East Med Overview: Diplomatic Efforts for Increased Energy Cooperation
Cyprus
Last week’s meeting between Cyprus’ president Nicos Anastasiades and Eni’s CEO Claudio Descalzi confirmed the Italian company’s revived interest to explore Cypriot waters. Descalzi confirmed Eni’s commitment to continue drilling off the island’s coast during a meeting on the sidelines of the World Economic Forum in Davos. Eni recently extended its licence to drill in Cyprus’ EEZ following the discovery of the huge Zohr field in Egyptian waters. Zohr is estimated to hold up to 30 trillion ft³ of natural gas (Tcf) and its discovery has boosted confidence in the region’s potential. Eni's renewed commitment in Cyprus comes at a difficult time in the hydrocarbon sector due to the plunging oil prices.
On January 26, Cyprus' minister of energy Yiorgos Lakkotrypis announced that BG would be joining the following day the consortium which has the concession on Block 12 in Cyprus’ EEZ. The deal, worth $165mn, was subject to government approval. Noble remains the operator of the block, with a 35% stake. In a presentation to the international affairs think tank Chatham House in London, Lakkotrypis announced the cabinet’s decision to allow BG’s entry into the block and Cyprus’ ongoing talks with its neighbours, including Egypt, Lebanon, Jordan and Israel. Exporting Cypriot gas to and via Egypt is the most likely scenario. Despite its efforts to develop indigenous resources, Jordan's high dependence on imports to satisfy up to 98% of its energy needs makes it a potential customer for Israeli and Cypriot gas.
Cyprus’ president and the Turkish Cypriot leader Mustafa Akinci are making significant progress towards reaching a settlement for the Cyprus problem. Despite the positive development on that front, Anastasiades warned that many issues stand in the way of a final solution. UN Secretary General Ban Ki-moon is encouraging the two leaders to pursue reunification talks. The two leaders pledged their commitment to work for an agreement in 2016 at Davos and exchanged an unprecedented handshake. In an interview with Reuters at Davos, Anastasiades stressed on the importance of international aid for the reunification of Cyprus, highlighting the billions of euros required to achieve a settlement. A reunification of the island of Cyprus would open the door for increased regional energy cooperation, including gas deals with Turkey.
Israel
On January 27, Greece's prime minister Alexis Tsipras and his Israeli counterpart met in Jerusalem to discuss energy issues and promote regional ties. The two leaders signed a number of bilateral agreements including the possibility of connecting Israel, Cyprus and Greece with an electricity cable to enable Israel to diversify its electricity grid and export its newly found offshore gas. The meeting was followed by a trip to Cyprus for a trilateral summit with Cyprus’ president Nicos Anastasiades. The EuroAsia Interconnector project will link Israel, Cyprus and Greece via a submarine power cable. The project is expected to be launched in 2017. Cyprus, Greece and Israel have been engaged in talks in recent months to explore areas of potential cooperation in the energy field.
In another development, Shell will replace BG as the buyer in a soon-to-be-signed gas supply deal with Israel's Leviathan Partners. Shell is expected to take over BG following a positive vote on the transaction on January 28. The deal will be finalised by mid-February. Gas will reach consumers in Israel, Jordan, Turkey and Egypt. A natural gas framework approved by Israel's prime minister Netanyahu in December 2015 paved the way for the development of Israel’s Leviathan field.
Israel has been engaged in talks with its neighbours to find ways for Israeli gas to reach export markets. Domestic disputes have been delaying the commercial development of Israel’s largest gas field. Israel’s energy talks with Cyprus and Greece did not prevent the country from exploring potential collaboration scenarios with Turkey as the diplomatic relations between the two countries thaw after years of tensions.
Egypt
Egypt is expected to play a crucial role in 2016 as the country looks for new regional sources of natural gas supply. Egypt could absorb some of the Israeli and Cypriot newly found gas as the country struggles to solve its ongoing energy crisis. The country is set to fast track the development of its own natural gas fields following the discovery by Eni of the huge Zohr natural gas field in August 2015. Egypt’s export terminals at Idku and Damietta could provide a solution for the export of East Med gas. BP also aims to double natural gas production in Egypt in the next four years according to an announcement by the company. New explorations deals could help Egypt end the energy gap caused by an increase in domestic consumption and a flat natural gas production.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat