[NGW Magazine] Ambitions clash in the eastern Med
This article is featured in NGW Magazine Volume 2, Issue 13.
Unstable eastern Mediterranean relations threaten to make long-term gas deals impossible – even if there is enough gas to make them worthwhile.
The gas industry in the eastern Mediterranean has seen a lot of change in the last two years. Chief among the shifts have been:
• Egypt, which has experienced a severe shortage of natural gas and has become an LNG importer, is returning to self-sufficiency in two or three years;
• Israel, which has discovered two offshore large gas fields, Tamar and Leviathan, and hopes to become an exporter, is unable to find enough customers for its gas;
• Cyprus, whose energy needs are relatively small, will become an export powerhouse if the majors such as ExxonMobil, Total and Statoil, find gas off its shores;
• Lebanon has launched a new licensing round that brought it into a dispute over maritime areas with Israel;
• Egypt and Israel have yet to settle their dispute over the $2bn compensation awarded in international arbitration for the Israel Electric Corporation (IEC) a dispute which must be resolved if gas relations between the two countries are to advance;
• and Israel, which has blocked the natural candidates from bidding on the grounds they already have enough market power, was in late June forced to delay once again its licensing round, owing to a lack of interest from foreign companies.
Cyprus as a gas hub
The president of ExxonMobil’s upstream division Stephen Greenlee was reported in the Famagusta Gazette saying that Cyprus has the potential to become a regional hub for eastern Mediterranean gas if gas is found.
Greenlee said the company has been active in Cyprus since signing the contracts with Cyprus in April and has begun exploration. Greenlee added that success will lead to great things, adding that together with partner Qatar Petroleum, which has great experience in LNG, the challenges of gas export can be overcome. If Greenlee’s vision becomes true, that will enable Cyprus to become a natural gas superpower in its own right. However the presence of Turkey is looming large over this scenario.
Cyprus is not the first country in the region to desire the title of regional gas hub but it does have the best chance of winning it if enough gas is found in its exclusive economic zone. Since Cyprus’ own energy needs are tiny, nearly all its gas reserves will be for export. A company such as ExxonMobil, now licensed to explore for gas, will be able to build an LNG facility to export the gas and leave Israeli gas under the seabed indefinitely.
But this logic seems to be contrary to appearances, as revealed at the tripartite summit meeting between the leaders of Israel, Cyprus and Greece held in the third week of June in Thessaloniki, Greece. Israel’s prime minister, Benjamin Netanyahu, declared that the EastMed pipeline, which is planned to transport gas from Israel and Cyprus to Europe, is no longer merely a vision but a reality.
A week before that summit on June 11, the president of Cyprus, Nicos Anastasiades, went on a three-day visit to Lebanon, where he met the president, Michel Aoun, and other leaders to discuss the issue of natural gas. Lebanon is finding it hard to initiate natural gas exploration but is trying to reconcile differences between Turkey and Cyprus, which disagree over rights in maritime areas. Turkey occasionally threatens Cyprus’s energy activities.
At the end of the meeting, it was announced that towards the end of the year, a tripartite summit between the leaders of Lebanon, Cyprus and Greece could be held – a new tripartite alliance in the region.
The big question for the Israeli Leviathan Partnership owners is how Israel-Turkey relations are progressing. By now they must have recognized that only a significant improvement in relations between the two regional superpowers will create the necessary fertile ground for significant commercial ties and long-term gas deals to flourish. However, at this stage it appears that relations between Israel and Turkey are worsening despite last year’s reconciliation.
The retreat was evident when a task force of over 400 Israeli soldiers from the newly formed Commando Brigade supported by Israeli Black Hawk helicopters and Israeli air force transport aircrafts Super Hercules, took part in a military exercise in the Troodos Mountains, in the west part of Cyprus. In an unusual public relations stunt, the Israeli army exposed this unique four-day exercise to the public through reports, images and videos. The Turks didn’t like it a bit.
“Turkey holds naval drill off Cyprus in heated response to Israeli commando exercise on its doorstep,” was a prominent headline in Israel’s Ha’aretz daily above an article by its military correspondent. The newspaper said that the largest-ever commando exercise had caused friction with Turkey, and described it as “the latest chapter of tensions caused by the search for natural gas in the sea off the coast of Cyprus.” The Israeli Defense Force refused to comment on the possible friction with Turkey to Ha’aretz.
“The exercise was presented as a possible development in Lebanon, not in the Israeli-Turkish context,” Gallia Lindenstaruss, a researcher at the Institute for National Security Studies, in Tel Aviv, told NGW. “There is tension between Turkey and Cyprus over the gas issue. Specifically, the exercise was an expression of the strengthening of relations between Israel and Cyprus, and at the same time the tripartite meeting in Thessaloniki. By itself, I would not have given it [the military exercise] too much importance.” Lindenstaruss pointed to another source of friction between Jerusalem and Ankara. “The story that has been heating up in recent days is Turkey’s presence in Jerusalem,” she said, referring to an investigation published in Israel Hayom a free paper that supports the prime minister.
“Israel has problems. Israel wants to export the gas. The plans for the EastMed pipeline are long term. The Turkish option is still on the agenda. President Recep Tayyip Erdogan’s remarks about Jerusalem at the beginning of May made the story more complex. However there are strong economic interests there that keep the deal possible.
The report claimed that Erdogan was trying to gain support among Muslims by financially supporting their activities at Haram al Sharif, known by Jews as Temple Mount. It is the third holiest site for Muslims and has been under Israeli control since the Six-Day war, 50 years ago. If that report proves accurate, it will be another obstacle on the road to better Israel-Turkey diplomatic relations – a precondition for commercial relations and gas deals.
In the meantime, Cyprus, which faces its own Turkish threat, may find itself as the eastern Mediterranean gas hub. That mission would be easier to accomplish if reunification talks between Cypriots Greeks and Cypriot Turks, which should have been resumed on 28 June in Switzerland bear positive results. “We expect both sides to behave as adults when they meet this time,” said a UN source, quoted by the FT.com.
The biggest obstacle on the way to reunification is, according to analysts, Turkey’s demand to keep its 35,000 strong military force on the island. In the last few days, there have been reports that Turkey is ready to reduce that number by 80%. If the report is correct it might open the door for further negotiations in what is planned to be a 10-day summit.