Politics has hijacked eastern Mediterranean gas
Turkey is set to clash with Greece, Cyprus, Egypt and Israel this year over rights to huge gas deposits in the eastern Mediterranean, as both sides manoeuvre to shore up their positions and block the other’s moves.
Turkey signed a deal with Libya’s U.N.-recognised Government of National Accord (GNA) in November that set out maritime borders between the two countries that would cut off the route of a pipeline that Greece, Cyprus and Israel want to build to take gas to Europe. Turkey then sent troops to help the GNA at the weekend, bolstering its partner in the maritime deal.
On the last day of last year, gas was pumped for the first time from Israel’s Leviathan field, some 125 km west of the port of Haifa. Leviathan has Israel’s largest offshore reserves of gas and associated oil. Gas deposits are estimated at more than 550 billion cubic metres (bcm), enough to cover domestic demand in Israel for 40 years. But production had been delayed due to legal wrangling and environmental concerns.
Israel is on the cusp of becoming a major energy producer. Gas extracted from Leviathan is processed at an offshore platform and then piped to the mainland. Some of it is to be delivered to Jordan, party to a $10-billion contract with Noble, the Houston-based company developing the field. For the past three years, Jordan has been importing gas from Israel’s Tamar field, which has half Leviathan’s capacity and started production back in 2013. Israel is also eyeing shipments to Egypt, as per a deal it signed in 2018.
The second key development is the signing of an agreement by the Greek, Cypriot and Israeli governments for a 1,900-km pipeline across the eastern Mediterranean. The pipeline is projected to deliver 10 bcm annually from Karish and Tanin, two more fields within the Israeli Exclusive Economic Zone (EEZ), to the Greek shore, and eventually across the Adriatic Sea to Italy.
Signed in Athens last week, the deal marks a milestone for the so-called Energy Triangle set up by Greece, Israel and Cyprus, and endorsed by the United States. The partnership also includes Italy and France, courtesy of Edison, a partner in the consortium behind the pipeline along with DEPA, Greece’s national gas utility. Edison is headquartered in Milan and owned by Gaz de France.
The EastMed pipeline is a rebuke to Turkey. Firstly, because it passes through what Turkey says is its EEZ, according to the agreement it signed with Libya’s GNA. Secondly because Turkey is left out of the deals to take the gas to European markets.
The Aphrodite field within the Cypriot EEZ is close to the Israeli zone. There is an ongoing dispute between the two countries, but the agreement signed in Athens implies they are close to ironing out their differences. The first gas production from the Aphrodite field is set to begin by 2025. The EastMed pipeline could provide an export route for the gas.
Turkey’s maritime deal with Libya’s GNA and the troop deployment to help defend the capital has brought together Greece, Cyprus, France and Egypt, whose foreign ministers are to meet in Cairo this week to discuss the issues. Egypt and France already back General Khalifa Haftar, whose forces are besieging the GNA in Tripoli. Greek Prime Minister Greek Prime Minister Kyriakos Mitsotakis is also in Washington this week and will put his case to President Donald Trump.
The diplomatic momentum however does not necessarily mean the EastMed pipeline is a done deal. It is not even clear whether such an ambitious venture would pay for itself. The DEPA’s commitment to buy some of the projected volumes is a good start, but it is not enough. Other European countries, notably Italy, a big market for natural gas, would need to step in.
Whether they do depends on a number of factors. Political backing is certainly one – by the countries involved as well as by the European Commission, which sees eastern Mediterranean gas as a means to help diversify supplies. But more importantly perhaps are market conditions. With prices for liquefied natural gas (LNG) low, investment to the tune of $7 billion in a pipeline traversing disputed waters remains a hard sell. The undersea pipeline to Greece, in contrast to Israel’s domestic production and sales to its neighbours, may never be realised.
Which brings the discussion back to Turkey. Under normal circumstances, exports from the Levantine basin to a large market next door such as Turkey would make a lot of sense, a point made by the Turkish Foreign Ministry in its response to the signing of the pipeline agreement. The Turkish domestic market could absorb the gas extracted from offshore deposits. Building the requisite infrastructure the much shorter distance to Turkey would be less of a challenge compared to the eastern Mediterranean pipeline. There would also be a political dividend for all countries in the region, including the two communities on divided Cyprus.
But sadly, this is not what we are seeing. Politics has hijacked economic interests. The rivalry between Turkey, on the one hand, and Israel, Greece, Cyprus and Egypt, on the other, will continue to put a spanner in the works. The eastern Mediterranean is already yielding gas, but it is going to consumers in the Middle East, not Europe.