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Nov 30 2018

Turkey should not be left out of the scramble for Mediterranean gas

Large oil and natural gas reserves were first discovered in the eastern Mediterranean in 2009. Israel also announced it had discovered natural gas in the Leviathan field at the end of 2010. Conservative estimates point to about 470 billion cubic metres of gas in the reserve.

In June of this year, the Italian oil company ENI announced the discovery of a 2.5 trillion cubic metre, deep-water reserve in the Noor field of the Egyptian Exclusive Economic Zone (EEZ). In 2015, another reserve of 850 billion cubic metres was discovered in the Zohr parcel of the same region. These two reserves are larger than any other reserves anywhere in the eastern Mediterranean. Because of these two wells, Egypt has now entered the top 10 of countries with the largest proven natural gas reserves in the world.

Projects are underway to begin transporting gas from the eastern Mediterranean to Europe. One of these projects was featured last week in the Israeli media. According to the reports, a new milestone has been reached in the project to build a pipeline to carry natural gas from the Leviathan field to Europe: Israel, the Republic of Cyprus, Greece and Italy have negotiated the details of a memorandum of understanding and are now awaiting EU approval. After the project is approved, the formal agreement will be signed in February 2019. It is expected to take about one year to find financing for the project.

The EU contributed about $100 million to help prepare the feasibility study. The pipeline would carry the natural gas discovered in Israel’s EEZ through Cyprus, Crete, Greece, and Italy to the rest of Europe.

The pipeline would stretch 2,200 km along seabed to the city of Otranto on Italy’s heel. When completed, it would be the longest natural gas pipeline in the world, cost $7 billion and carry 20 billion cubic metres of gas – which is two-thirds of the capacity of the TurkStream pipeline project from Russia to Turkey. The TurkStream project will cost $4.3 billion, which means that transporting Israel’s gas will be 2.5 times more expensive than Russian gas.

The Republic of Cyprus is a significant actor in oil and gas in the eastern Mediterranean. In February of this year, ENI announced it had found a 120-230 billion cubic metre reserve in the parcel known as Aphrodite-12. The Republic of Cyprus will sell this gas to Europe. It has also signed an agreement to sell gas to Egypt, but after Egypt’s own gas deposits were discovered, that agreement was cleared from the agenda.

The Republic of Cyprus must make clear its position with regards to natural gas and the Turkish Republic of Northern Cyprus. If it does not consider the Turkish Republic of Northern Cyprus to be an independent country, then it should recognise that the natural resources of the island rightly belong to both Turkish and Greek Cypriots. The authorities of the Republic of Cyprus have already said these resources belong to all the people of the island, but for this statement to make sense, the government of the Republic of Cyprus should sign an internationally recognised agreement to place the income generated by this gas into an escrow account that neither party can unilaterally access. If they do this, it would become an added incentive for both sides of the Cyprus conflict to agree at once to a solution so that they can draw the many accumulated in the account.

Since no large reserves of natural gas have yet been found in Turkey’s territory, territorial waters, or EEZ, a very large portion of its energy needs are being met through imports. Thanks to the TurkStream project with Russia, it has become an important actor that imports more gas than it needs and sells the surplus to Europe.

Gas exploration, especially in deep water, requires considerable investment. Most of these reserves are in very deep places. For example, the Zohr well is 4,131 metres deep, and Leviathan is 5,170 metres deep. The gas produced there, has to be transported to the countries where it will be consumed. All these expenses have to be added to the cost of gas and they need to be able to compete with gas produced in other countries.

The most economic route to take eastern Mediterranean gas to Europe is through Turkey. But since Ankara currently has problems with each and every country in the region, this route does not look feasible. In the past, while searching for a route for the Baku-Ceyhan oil pipeline, it was found that Armenia would be the most convenient route. However, because of political reasons, Turkey and Azerbaijan left Armenia out of the equation and the pipelines were instead routed through Georgia, despite it being a much longer distance.

Of course, with the TurkStream project, it appears that Turkey’s natural gas needs are met for the foreseeable future. However, if Turkey can arrange for the gas extracted from the eastern Mediterranean deposits to be transported through its territory, both the gas producing companies would save more money and the consumers would pay less for gas. And Turkey would also gain by receiving fees for the gas transported through its territory. But for this to happen, Turkey has to normalise its relations with the other countries in the region.