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East Mediterranean energy equation heats up

Robert M. Cutler
12:00 - 11/12/2018 Tuesday
Update: 12:04 - 11/12/2018 Tuesday
Derin Ekonomi Magazine
File photo
File photo

Among the quadrilateral of Cyprus, Egypt, Greece, and Israel, it is possible to identify four different groups of three. The geometry of any emerging cooperation on energy development and export, if it does not include Turkey, will be in the East Mediterranean, from these states.

Therefore it is useful and instructive to inspect briefly the four triangles embedded in this aforesaid quadrilateral. The exercise may indicate in which directions the East Mediterranean hydrocarbon energy complex may begin to evolve.

Since Turkey is likewise an important player of the region, and having antagonistic relations of one sort or another (not excluding some cooperation) with each of these countries individually, it will then be possible subsequently to introduce Turkey as a "variable" also governing the evolution, filing the analysis of the quadrilateral as composed of overlapping triangles.

The two triangles that have recently shown the most potential development are Cyprus-Egypt-Greece and Cyprus-Israel-Greece. Last month I discussed the first of these as an executive secretariat for the trilateral cooperation was established on Cyprus, and hopes were raised that the energy cooperation might deepen into broader security cooperation.

A researcher in Cairo at the Al-Ahram Center for Political and Strategic Studies was even quoted in the Chinese press as suggesting that the summit was "a nucleus for a regional alliance." Here it must be assumed that the word "alliance" is used in a generic sense rather than its specific diplomatic sense.

There has been little evident for the further development of that trilateral cooperation over the course of the past month; but the Cyprus-Israel-Greece cooperation got a boost when, in early November, Cypriot Foreign Minister Nikos Christodoulides visited Washington and met with, among others, U.S. Secretary of State Mike Pompeo. As the Greek newspaper Ekathimerini noted, these meetings were crucial.

The timing of this meeting is also crucial, given that the American energy company ExxonMobil plans to begin drilling for oil and gas inside the Exclusive Economic Zone (EEZ) claimed by the Nicosia government. It is to be noted that The ExxonMobil ship will be doing exploratory drilling in Cyprus's offshore Block 10, for which Turkey has not explicitly asserted any territorial claims. The drilling will go on until near the end of February 2019.

The Greek newspaper also suggested that Washington was already looking at the possibility of a four-way meeting with the three other countries (Cyprus, Israel, and Greece). Soon after the Cypriot official left Washington, U.S. Assistant Secretary of State for Energy Resources Francis Fannon left for a tour of the region, but Greece does not seem to be only one on the list. Fannon plans to visit Cyprus, Egypt, and Israel as well.

Fannon's attention to this triangle, as distinct from the other two already discussed, suggests a focus on the Egyptian-Israeli energy cooperation, in which Cyprus is a possible participant but not a necessary one. Indeed, Egypt is set to start importing Israeli natural gas early next year. The U.S. Trade and Development Agency (USTDA) supports expanding Egypt’s energy infrastructure so that American companies can have better market access.

This deal was agreed upon when Noble Energy (U.S.), Delek Drilling (Israel) and East Gas Company (Egypt) agreed for US$ 518 million to acquire 39 percent of the East Mediterranean Gas (EMG, also called Arish-Ashkelon) pipeline, which runs from southern Israel to the Sinai Peninsula.

Some Israeli analysts are insisting that the EMG should be bi-directional, allowing Israel to import Egyptian gas as well, in order to create more competition in the Israeli market. However, if EMG is used for Israeli exports to Egypt, as is now foreseen, then the Arab Gas Pipeline (AGP, also known as the Pan-Arab Pipeline) could be used for this purpose.

Unused for six years, the EMG is now being inspected; and if in working order (which is the expectation), then Egypt will begin importing 1 billion cubic meters of gas per year (bcm/y) from Israel's offshore Leviathan deposit starting in March 2019, the level of which is planned to increase to 7.2 bcm/y by 2022.

Even if Turkish naval maneuvers make the development of gas off of Cyprus difficult, Israeli gas may still be liquefied at under-utilized Egyptian facilities for export to Europe. Saudi Arabia and Egypt itself are also candidates for such a project.

#Turkey
#Greece
#Energy
#Egypt
#Mediterranean
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