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February 28, 2018 4:04 pm

Will the Eastern Mediterranean Become a Hub for the Natural-Gas Trade?

avatar by Zvi Mazel / JNS.org

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A gas rig off of Israel’s coast. Photo: YouTube screenshot.

JNS.org – A deal just concluded between Nobel Energy from Texas and Israeli Delek group on one side — and Egyptian private company Dolphinus on the other — to provide Egypt with 64 billion cubic meters of gas for a total of $15 billion over a period of 10 years may turn out to be the first sign that the Mediterranean is about to become a world hub of gas trade.

According to United States Geological Survey estimates, huge reserves of gas can be found in the Eastern Mediterranean Sea: some 325 trillion cubic feet, or 9.2 trillion cubic meters — more than all known US reserves.

Regional disputes, however, are likely to hinder exploration and exploitation of these areas.

Exporting Israeli gas to Egypt is beneficial to both parties. Selling to neighboring countries enables Israel to acquire new customers and lower transportation costs. Egypt needs Israeli gas to palliate insufficient production until its mammoth Zor offshore field starts supplying enough gas for home consumption and export. Production at Zor started a few weeks ago, but it won’t run at full capacity until the end of 2019; furthermore, it will then take another three years for Egypt to become self-sufficient.

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Current Egyptian President Abdel Fattah el-Sisi — looking for energy sources for his economic projects — did away with many outdated and cumbersome regulations, and liberalized gas research — allowing a number of major companies to join in the search for new gas fields. This new policy was vindicated when Italian energy giant ENI discovered the Zor field, and its estimated 822 billion cubic meters’ reserves.

Egyptian officials were at pains to stress that the new agreement with Israel was a business deal between private companies, while at the same time emphasizing that it was a first step toward making Egypt a major player in price-fixing for that commodity.

Egyptian Minister of Petroleum Tarek al-Mala nevertheless declared two conditions for the deal to go through: It has to be beneficial to the Egyptian economy, and a solution must be found to the outstanding arbitration award against Egypt for breach of contract following the cessation of Egyptian gas exports to Israel in 2012.

President Sisi was more forthcoming; he had nothing to hide, he stated, adding that for the last four years, he had been dreaming of turning Egypt into a regional energy hub. These attempts to preempt accusations of normalization with Israel were not wholly successful. Questions were asked in parliament; an attorney petitioned the Supreme Court to void the deal.

The ink hadn’t dried yet on the deal when Cyprus revealed that it, too, was engaged in negotiations with Cairo regarding the export of gas from its Aphrodite offshore field, not far from the coast of Egypt. This would be yet another step toward furthering Sisi’s dream. Aphrodite’s reserves are estimated at some 129 billion cubic meters. Nobel energy, the Delek drilling company and the Avner oil exploration corporation hold significant shares in that field.

Several routes exist for optimizing the production of Eastern Mediterranean gas fields. One is to build additional facilities for exporting liquified gas. Israeli groups had suggested building several such plants in Cyprus, supplying them with Israeli gas through a pipeline and shipping it to the rest of the world in liquefied form, together with gas from Cyprus offshore fields. This solution has been discarded in favor of a more ambitious plan better suited to the interests of all parties — exporting natural gas from Israel and Cyprus to Italy through a pipeline to supply the growing needs of Western Europe, helping it to diversify its sources and reducing its dependence on Russian gas.

A memorandum was signed in December by Israel, Cyprus, Greece and Italy regarding the construction of a 2,100-kilometers-long pipeline to be laid at the bottom of the sea at a cost of between $6 billion and $7 billion. Feasibilities studies are ongoing, and a final decision has yet to be reached. Egypt would likely be interested in being associated with such a project, which would provide a secure and long-term outlet for its own gas and help stabilize its economy.

But significant obstacles lie ahead.

For example, ongoing disputes concern the maritime borders of all parties involved. Cyprus has reached an agreement with Egypt regarding the delimitation of its maritime borders, and also with Lebanon and Israel. These documents were registered with the United Nations, and are perfectly legal and binding. However, Turkey, which conquered and occupied Northern Cyprus in 1974, has expressed reservations and threatened to prevent drilling for gas unless it took part in the process — from research to production and revenues.

On February 7, Turkey sent a warship to stop a drillship commissioned by ENI to protect what the Turks say are the rights of Turkish Cypriots. Undeterred, ENI tried again, but on February 23, no less than five Turkish warships intercepted the drillship and made it turn back to Limassol. Efforts by the European Union to mediate the conflict have been unsuccessful thus far.

Lebanon is also unhappy with the agreement between Cyprus and Israel; it has refused attempts to delimitate its own maritime borders with Israel, which then had no choice and did so unilaterally, according to internationally accepted criteria. Israel then drilled for gas and started exploitation in areas that are in its economic waters. Nevertheless, Lebanon — probably egged on by Hezbollah, which is keen to exacerbate tensions with Israel — is laying claims to a 900-square-kilometer zone that includes Israel’s Tamar gas field.

Egypt has never delimited its maritime borders with Israel. It’s currently not happy with the agreement between Cyprus and Israel, even though its commercial waters are not affected and the coordinates of that agreement conform with internationally accepted criteria, too.

Another unsolved issue is the delimitation of maritime borders between Israel and the Palestinian Authority.

That said, the enormous gas resources in the Eastern Mediterranean could significantly contribute to the economic development and stability of the countries of the region, provided these governments can set aside their conflicts and differences to work together for their mutual benefit.

As things stand, political and religious interests have the upper hand, and it’s hard to see how they can be overcome or avoided. Each country will therefore have to make its own way and find a solution best fitted to its interests, as exemplified by the deal reached between Israel and Egypt. It’s expected that this deal will not hinder future cooperation with other countries — should that become possible.

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