Perspective of the Eastern Mediterranean natural gas for the EU - Challenges for the Fifth Energy Corridor
In this context, Southern Gas Corridor’s role, which is considered fourth energy corridor, is inevitable. However, given the amount that SGC will pump to Europe, it won’t be sufficient to be game changer. There are plenty of alternatives for diversification of routes and sources. The hydrocarbon resources of Eastern Mediterranean might be next alternative for the EU’s diversification policy or maybe not. The US Geological Service indicates that gas reserves of the Eastern Mediterranean estimated to be about 3.4 trillion cubic meters that might be sufficient to meet EU’s natural gas demand for several years. Most of Mediterranean countries (except Egypt) meets their natural gas demand from abroad.
Unstable geopolitical situation in the Southern-Eastern Mediterranean emanating from Arab Spring, government coup in Egypt, civil war in Syria, radical Islamism in Iraq, a.k.a ISIS, Turkey-Israeli tension, Turkey-Cyprus and Israeli-Palestinian conflict had and will have enormous impact over the energy picture of the entire region. In terms of future supply, there are plenty of options to transport the natural gas resources of the Eastern Mediterranean region: The Arab Gas Network; The joint Israeli-Cyprus LNG plant at Vassilikos; The LNG plant in onshore Israel; Leviathan-Ceyhan Pipeline; By using Egyptian LNG export terminals; The Eastern Mediterranean Pipeline.
The Arab Gas Network, which starts from Egypt passes through Jordan, Syria and Lebanon to Turkey, cannot be operational because of security matters. During massive demonstrations in Egypt, some jihadists even attacked pipeline. Moreover, Turkey intends to merge this pipeline in its territories with potential pipelines between Aleppo (Syria) and Kilis (Turkey). In 2008, the extension of the AGN towards Turkey and Europe, as well as with connections to Iraq, has been agreed among six states – Turkey, Iraq, Egypt, Jordan, and Syria, including the EU, which supported project since 2005 with ``Euro-Arab Mashreg Gas Market Project`` in order to promote integration of and to establish the gas markets among those countries.
New discoveries in the Eastern Mediterranean’s shallow waters (Ashqelon/Gaza Strip) and in offshore territories of Israel (Tamar/Leviathan) and Cyprus (Aphrodite) attracted energy companies to region. Leviathan and Aphrodite fields are located close to each other, which make transportation of gas to Vassilikos LNG plant of Cyprus much easier in the future. These fields may ensure domestic energy consumption of both Cyprus and Israel and make them exporter of natural gas. Whereas construction of LNG plants will be costly for Cyprus (approx. 15/20 billion USD). From the other side, Israel have not expressed yet its official interest for investment and transportation of gas via Vassilikos LNG terminal. Exploration of those fields is very crucial for Cyprus, which may enable them to provide enough volume for the construction and supply of that terminal.
However, existing dispute between Turkey and Cyprus makes situation challenged. According to Turkey, Cypriot government should not explore natural resources of the entire Island alone, unless conflict is solved. Regardless of Turkey’s opposition, Cyprus continued exploration activities. Nevertheless, Cyprus also has alternatives to export its gas to Europe through possible pipeline to Turkey and Eastern Mediterranean pipeline via Crete to Greece. The energy cooperation can reconcile Turkey’s relations with Cyprus and Israel and will strengthen Turkey’s hand in its relations with the EU, which makes country energy hub and the EU dependent in terms of transit.
Despite the fact, Cyprus and Greece agreed upon the gas exploration in the offshore fields, which are located in the disputed water with Turkey, they were not able to start exploration operations. Because, Turkish military vessels prevented the exploration, as Turkey indicated that those areas included in its Exclusive Economic Zones. Political problem of Turkey with Israel and Cyprus bypassed it from energy projects and exploration of gas fields in the Eastern Mediterranean.
Turkish-Cypriot peace talks halted after Turkey’s research vessels and two navy ships entered dispute waters of Cyprus to oppose exploration operations of Italian ENI and Korean KOGAS in the Block 9 field. However, Turkish General Staff told that Turkish warship was observing the drilling platform from nine kilometers only within the framework of ``Mediterranean Shield Operation`` to provide maritime security, writes Famagusta Gazette. In early October, Turkey declared that it is going to conduct seismic surveys in the water areas where considered Exclusive Economic Zone of Cyprus. Michael Leigh from GMF mentions in this article that, ``Turkey is seeking to move the offshore energy issue into the settlement talks``.
Regardless of Turkey’s warnings on suspension energy project with ENI, in case they will involve in exploration in the disputed waters of Cyprus, Total and ENI/KOGAS gained license to launch drilling in the upcoming years in the blocks 2, 3, 9 and 10, 11 of Cyprus respectively. Hereupon, Ankara suspended its projects with ENI, including Samsun-Ceyhan oil pipeline. However, given the ENI is one of the stakeholders of South Stream, this means indirect opposition to Moscow.
Despite Turkey, the UN recognizes the sovereignty of Cyprus over entire water and land areas of Island and Cyprus signed demarcation agreements with Egypt, Lebanon and Israel, though country cannot exploit those fields because of Turkey’s opposition. Turkey insists that not only southern part of Island, but entire Island population [including Turkish Cypriots] should benefit of those resources. While Greek Cypriot government ensures that entire Island population would benefit of those resources, Turkish government does not rely on this statement. Cyprus in its turn, would like to be region’s energy hub by hosting joint LNG plant and pipelines across its territory towards Europe. From other hand, in case of deterioration of relations with Turkey, Cyprus can create technical problem for pipelines running to Turkey by halting gas flow.
However, after the election Mohammed Morsi a president of Egypt, central government of Egypt adopted law overruling demarcation agreement between Egypt and Cyprus in order to reconsider maritime border between two countries, [worse for Cyprus] with presence of Turkey as a third party, which frustrated Cyprus much. According to adopted regulation, demarcation agreement of 2012 between Cyprus and Israel, override same agreement of 2013 between Egypt and Cyprus, which former bypassed Egypt from signing.
Moreover, LNG plants of Israel at the Eilat, Ashkelon, Ashdod and Haifa ports in Mediterranean are crucial to diversify the routes. There are some remaining issues (technical and financial), which are necessary to come through for construction and implementation of the Eastern Mediterranean Gas Pipeline from Israel to Cyprus and further to Greece and possibly to Balkans and Italy via interconnectors. Further, in 2012, Israel, Cyprus and Greece signed trilateral agreement on ``Eastern Mediterranean Energy Corridor`` to deliver Cypriot and Israeli gas to Greece onward.
Another alternative might be the construction of pipeline from Israel (Leviathan) to Turkey (Ceyhan). However, political problem between Turkey and Israel, including operation costs and technical matters make this plan uneasy. Nevertheless, pipeline could be routed through onshore or offshore areas of Lebanon and Syria. Whereas, security situation in those countries make this option worrisome. Because, during massive uprisings in Egypt, Israel’s gas purchase halted, when jihadists attacked the Sinai pipeline, writes The Jerusalem Post. Therefore, construction of Leviathan-Ceyhan pipeline through Lebanese and Syrian coasts would be hazardous action.
Ices in Turkish-Israeli relations thawed following US president, Barack Obama visit to Israel in 2013 that pushed Israeli PM Benjamin Netanyahu to express his apologies for Mavi Marmara case. However, Cyprus was not interested in the reconciliation of Turkish-Israeli relations, which would hinder the Cyprus’s energy agenda with Israel. After the election of Recep Tayyip Erdogdan a President of Turkey and recent bombing case in Gaza, Turkey halted relations with Israel again.
Whether to cooperate with Turkey or Cyprus depends on Israel’s strategic decision. Because, construction of pipeline to Turkey is quite attractive in terms of cost effectiveness, flexibility and Turkey’s geographical position between Asia and Europe. Karen Ayat writes that, ``[perhaps] Israel will choose not to choose […] working with both Cyprus and Turkey. By diversifying its routes, Israel will be avoiding putting all its eggs in one basket``, but if disputes are solved.
Whereas, Russia could benefit from the normalization of Turkish-Israeli relations, as it would pave a way to construct ``Blue Stream II`` natural gas pipeline to deliver gas to Israel. Furthermore, Russia also expressed its interest in exploration of resources in the Eastern Mediterranean. Therefore, Russia is seeking to strengthen its ties with Cyprus and Greece by investing in their economy, supplying with gas (to Greece only) and supporting Cyprus in its dispute with Turkey. RIA Novosti reported that, in 2013, Gazprom signed a 20-years-long agreement with Levant LNG Marketing Corporation to carry out resell of Israeli gas from the Tamar Project. Regardless of relatively small amount of Israeli gas, Russia is seeking to gain new bargaining cheap against the EU, which would enable Russia to control the gas flow to Europe. In his turn, Turkish Energy Minister noted that Russian Gazprom and Rosneft are not going to involve in those projects by disregarding our strategic cooperation. While Russia indicated the riskiness of involvement in such exploration since reserves have not been proved yet and inadmissibility not to spoil relations with Turkey, as country would host the construction of South Stream through its water territories.
Regarding to the prospect of Eastern Mediterranean gas, Dr. Sohbet Karbuz mentioned in his interview that, given the existing contracts of Gazprom and volume they exported to Europe, amount of gas from Israel and Cyprus and timeframe to implement it, it is unlikely that Eastern Mediterranean gas may present solution for the EU. In his another interview, Dr. Karbuz told that, ``Israel and Cyprus can potentially supply Europe with more or less the equivalent of what Europe can get from Azerbaijan […] through the Southern Gas Corridor […] but cheaper``.
Whether, Mediterranean gas will be new ``game changer`` for the EU or not, is disputed matter right now. However, even the Southern Gas Corridor with partially existing infrastructure and legislative basis, is estimated to be fully operational after 2018. Therefore, implementation of fifth energy corridor, which envisages to deliver Israeli and Cypriot gas to Europe either through potential Eastern Mediterranean gas pipeline or as a LNG, is matter of time, enough volume of gas and suitable political situation, which hampered by territorial disputes and instabilities. Because of its strained relations with Israel and Cyprus, Turkey has been sidelined from the major exploration processes and possible pipeline projects. However, the questions is that whether Israel and Cyprus would agree the gas prices, which European clients are ready to pay for. From the other side, Israel and Cyprus also are seeking to sell their gas to Jordan and Amman respectively. Are they ready to diversify their exports to both Asia and Europe at the same time? Given the relatively higher LNG prices in Asia countries, Asian LNG markets have been targeted by the US LNG export and it would create competition for Mediterranean gas. However, like the SGC, the East Med gas can also lessen Russian price and pipeline monopoly over Europe, but it will not beat off it.