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Rachel Avraham
Jan 26 2019

Politics, economics stand in way of EastMed pipeline

Ambitious plans to build a pipeline to export gas from Israel to Cyprus and Greece, from where it can be sent to Italy and markets in the rest of Europe may not be realised due to the complex politics of the eastern Mediterranean and economic barriers.

Greece, Italy, Cyprus and Israel reached an agreement to build the estimated $7 billion pipeline in November, and this month the energy ministers of Greece, Cyprus, Egypt, Italy, Jordan, Israel and the Palestinian Authority met in Cairo to establish the Eastern Mediterranean Gas Forum with the aim of expanding cooperation between natural gas producers and consumers in the region. 

After major gas discoveries in the eastern Mediterranean, the seven countries have between them around a third of the world’s known natural gas reserves. But getting the gas to the major consumer market of Europe at a competitive price is another issue.

“To construct a pipeline through Greece and Cyprus requires $10 billion and a number of years. The ocean around Cyprus is very deep,” said Arye Mekel, an Israeli former ambassador to Greece who is now a senior research associate at the Begin-Sadat Centre for Strategic Studies. “I do not know who has the funds. The idea was that the EU would invest the money to construct the pipeline and as a result, it would get a lot of natural gas and reasonable prices. Yet again, this is all on paper. I am still waiting for something practical, such as someone putting up the money.” 

Notable by their absence from the Eastern Mediterranean Gas Forum were Turkey, Syria and Lebanon. Turkey is a historic rival of its neighbour Greece, is embroiled in a number of diplomatic disputes with Israel and does not even recognise the Republic of Cyprus. 

Turkish naval vessels last year blocked gas exploration by ships leased by Italian energy company Eni off the coast of Cyprus and Ankara has said it will launch its own efforts to find hydrocarbons in offshore territory it sees as its own. 

Turkey is alone in recognising a breakaway Turkish Cypriot administration in northern Cyprus and says the Turkish Cypriots should have a say in the exploration efforts and a share in any revenue. The internationally recognised Greek Cypriot government of the Republic of Cyprus says it will share the profits from any gas it finds with the Turkish Cypriots only once the island is reunited.

Osman Ertug, the former Turkish Cypriot Representative to the United States accused the Greek Cypriot government of rejecting proposals to deal with the matter jointly and signing agreements with foreign governments and companies without regard to the Turkish Cypriots.

“It continues to do so, claiming it is their sovereign right. Since when has sovereignty been a monopoly of one community or people in Cyprus? The answer is never,” Ertug told Ahval, accusing the Greek Cypriot side of trying to build alliances against Turkey and the Turkish Cypriots.

Yet a key determiner of whether the EastMed pipeline connecting Israel to Greece might be economically viable is whether sufficient gas is discovered off Cyprus to feed into the route. So far, companies such as Eni and U.S. energy giant ExxonMobil have not announced any big finds from their drilling efforts off the island.

First discussed in 2012, the EastMed pipeline was seen as a means to transport the large amount of gas found in the eastern Mediterranean to the nearest big market, Europe. But since then not much more gas has been found in the area and producers are selling what they have on local markets.

Egypt, whose gas is thought might feed into the EastMed pipeline, has used reserves from its huge Zohr field to halt costly imports and satisfy local demand. Meanwhile, some 60 percent of Israel’s natural gas reserves are being used for domestic consumption. Israel will also start selling gas to Egypt this year and is planning to export gas to Jordan.

“The existing discoveries have found an outlet in the immediate neighbourhood,” wrote Nikos Tsafos, senior fellow at the U.S. think tank, the Center for Strategic and International Studies. “Analysts like to reference how much has been found in the eastern Mediterranean, but that gas is no longer looking for a new export route, it has been contracted for sale.”

The likelihood that the European Union might help fund the pipeline project has also been diminished by other routes in the continent to satisfy demand. The Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) pipelines will soon bring 10 billion cubic metres into Europe each year. The TurkStream gas pipelines under the Black Sea from Russia to Turkey are expected to become operation late this year and bring even more gas into Europe.

At the same time, gas demand has fallen in Greece and Bulgaria and been highly unpredictable in Italy. “Selling gas into this region is not easy: there are a lot of supply options, and demand is weak,” wrote Tsafos.