The Guest Blog

Guest blog post by Yana Popkostova, is a Director of The European Centre for Energy and Geopolitical Analysis (ECEGA.EU)

A realistic assessment of the potential of the Levantine resources to reach Europe provides a rather sober perspective, much different from the hype surrounding the flurry of diplomatic activity related to the East Med gas. Hopes and projections of the region to become a European gas mecca might be too sanguine. Marred by regional tensions, industry skepticism, and lack of long-term utilisation prospects, the East Med pipeline would remain a pipe-dream so much as other grand diversification scenarios preceding it. The EU should recognise that referring to the East Med pipeline project it has once again jettisoned pragmatic engagement in favour of an emotional response.

The energy ministers of Israel, Cyprus, Italy, and Greece met last week (3 April, 2017) in a ministerial summit of sorts under the approving eye of EU Energy Chief, Miguel Arias Canete, to reiterate a known commitment to the East Mediterranean Gas Pipeline – a behemoth project aiming to deliver Leventine hydrocarbon reserves to Europe. The Tel Aviv meeting is not a new development: for the past few years the world had witnessed a series of multi-partites usually involving Israel and Cyprus discussing the viability of the project and its miraculous potential to both liberate Europe from an allegedly dangerous energy dependence, and serve as a means to nurture cooperation and stability in a region in a dire need of both. This logic is flawed. In a world where geopolitics and history did not matter, pulling together regional resources and capitalising on economies of scale in exploration but also export of the hydrocarbon deposits would probably be the most sensible political, commercial, and economic option for the Eastern Mediterranean gas. The exorbitant price tag of a pipeline link to Europe would have been offset by the price reductions expected by a joint exploration. Albeit the scenario’s wide backing by the European Union and the Eastern Mediterranean states themselves, achieving the necessary cooperation has proven fiendishly hard. Strained relationships with contested maritime borders impede the realisation of synergies and the optimisation of gas developments in the region. The jigsaw of political tensions in conjunction with the lack of clear vision and sound energy governance, infrastructure and storage facilities compounds the gas export monetisation trials and tribulations. The reduced upstream budgets of energy majors do not make investments in a conflict-ridden, geologically complex region expedient either.

Thus, the anguished debate on the future of the Eastern Mediterranean gas reserves is set to follow its trajectory in the months to follow, denting even further pragmatic strategies for domestic utilisation and/or regional exports. Or in a surprising gyration, the regional impasse might well herald an epiphanic realisation on the limits of grand scenarios for trans-Mediterranean links, and thus, forge a move away from tautological summits into more pragmatic strategising on the domestic and/or regional options going forward. Just possibly. In an interesting development at the end of January, 2017, the leaders of Israel, Cyprus and Greece hinted at the possibility to form a ministerial energy grouping to oversee joint project development. If established such grouping might well be the harbinger of a wider energy cooperation, either in the framework of the Union for the Mediterranean or via a new regional institutional setting. The three leaders have also expressed interest in the Euro-Asia subsea Electric Inteconnector which would integrate the power grids of the three countries and facilitate further political discussions and energy cooperation. But amidst hope and hype, no comprehensive technical or economic viability assessments have been undertaken as yet neither for the EastMed pipeline corridor, nor for the Euro-Asia interconnector. The signed on 3 April preliminary agreement to agree in the future is likely to have a meagre practical follow-up (apart from the familiar stream of summits and accompanying statements). The vision to achieve solid regional energy cooperation is not yet ripe to leave the communiqué drafting rooms, but the hinted ministerial cooperation is a path the region would be well-advised to pursue, and the EU should vehemently support the establishment of a regional institutional setting to facilitate structured dialogue, and, in time, joint project development. This would be the only conduit for the monetisation of the regional gas deposits and for the much vetted regional stability.

Russia

The elephant in the room, it is often called. Rightly so. Discussions on the Eastern Mediterranean gas potential are often placed in a context of grand energy liberation strategies from the Eastern gas behemoth, and yet not much attention is directed towards Russia’s potential involvement in all of those diversification plans. In the coming year, we might expect Gazprom to intensify its diplomacy in the region and attempt to get a share in the Israeli natural gas industry. This is a key development to follow and with the potential to actually disrupt the regional energy dynamics. Vladimir Putin has already discussed three years ago (in 2014) with Mahmoud Abbas a potential Russian investment in the Gaza offshore gas fields, administered by the Palestinian Authority. Rapprochement with Israel might also open the door to Russian involvement in the Leviathan. Once the war in Syria is finished, Russia would have the exclusive rights to drill in Syrian waters that just might belie some gas deposits identical to the ones found in Zohr. These projections would compromise any EU diversification blueprints, and, yet, seem not to be even accounted for in any EU East Med scenarios. Russia’s potential involvement in the Southern Gas Corridor attests to the new strategy of the gas behemoth versus the EU and is equally symptomatic of the EU’s myopic vision. The Southern Gas Corridor is meant to transport Azeri gas to Europe via Turkey thus reducing Europe’s dependence on Russian gas. Nevertheless, the Russian Lukoil has a 10%-stake in the consortium developing the Shah Deniz Pipeline, one of the Southern Gas Corridor’s legs. The Russian company has also been granted more than $200 million from the European Bank for Reconstruction and Development to develop the Shah Deniz gas field. The Russian TurkStream potential entry point into TANAP is also much overlooked in the discussions surrounding the Southern Gas Corridor. Being in denial would not be, and have never been a good strategy for the EU. A frank and transparent discussion on the Eastern Mediterranean link and the Southern Corridor fuel sources and routes is imperative for the Union to avoid wasted credibility once again, after Nabucco, and wasted resources in supporting corridors which might never meet their intended diversification objectives fully.

A test of realism

In the months to come, the EU would have to admit that its buoyant proclamations to Cyprus but also Israel on the potential of their gas have been prematurely sanguine. The two countries would need to assess realistically their export prospects also given Egypt’s newly found energy prowess. Israel will implement a fresh gas framework. Rapprochement with Turkey and the development of a direct route between the two countries will indispensably encounter resistance from Nicosia but also, more critically from Moscow. This link is also an option, the EU should be especially vigilant about. Cyprus would either trump in a hinted discovery of a Zohr-like deposit in its territorial waters, or finally abandon the idea of an energy stardom status and enter in serious domestic gasification debate and/or explore pragmatically the potential to use Egypt’s LNG facilities to export the Aphrodite dormant resources. Reaching a unitisation agreement should remain a common goal for both Israel and Cyprus and such development in the months to come might well un-bottleneck important exploration options. Lebanon might also just manage to revamp its restrictive legislation and complete the second first licensing round. Despite a surprising political breakthrough last month with the passing of its first budget in 12 years, ending a record hiatus of public finances, the risk of escalation of tensions with Israel might dent Lebanese ambitions. In Jordan, exploration activities would not commence in the near future, but any potential finding there would feed the domestic market, currently dependent on Qatari LNG, and potentially sooner than later on Zohr imports.

 

Ergo, a realistic assessment of the potential for the Levantine resources to reach Europe provides a rather sober perspective, much different from the enthusiastic hype which surrounds the flurry of diplomatic activity related to the East Med gas. Thus, hopes and projections of the region to become a European gas mecca might be too sanguine. Marred by regional tensions, industry skepticism, and lack of long-term utilisation prospects, the East Med pipeline would remain a pipe-dream so much as other grand diversification scenarios preceding it. The EU should recognise that referring to the East Med pipeline project it has once again jettisoned pragmatic engagement in favour of an emotional response. Thereof, the Union should engage with the issue that bedevil it as an energy hungry continent and rather than compromising its credibility by entertaining yet more improbable diversification scenarios, invest its ingenuity and resources in building large partnerships for the development and furthering of energy efficiency technologies and renewable energy sources, and pursuing a sustainable and resilient low-carbon transition. Promotion of this pragmatic pathway for the Eastern Mediterranean countries should also be embraced by the Union in its diplomatic activities in the region.

Conclusions

Bemoaning bluntly the incongruity of EU’s diversification scenarios should serve to summon the political will of EU policy-makers to pave the way for a truly independent energy future for the continent which does not interchange one dependency with another and veer towards even more unpredictable partnerships and allegiances. Brussels needs to up the ante in its support, domestically and in its foreign relations strategy with Eastern Mediterranean partners, for a genuine decarbonisation strategy which tackles the energy trilemma with the only viable option: energy efficiency and renewable energy. This would both be feted by supporters and admonished by those the Union tries to impress with its grandiose pipe-dreams. And that should be a jolly victory to achieve.

 

The above article is based on the report ‘Geopolitics of Energy a la mediterraneenne: key issues, latest developments and future prospects for the Eastern Mediterranean Gas’ published on 6 April, 2017. If you want to receive a copy of the report, please contact ECEGA directly at www.ecega.eu

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