Abu Dhabi, UAEThursday 22 August 2019

Different gas ambitions in the Eastern Mediterranean

None of the contenders for the Eastern Mediterranean’s gas – Israel, Lebanon and Egypt being the others – has an easy route to wealth.

Crossing the dividing line from the Greek Republic of Cyprus to Turkish-backed Northern Cyprus is simple enough. Past the crossing point on Ledra Street, churches give way to mosques, Starbucks and designer fashion shops to Ottoman caravanserais and family tailors. But this frontier, which presents no impediment to tourists, has so far been an impassable barrier to gas.

In late September, a drill-ship contracted to Italy’s ENI and South Korea’s Kogas arrived to start drilling south-east of Cyprus, adjacent to the Israeli maritime border. It was shadowed by a Turkish navy corvette, as Turkey considers these waters disputed, a reminder of the island’s drawn-out division. But none of the contenders for the Eastern Mediterranean’s gas – Israel, Lebanon and Egypt being the others – has an easy route to wealth.

When a consortium led by US-based Noble Energy found giant gas fields in the Eastern Mediterranean in 2009 and 2010, Turkey – Europe’s fourth largest gas market, and a route to the EU – seemed the obvious export market. But with no resolution to the division of Cyprus in view, and the island lying firmly in the way of any pipeline route, Cyprus and Israel have had to look elsewhere for buyers.

As analyst Allison Good points out, as Israeli relations with Turkey have cooled, it has grown closer to Cyprus. At one point, it seemed the countries might cooperate on a joint liquefied natural gas (LNG) plant on Cypriot soil. But with Cyprus’s first (and so far only) gas discovery, Aphrodite, turning out to be smaller than hoped, its gas export hopes have been set back. Now it may buy Israeli gas temporarily to cover domestic needs, while waiting for success in this year’s drilling campaign to revive its ambitions.

Israel’s gas policy has so far been far from impressive – losing the chance to bring in Woodside, one of the world’s leading LNG companies, through chaotic messages over increased taxation and export quotas for gas.

But the commercial interest of the companies involved, and the size of its geological bounty, have been enough to compensate for political failings. Despite some public opposition, energy-short Jordan, let down by previous supplier Egypt and with Iraq out of the running for now, has little choice but to begin importing Israeli gas.

The most disastrous policy of all has been in Lebanon. After raising wild expectations amongst its people of easy petroleum riches, political deadlock continues to hold up its first bid round. Tantalised by the highly promising geology, qualified international oil companies are growing exasperated, and the troubled security situation deters them further. Meanwhile, Lebanese endure long electricity outages.

The situation in Egypt is not much better, and less forgivable. Gas and power shortages stem from a failure by successive governments to tackle subsidies, pay a realistic price for gas, and reimburse companies on time. Egypt’s recent bid round, including a number of deepwater offshore blocks along the Cypriot and Israeli borders, was surprisingly successful but it will take years to add to production.

To fill the shortfall, Egypt’s two LNG plants are negotiating to import Israeli gas and chill it for re-export. No doubt some of this gas will make its way quietly to Egyptian domestic customers. This is pragmatic but recognises the failure of Egypt’s own energy policy, and Cairo’s loss of control of its own destiny.

After conquering Cyprus despite losing a fleet at the battle of Lepanto, the Turkish Grand Vizier told the Venetian ambassador, “You have singed my beard, but I have cut off your arm.” The region’s volatile combination of gas and politics may singe a few more beards, but Lebanon and Egypt are in danger of cutting off their own arms.

Robin Mills is head of consulting at Manaar Energy and author of The Myth of the Oil Crisis

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Updated: October 5, 2014 04:00 AM