in the region have been even more formidable.
For years, regional leaders – as well as multiple governments Europe and the United States – have played up the prospect of transforming the Eastern Mediterranean into a major gas hub, billing the idea as a vehicle for economic development and for regional peace. To date, that vision has not exactly played out. In some cases, enormous gas reserves have aggravated existing tensions and rivalries. Nevertheless, the prize is too enticing, and the development of gas in the Eastern Mediterranean continues to increase. The region is expected to grow in importance as a significant source of natural gas production and exports.
Gas discoveries give rise to Eastern Mediterranean
The discoveries of the massive Tamar and Leviathan fields in Israeli waters in 2009 and 2010, respectively, put the Eastern Mediterranean on the map. In 2011, the Aphrodite field was discovered in Cypriot waters.
The gas reserves are enormous, but Delek and Noble Energy, the companies developing the Israeli fields, have been trying to find larger markets beyond Israel. Jordan already signed a long-term agreement to buy gas from the Israeli fields, but it is too small to soak up the growing output from the Eastern Mediterranean. The need for larger markets becomes even more important after the Leviathan field comes online, expected later this year.
In 2015, Eni announced the discovery of the Zohr field, the largest discovery ever recorded in the Eastern Mediterranean. Eni fast-tracked development, and brought the field online in record timing in late 2017. Zohr helped erase Egypt’s energy deficit. Egypt, once a natural gas producer and exporter, had become painfully dependent on costly imported LNG as domestic production declined and consumption soared.
But meeting domestic demand is only one piece of an ambitious puzzle. The Zohr, Tamar and Leviathan fields are enough to fuel ambitious plans for the region. All told, the natural gas reserves in the Eastern Mediterranean could top 125 trillion cubic feet, according to Wood Mackenzie, and exploration continues.
Egypt wants to transform itself into a regional energy hub, sourcing natural gas from multiple locations around the Eastern Mediterranean, building up domestic industry, and exporting gas around the world. It stands at a strategic crossroads, and with the Suez Canal, it could export LNG in all directions.
There other ideas as well. In December 2018, the Prime Ministers of Cyprus, Greece and Israel committed to signing an agreement to move forward on a long-distance gas pipeline, connecting the Eastern Mediterranean gas fields to Europe. The “EastMed Pipeline” would link the Leviathan field in Israeli waters to the Aphrodite field in Cyprus, and move that gas to Greece and then on to Italy. Notionally, the pipeline would have a capacity of somewhere between 10 and 20 billion cubic meters per year, enough for about 10 percent of the European Union’s needs.
The logic for such a project is obvious. Europe sees the pipeline as a critical advancement in its pursuit of energy security, as an EastMed pipeline would provide an alternative to Russian gas. It is not surprising, then, that the United States is aggressively backing the idea. The pipeline is also part of the broader three-way relationship between Greece, Cyprus and Israel, which has strengthened due to mutual suspicion of Turkey. Economically, Cyprus and Israel would benefit by connecting their gas reserves to the large European market. Greece would also see an economic upside from hosting part of the pipeline.
However, while there may be a strong logic in pursuing a long-distance pipeline to Europe, the chances of it actually being constructed are remote. It would be costly at over $7 billion, and as the longest and deepest underwater pipeline in the world, it would be technically difficult. Demand in Europe is stagnant, while alternatives – namely, LNG – are arguably more attractive. The commercial attractiveness of the EastMed pipeline is quite low.
But those challenges pale in comparison to the political complexity, including the specific battle over the right to develop natural gas reserves, but also the web of disagreements over maritime territory, the multi-decade conflict in Cyprus, and broader jockeying for geopolitical power in the region. Protracted negotiations between Cyprus and Turkey over offshore gas reserves collapsed in 2016, and in fact, as time has passed, the dispute over the Aphrodite gas field has inflamed tensions between the two. In blunt terms, Turkey has signaled that it would go to great lengths to prevent the construction of an EastMed pipeline. A year ago, Turkey sent warships to deter Eni from drilling off the coast of Cyprus.
Turkey has continued to raise ire about gas exploration off the coast of Cyprus. “We renew our warnings to companies participating in the Greek Cypriots’ one-sided exploration and drilling,” Turkey’s foreign ministry said in November, in an apparent reference to ExxonMobil’s exploration in Greek Cypriot waters. “We remind them that sharing the natural resources of the island of Cyprus relates to the core of the Cyprus issue.”
In fact, even as regional leaders have billed the Eastern Mediterranean gas reserves as a vehicle for peace, a project that would bind historic enemies closer together, growing tension suggests that may not turn out to be the case. Indeed, a 2017 report from the European Council on Foreign Relations argues that the race to develop the major gas discoveries in the Eastern Mediterranean is exacerbating existing political conflicts, not alleviating them.
Egyptian gas hub
While it may not be a regional vehicle for peace, the gas reserves have helped to bolster the bilateral relationship between Israel and Egypt. To be sure, cooperation is highly unpopular among large segments of their respective populations, particularly in Egypt. But at the governmental level, the two countries have a mutual desire to develop gas fields. Israel needs a route to export its gas, while Egypt needs more energy and also has idle LNG export terminals that could be brought online.
In February 2018, Egypt and Israel inked a 10-year, $15 billion gas deal that would see Delek Drilling and Noble Energy supply Egypt with natural gas from the Tamar and Leviathan fields. “I think that the main thing is that Egypt is becoming the real gas hub of the region,” Yossi Abu, chief executive of Delek Drilling, said at the time. In September 2018, Delek Drilling, Noble Energy and Egyptian East Gas Company purchased a 39 percent stake in Eastern Mediterranean Gas (EMG), the company that owns a pipeline running between Israel and Egypt. The pipeline has been offline for years after suffering damage from militant attacks in the Sinai Penninsula, but the developers hope to revive it. The pipeline will be crucial to delivering offshore Israeli gas (the Tamar and Leviathan fields) to Egypt, from which it could be either consumed domestically in Egypt or exported in the form of LNG.
Development of the Eastern Mediterranean energy hub took another step forward in January when multiple countries agreed to setup a forum in Cairo that would work on developing a regional gas market. The East Mediterranean Gas Forum (EMGF) aims to “create a regional gas market that serves the interests of its members by ensuring supply and demand, optimizing resource development, rationalizing the cost of infrastructure, offering competitive prices and improving trade relations,” a statement from Egypt’s Petroleum ministry said. The countries involved included Egypt, Cyprus, Greece, Israel, Italy, Jordan and the Palestinians. Yossi Mann, a professor at Bar-Ilan University, told Bloomberg Opinion that the gas forum could be a “relationship-builder” between all the countries involved. “Countries that engage in discussions of the topic at hand often wind up discussing other matters of broader interest,” Mann said. The EU hailed the EMGF due to its contribution to “economic peace.”
As part of turning Egypt into a gas hub, Israel and Egypt have initiated talks on building a subsea pipeline that would run between the two countries, which would vastly expand the volume of gas that would run to Egypt, boosting the case for an Egyptian energy hub. “There’s no final decision [on the pipeline] yet, but there are talks,” Israeli Energy Minister Yuval Steinitz told Bloomberg in January. Egypt is also in talks with Cyprus to connect the Aphrodite field to Egypt’s LNG export terminals.
While the EastMed pipeline faces long odds, building up the Egyptian energy hub looks more feasible. The promise of regional peace as a result of developing offshore natural gas fields has been exaggerated at best, and entirely an illusion at worst. In some instances, gas reserves are inflaming existing tensions. But in others, such as Egypt and Israel, commercial ties are expanding. Regardless, exploration and development continue apace, and the Eastern Mediterranean’s role as a major source of global gas production continues to grow.