East Med Not a Solution for European Energy Security, Says Expert
Natural Gas Europe had the pleasure of speaking with Sohbet Karbuz, Director of the Hydrocarbons division at Observatoire Mediterraneen de l’Energie (an energy industry association). We spoke about the coming Italian presidency of the Council of the European Union, E&P activities in the Mediterranean, and the role of Eastern Mediterranean for European energy security. “It is time for the EU to reconsider its neighbourhood policy. Instead of talking to talk, the EU must start walking the walk,” Karbuz suggested. In the aftermath of the European elections, Karbuz’s message sounds resounding.
During a recent conference, you said that the Mediterranean gas could be left aside between the Italian and the Cypriot presidency of the Council of the European Union. What could be the consequences of such a low interest in Mediterranean gas?
Between the Italian presidency in the second half of this year and Cyprus presidency in 2023, there will be only Malta (in 2017) as a Mediterranean country guiding the EU. I personally do not expect Malta will be pushing for energy cooperation in the Mediterranean region as top EU issue during its presidency. And in between years, no Mediterranean country will lead the EU. And the chances for any non-Mediterranean country making Mediterranean energy issues as a top EU issue are extremely low. I am sceptical whether the EU is really serious about its gas supply security. Potentially the same amount of gas could arrive at the EU from the East Mediterranean as the Azerbaijan through southern corridor by the early 2020s. We see similar reluctance from the EU for the North African countries. I don’t have the answer but in my opinion it is time for the EU to reconsider its neighbourhood policy. Instead of talking to talk the EU must start walking the walk.
In this sense, do you think the Greek presidency did enough? Do you think that the Italian presidency can set up an agenda favourable to new explorations? What are the cards that it could play? What are the cards that it should play?
Greeks had good intentions but perhaps due to their domestic problems they couldn’t achieve any tangible progress in the Mediterranean energy cooperation. Italians are already working on the incoming EU Presidency priorities and EU roadmap. Regional energy cooperation is expected to be among the top issues. They could bring Mediterranean energy opportunities and challenges forward and create platform to discuss and exchange views with the participation of energy companies. Time will show whether they will walk the walk.
What is your understanding of E&P activities in the Mediterranean? Some interesting projects are emerging, do you agree?
Traditionally E&P activities in the Mediterranean region were focused on the area from Algeria to Egypt. But in the last five years we have been witnessing an emerging activity in the east Mediterranean. After the discovery of large gas fields in Israel and Cyprus, more and more activity in terms of both seismic imaging and exploration bidding rounds as well as awarding several acreages has been taking place, notably in Croatia, Montenegro, Italy, Malta, Turkey and Greece. This means offshore Eastern Mediterranean is turning into an attractive and promising place for E&P activities.
In this context, can the Eastern Mediterranean gas represent a solution to European problems?
Europe is very much concerned about diversifying its gas supply sources after the Ukraine crisis. However, we have to be realistic. East Mediterranean cannot represent a solution to European gas problem both time wise and volume wise. Time wise because it would be too optimistic to expect gas exports from the region to Europe before 2020. Volume wise because Eastmed could export maximum 8 to 10 bcm per year from the discovered fields in Israel and Cyprus, assuming all exports will target the markets in Europe. Now, whether this 10 bcm is a remedy for Europe’s gas headache is another question. The answer is, again, no. Gazprom exported 137 bcm of gas to Europe in 2013. Gazprom’s long term contracts with European buyers indicate that this level should more or less be maintained at least another 10 years. So, Eastmed gas export potential of 10 bcm to Europe is less than 10% of existing Gazprom contracts with European buyers. What Eastmed gas can do however is to help Europe diversify its supply sources and routes. And that can happen only in the next decade.
Do you think Israel is genuinely interested in participating in Cyprus’ LNG terminal? What are the main geopolitical problems related to this partnership?
Participating in an onshore LNG plant in Cyprus is only one of the options. However, the Leviathan partners so far indicate that Cyprus LNG is not on the top of their options. Their first option - in line with the Israeli government’s intention - is to start with supplying gas to regional markets - Palestine, Jordan and perhaps Egypt and Cyprus. Then comes the possibility of exporting gas by using the LNG plants in Egypt - there is already ongoing discussion on this issue between Leviathan partners and Union Fenosa Gas). These are rather shorter term export plans which could be realized before the end of this decade. However, the desired export option in larger volumes in the mid to longer terms is through floating LNG. If politics allow an export pipeline to Turkey (either crossing or bypassing onshore Cyprus) and Cyprus LNG plant will allow Israel to diversify its export routes. For the pipeline option (from Israel to Turkey,) two conditions have to be met: Normalization of Turkey-Israel diplomatic relations and resolving the Cyprus Problem. On both issues, we may see extraordinary progress between now and end of 2015. The progress in those two issues will, directly or indirectly, have implications in Israel’s plans to participate in Cyprus LNG.
Croatia launched its first offshore licensing round in April, offering twenty-nine blocks. What’s your viewpoint on the decision? Can Croatia become an important regional hub? What are the hurdles?
Some maritime disputes have not yet been resolved in the area, but I am quite optimistic that the relevant parties will achieve a mutually acceptable formulation. It is too early and perhaps too much to expect Croatia to become a regional hub. This is not due to the expectations that no substantial amount of hydrocarbons will be discovered there, but because in addition to infrastructure, challenges related to technical, financial and human capital will require some time to overcome. We could expect Italy to emerge a regional hub and perhaps also Greece but Croatia would need much more time.
You referred to the fact that Slovenia formulated on April 2 an objection to ‘the use of geographical maps of the Adriatic Sea that unilaterally prejudge the solution of the maritime border between Slovenia and Croatia included in the tender documentation for the offshore licensing round for licenses for the exploration and production of hydrocarbons.’ That followed Croatia’s launch of its bidding round, Do you see any major problems coming out of this?
I am quite optimistic that both EU member states will find a mutually acceptable solution without going into any painful process.
Turkey intends to become a hub for investments in African energy assets. Do you think that this intention is realistic? Do you think that it could create room for other Mediterranean countries to participate?
I don’t know what you mean with the term hub here. Turkey imports oil and gas from some North and West African countries but there is no oil and gas pipelines that connect Turkey with those suppliers. Also in the future I do not expect any oil connection. However, if a north African gas ring were established and connected for instance to the Arab Gas Pipeline (currently extends from Egypt to the border of Turkey with Syria), and if Libyan and Egyptian future gas exports were arrived to Turkey, then maybe. But here there are too many ifs and a time frame of at least 15 years.
What about Turkish investments in Africa?
Turkish companies could invest in Africa extensively in wide ranging sectors from upstream hydrocarbons to electricity generation as well as infrastructure development. But even then, it would be wishing thinking that Turkey would surpass China in terms of investment in Africa.
Do you see any room for increased cooperation between Turkey and North African countries?
There is already intensifying energy cooperation between Turkey and North African countries (from Morocco to Egypt), particularly in electricity and upstream markets. We can expect this cooperation to increase in the future.
Would your assessment be the same in case Gaddafi was still leading Libya?
It may sound weird but I think under Gaddafi Turkey had better chance to increase energy cooperation with Libya and take a bigger share in the energy sector of the country.
Generally speaking, what is the role of North African countries? Do you think Algeria can easily step up oil and gas production?
Algeria could potentially increase its gas production but what really important is the export potential. A large portion of Algerian gross gas production is used for reinjection. Therefore, when talking about production in Algeria, it is better to concentrate on marketed production. Part of marketed (or net) production is used domestically and part is exported.
Algeria is facing pressure to boost net natural gas output to meet growing domestic demand and fulfil long-term contractual obligations to export natural gas. Whatever the reserves position is, gas projects in Algeria have been affected by delays resulting from the inertia that hit Sonatrach in the wake of corruption allegations, uncertainties surrounding the security of oil and gas facilities and slow decision making process particularly on the upstream development projects due to the high degree of centralisation of decision-making.
There is still uncertainty over the timeline and the development of several production and infrastructure projects. The target date for increasing the country’s gas exports to 85 bcm/yr by 2010 has already been missed. Other pronounced targets were 100 bcm/yr and even 120 bcm/yr by 2015. These previous targets were mistakenly focusing on export infrastructure, and not the realities. Announced plans to increase gas export potential to 100 bcm or more by 2015 or later appear to be rather optimistic, both in terms of volume and timing. These targets are unlikely to be met.
Recent declarations by Algerian's officials underline Algeria's will to give a renewed impetus to foreign investment in exploration and to attract international partners capable of helping Algeria increase its hydrocarbon reserves and production.
Algeria could potentially increase its gas (and to a lesser extent crude oil) production assuming that the government attracts foreign investors.
What about Libya?
In Libya natural gas didn’t get enough attention it deserved. The gas sector still remains largely underdeveloped. Marketed gas output, mostly onshore, has followed oil production, considering the fact that most of the gas is produced in association with crude oil. Besides, almost half of gross production is re-injected or flared). In the future, most of the gas output is expected to come from non-associated fields while the production of associated reservoirs is expected to decline with every passing year. However, to attain a considerable increase in production would surely require big investments. And for that security environment must improve a lot.
And Egypt?
As for Egypt, the imbalance between production and consumption we have been witnessing in recent years is expected to continue for a while. However, in the longer term we can easily be optimistic that the country will continue to remain as a net gas exporter before its exports shrinks again towards the end of the next decade.
Sergio Matalucci