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History of failure over gas policy in the Mediterranean

Good policy could still overcome disadvantages and bring the benefits of gas and its revenues to the people of the East Mediterranean.

As the Argentinian writer Jorge Luis Borges said of the Falklands War, it was “two bald men fighting over a comb”. In the quest for East Mediterranean gas, there are four bald men, but even finding the comb is proving to be a problem.

The search for gas in the deep waters of the East Mediterranean was highlighted by large discoveries by the United States’s Noble Energy off Israel: Tamar in 2009 and Leviathan in 2010. Egypt had already been exploring in its sector for a decade, with considerable success. Cyprus also enjoyed success with its first well when Noble found the Aphrodite field in late 2011. And, to great fanfare, Lebanon launched its offshore licensing round on April 30, 2013.

For three energy-short countries, the discovery of offshore gas and, it was hoped, oil, offered energy security and relief from crushing bills. Debt-ridden Lebanon and Cyprus hoped to find a way out of their fiscal morass.

But there followed a remarkable story of ineptitude, indecision, illogicality and impatience. Governments and the public alike were keen to kill and devour the golden goose before it had even laid an egg.

In Lebanon, expectations soared to particular heights, with then energy minister Gibran Bassil announcing in 2013 that reserves could be 95.9 trillion cubic feet of gas, without a single well drilled or even a block licensed. But the required legislation to permit the bid round is still held up in cabinet, with new minister Arthur Nazarian saying: “Frankly, I don’t have a clue when these decrees will be passed.”

Cyprus hoped gas would solve its financial problems. But appraisal downgraded the size of Aphrodite, ENI has drilled two dry wells and does not plan to try again before its licence expires in February 2016 and, according to the Middle East Economic Survey, Total looks likely to withdraw without drilling at all.

Israel has made the most progress, with Tamar gas now supplying half of its electricity, but its policy has also been the most bewildering and contradictory. To meet populist demands, it raised taxes on gas producers, and set quotas limiting exports, even though its domestic market cannot handle all of the gas found. This deterred Woodside, an Australian company expert in liquefied natural gas (LNG), from buying into Leviathan.

The resulting delays have put agreements to supply Jordan and Egypt in doubt. The regulatory authority then went back on earlier undertakings which required the Noble consortium to sell some small fields that were of no real consequence, and declared it a monopoly – even though its main customer in Israel, the electricity company, is also a monopoly.

Egypt, the first of the quartet to become a significant gas producer, was already short of gas by 2011, as artificially low prices stimulated demand while making offshore fields uneconomic. Perhaps surprisingly, its recent performance has been the most improved, with the long-delayed agreement for BP to develop the large North Alexandria field. But it needs Cypriot or Israeli gas to keep its LNG plants operating.

In retrospect, expectations in all countries were excessive. The fields discovered so far, though large and regionally important, are not global giants, and contain only limited amounts of valuable liquid hydrocarbons, unlike for instance Qatar’s North Field. They are in deep water, and a pipeline from Aphrodite to Cyprus would have to cross a 2,500-metre trench.

Most of all, the fields’ potential is limited by geography, markets and politics. The unresolved Cyprus dispute blocks off export routes to or via Turkey, and no viable LNG concept has yet been put forward, while prices have fallen sharply.

Good policy could still have overcome these disadvantages, and brought the benefits of gas and its revenues to the people of the East Mediterranean. But politicians and administrators in all four countries seem to prefer fighting over imaginary combs.

Robin Mills is Head of Consulting at Manaar Energy, and author of The Myth of the Oil Crisis

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Updated: April 19, 2015 04:00 AM

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