East Med Gas: Immediate and Distance Solutions
The Eastern Mediterranean became central in natural gas dialogues since the discovery of substantial amounts of natural gas under its seabed. The increased attention it received could be explained by the simple fact that the Eastern Mediterranean was considered energy poor until Israel’s discovery of fertile fields. Israel’s Leviathan and Tamar hold respectively 21 and 10 Tcf of natural gas, enough to secure the country’s natural gas independence for decades and even its entry to export markets. Cyprus was the second Eastern Mediterranean country to encounter some of the same hydrocarbon in Block 12 of its EEZ. Its Aphrodite field is estimated at 3.6 to 6 Tcf of natural gas. The island needs to make additional discoveries to get its gas to market, and is currently conducting further exploratory activities in its maritime zone. Neighbouring Lebanon is believed to be oil and gas rich, but domestic political obstacles have been delaying the launching of the first licensing round. Lebanese officials have stated that Lebanon’s waters may contain up to 95 Tcf of natural gas, a figure that is yet to be proven by drilling.
Whilst international commentators agree that the Eastern Mediterranean is, unlike previously thought, rich in natural gas, they are divided between those who believe the riches will only benefit the interested parties and their immediate neighbours, and others who see in the Eastern Mediterranean discoveries an alternative supply for markets seeking to diversify their sources of energy.
The momentum of the Eastern Mediterranean discoveries is interesting, as it coincides with Europe’s new quest to diversify its sources of supply. Israel’s Leviathan is expected to reach production stage by 2018. As to Cyprus, the ENI/KOGAS consortium has commenced exploratory drilling offshore the island and estimates are optimistic that further discoveries will be made allowing the island to pursue its planned onshore LNG terminal in its coastal Vassilikos area. Lebanon’s potential is also believed to be very high, but confidence is decreasing in the country’s capability to bring the process to fruition. Will Eastern Mediterranean gas be delivered in time to address Europe’s energy problem? And will the quantities truly make a difference? Eastern Mediterranean gas will surely not constitute a sole and sufficient solution for Europe. But any additional supply would be welcome.
A question remains unanswered. How will the Eastern Mediterranean countries deliver their hydrocarbon riches to export markets in Europe and Asia, and will Eastern Mediterranean countries enter the LNG market in time before an eventual drop in prices? Constructing their own LNG terminals seem if not impossible at least a distant possibility? Talks between Israel and Woodside failed due to various disputes, amongst them one around fiscality. Cyprus’ strategic LNG terminal remains a project that requires the discovery of at least another 6 Tcf of gas to be commercially viable. Israel has been considering using Egypt’s unused LNG terminals to reach lucrative markets in Asia, and a Europe looking for exotic suppliers to loosen Russia’s grip over its market. Egypt’s internal market will also absorb some of the Israeli gas due to a flat production, a growing demand and ongoing export obligations.
The regional market, relatively modest, will therefore consume some of the Israeli and Cypriot gas. A letter of intent signed between Noble Energy and Jordan’s state owned National Electric Power Company revealed the Kingdom’s interest in importing gas from Israel by 2017 to decrease its spiking energy bill (exceeding JD 4 billion). Disruptions in the supply of Egyptian gas caused Jordan to import expensive fuel products to make up for the difference. Cyprus’ Minister of Energy’s visit to the Kingdom earlier this month also revealed that Cyprus sees in Jordan a potential market for exporting a portion of its future discoveries.
Eastern Mediterranean gas will be headed towards regional markets (namely Jordan and Egypt) where the need for gas and the geographical proximity are favorable. How the gas will reach further markets in Asia and Europe will largely depend on regional cooperation and the amounts of gas discovered. Pipeline and LNG scenarios still compete in the absence of a defined export strategy.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Email Karen on karen@minoils.com. Follow her on Twitter: @karenayat