Israel And Egypt Compete To Become New Energy Hub

The discovery of the giant gas field Tamar of the coast of Israel in 2009 was the beginning of a new period for the Eastern Mediterranean as an energy hot spot. More recently Exxon and Qatar Gas have discovered another giant gas field off the coast of Cyprus, and Italy’s Eni found more energy deposits off the coast of Egypt. To put the numbers into perspective, the Eastern Mediterranean contains approximately 2,100 billion cubic meters of gas compared to the EU’s consumption in 2017 which was 410 bcm. It shows that the recoverable reserves are more than sufficient to supply the entire EU for a couple of years.

Despite the significant discoveries, technical difficulties and geopolitical tensions could raise barriers for infrastructure projects that would connect producers with customers. Furthermore, several alternatives are being considered by the littoral states Egypt, Cyprus and Israel to transport the energy to markets in Europe. One of two competing options will likely materialize: the relatively expensive and technologically tricky EastMed pipeline or Egypt’s LNG facilities including a subsea pipeline.

Israel is pushing for the EastMed pipeline to reap maximum political and economic dividend by having a physical connection with mainland Europe. For this purpose, Israel, Cyprus, and Greece agreed in December to conduct a multimillion feasibility study concerning the subsea pipeline with financial support from the EU. The project would require more than $7 billion to accomplish and presents technical challenges due to the involved depth.

Egypt’s energy and mineral resources minister Tarek el-Molla has been quick to respond and promote an alternative plan with Egypt’s LNG industry at its centre. The Minister said that the study would take up to two years “which in itself is a luxury the region can’t afford any more.” Egyptian companies have already struck a $15 billion deal for the import of Israeli natural gas. Cairo's intends to attract additional resources such as Cypriot gas to become the energy and LNG hub of the region

Cyprus’ geographic location offers flexibility concerning the island nation’s participation in either Israeli or Egyptian leg initiatives which suggests an advantage and creates risks. In this context, Tel Aviv and Cairo have been courting Nicosia to participate in the EastMed project or the construction of a subsea pipeline to liquefication plants on Egypt’s coast. Furthermore, Cyprus has tense relations with its large northern Turkish neighbour due to obvious historical reasons. More recently the Turkish navy has disturbed exploration activities in areas which it claims are ‘contested’. It could have influenced Nicosia's decision to cooperate with other regional and international players to offset the threat coming from its much larger Turkish neighbour.

Israel, primarily, has been focused on Cyprus' participation in the EastMed pipeline because of the increased economic viability of the infrastructure due to combined Israeli and Cypriot gas resources. Tel Aviv is aware of the competing and more favourable Egyptian offer compared to its relatively expensive and technically challenging proposal. Therefore, high-level talks between Cyprus and Egypt on gas exports create anxiety in Israel.

Despite ongoing negotiations with Cairo, Nicosia is also continuing its cooperation with Tel Aviv and Athens on what could become the EastMed pipeline. The countries are expected to sign an intergovernmental agreement concerning the project in Tel Aviv on Wednesday 20 March in the presence of U.S. Secretary of State Mike Pompeo. Cyprus could be spreading its chances when it comes to finding the best alternative for transporting its gas to customers. Another explanation could be the American support which strengthens Nicosia’s position when it comes to dealing with its Turkish neighbour.

Washington has on several occasions warned Turkey against further destabilizing the region and disturbing exploration work. The U.S. is in favour of the EastMed pipeline as it would provide an alternative source of energy to the EU where Russia’s gas giant Gazprom dominates the market. This would weaken Moscow’s influence in countries with high levels of dependency such as eastern Europe.

Nevertheless, the road to new energy infrastructure in the Eastern Mediterranean’s is long and arduous. And despite the difficulties and risks, the rewards are too big for the involved parties to ignore.

By Vanand Meliksetian for Oilprice.com