Gas Wars: The First Energy Conflict In 2018

The eastern Mediterranean is expected to witness the first conflict of 2018, as developments at the end of 2017 are signaling worsening relationships between Turkey and the Greek Cypriot-Greece-Israel-Egypt bloc.

Territorial disputes over natural gas and newly discovered hydrocarbon reserves in the eastern Mediterranean basin are the reason.

Up until a few years ago, the hope was that these hydrocarbon reserves would offer a real opportunity for a peaceful settlement of the Cyprus conflict. But these optimistic hopes vanished with both Turks and Greek Cypriots unilaterally speeding up exploration and drilling operations.

In 2004, the European Union had declared the Greek Cypriots the sole entity representing the island of Cyprus and accepted it as an EU member. Feeling that its hand has been strengthened following the EU decision, the Greek Cypriots claimed the right of natural resources exploration in the Exclusive Economic Zone (EEZ) around Cyprus.

Turkey, however, has been insisting that the Greek Cypriot administration in Nicosia cannot unilaterally “adopt laws regarding the exploitation of natural resources on behalf of the entire island,” as it doesn’t represent the Turkish Cypriots. Also, there is a separate disputed EEZ between Turkey and Greece in the eastern Mediterranean — another point of tension in the conflict.

Ankara reacted strongly to the Greek Cypriots’ natural gas drilling efforts in July. The Turkish army dispatched a frigate in the eastern Mediterranean to “monitor a drilling ship that is believed to have begun searching for oil and gas off ethnically divided Cyprus despite Turkey’s objections,” The Associated Press reported.

On Nov. 20, Egyptian President Abdel Fattah al-Sisi visited Greek Cypriot for a trilateral meeting in Nicosia to discuss hydrocarbon resources in the region. In addition to Egypt’s president, Greek Prime Minister Alexis Tsipras also participated in the meeting, which was hosted by Greek Cypriot President Nicos Anastasiades. The Turkish Foreign Ministry, on the other hand, declared the outcome of the trilateral meeting to be “null and void.”

However, despite Turkey’s opposition, drillship Saipem 12000 sailed to carry out exploration and drilling operations on behalf of French TOTAL and Italian ENI companies in the Calypso region between March 1 and Dec. 26 in accordance with an agreement reached during the trilateral summit.

Moreover, Italy, Greece, Greek Cypriot and Israel had already agreed on the construction of a gas pipeline from newly discovered fields. The project — dubbed “East-Med” — will cost some $6 billion. An over 2,000-kilometer-long (1,243-mile-long) pipeline will channel offshore reserves in the Levantine basin to Greece and Italy.

The East-Med project could be interpreted as an effort to form a regional alliance between Greek Cypriot and Greece to confront Turkey in the eastern Mediterranean. The Greek Cypriots and Greece also signed a separate agreement with Israel to channel natural gas reserves in the Mediterranean basin via an undersea pipelineItaly’s participation in this project didn’t come as a surprise, as Italy has already been exploring natural gas in the Mediterranean on behalf of the Greeks. The undersea pipeline is expected to channel natural gas from Israel’s Leviathan Basin and Greece’s 12th plot — also called Aphrodite — to Crete, and then to Europe via Greece.

On Dec. 5, the energy ministers of Greece, Greek Cypriot and Israel and the Italian ambassador to Greek Cypriot signed an accord in Nicosia on the construction of the East-Med pipeline. The participation of EU representatives in the ceremony indicated Brussels’ support for the project.

In 2017, the Greek Cypriots, Israel and Greece conducted three joint exercises in March, June and November. At the beginning of November 2017, Greece and Egypt held their first joint naval exercise for the first time in quite a while.

In response, Ankara initiated its own moves and issued a navigational telex to reserve an area for military exercises. The area covers the disputed sixth, seventh, eighth and ninth blocs that the Greek Cypriots had declared as their EEZ. Ankara’s declaration came at a time when Saipem 12000 arrived in the Mediterranean.

Also, the Turkish army has kept some of its forces in the eastern Mediterranean following NATO’s Standing Maritime Task Forceexercise, which was conducted Nov. 7-16. The Turkish navy’s TCG Gediz and TCG Barbaros frigates; the TCG Kalkan, TCG Mizrak, TCG Bora and TCG Meltem gunboats; the TCG Akar fuel tanker; and four underwater commando teams are still in the sixth bloc.

In 2018, Turkey will have its first brand-new drilling vessel, the Deepsea Metro II. According to navigation data, the ship left Norway’s Hoylandsbygda port some two weeks ago and is currently sailing west of Portugal. It is expected to arrive in Turkey on Dec. 31. The critical question now is whether the Turkish navy will be providing military escorts for the new drilling vessel.

If the Deepsea Metro II is to be escorted by a Turkish navy fleet while sailing to the sixth bloc, then the affair is bound to heat up. In the meantime, the Nicosia administration also announced that drilling operations in its EEZ would begin Dec. 30 and that Saipem 12000 would join the operations as well.

Now the question is whether Turkey’s Deepsea Metro II and Saipem 12000 and naval fleets escorting them will confront each other in the disputed sixth bloc.

One should also consider domestic developments in relevant countries when trying to measure the extent of a possible crisis. A possible hydrocarbon crisis is an excellent domestic political issue that all governments can use to consolidate their nationalist support base.

In sum — and in comparison to 2017 — one will witness more eventful scenes in the eastern Mediterranean in 2018. The only actor that could mediate between Ankara and Nicosia is not Washington but Moscow, the new shining star of the Middle East.



The role of East Med gas in the european energy security and the best Cyprus gas monetization option

The role of East Med gas in the european energy security and the best Cyprus gas monetization option

  1. East Med energy resource estimates and their significance for Europe’s Energy Security

The Eastern Mediterranean (East Med) energy resources constitute a credible alternative source that can help Europe diversify and reinforce its energy supply and transit security, given that indigenous gas production in Europe is on trend decline and demand on trend rise.

Besides its traditional gas supply routes from Russia, Norway (indigenous production) and N. Africa, Europe seeks new gas supplies via the Southern Gas Corridor comprising the “Fourth Corridor” in the Caspian sea (Azerbaijan and probably Turkmenistan) and the “Fifth Corridor” in  the East Med. According to an official EU website the EU aims to import initially 10 BCM of gas per year when the new corridor opens in 2019-2020, which is predicted to rise to 80 to 100 BCM of gas per annum in the future.

The Caspian gas resources will not be sufficient in diversifying European gas supply. Moreover, gas transportation via TANAP, across precarious Turkish territory, where the pipeline network has been subject to repeated attacks causing serious outages, entails grave transit security risks. If the East Med gas was also transported via Turkey transit security would be detrimentally compromised as the Ukraine 2006 and 2009 gas transit crises have proved. Another issue is whether the EU would allow Turkey to snatch East Med gas resources and gain leverage over Russia or whether it wants this advantage for itself.

LNG imports to Europe are accepted by EU as increasing energy diversification and security, lowering the heavy dependence on Russia. Towards this end, the EU targets the improvement of its energy security and competitiveness by tapping into the global LNG market. In fact, competitively-priced LNG is forecast to claim a much larger share of the European gas market. Additional gas supplies are necessary for long-term economic development especially of the less developed SE Europe.

  1. Cyprus Gas Monetization: LNG Plant and Energy Sector benefits for the economy

Given the East Med energy potential, Cyprus can play a pivotal role in reinforcing the energy supply and transit security of the EU. First, as analyzed above, it would be wise for the EU to have separate routes for the Fourth and Fifth corridors. Second, pipeline dependence should be avoided. Pipelines render the exporter hostage to the importer and give intermediary states inordinate power at the expense of both. Geopolitical developments can be as fluid as gas and such long-term commitment may be regretted.

This is why an LNG Plant at Vassilikos in Cyprus would serve the best interests of both the EU and the Republic itself. Moreover, a Cyprus-based LNG Plant is the principal if not the only way of achieving targeted and specified results concerning the country’s energy future. This has become even more imperative following the illegal bank bail-in/haircut  imposed by Eurogroup on 25.3.2013 that destroyed the country’s economic model.

The development of the energy sector around an LNG Plant and the multiplier effects from the implementation of the required infrastructure are indeed key components for the country’s economic future for many reasons. A dynamic energy sector can lead to job creation across the entire industry value chain and help develop technical expertise, applied research and innovation. It can create inter-sectoral synergies and economies of scale. The fastest possible introduction of gas into the electricity transformation sector is a most important priority bound to exert a great microeconomic and macroeconomic impact. The electricity production cost will decline substantially with evident benefits for both households and industrial users. This will exert downward pressure on inflation and render the enterprises and the economy more competitive. In addition, the substitution of oil by gas and LNG exports will correct chronic macroeconomic imbalances like the trade and current account deficits. Moreover, if the Republic becomes an energy centre, she will gain substantial strategic advantages and geopolitical leverage, thus rendering possible a fairer solution of the Cyprus problem.

In the light of the foregoing, a two-train LNG Plant is fully justified provided at least 10 TCF of proven reserves become available, including the existing 4.5 TCF / 127 BCM reserves of Aphrodite (Block 12 in Cyprus’ Exclusive Economic Zone / EEZ). LNG offers maximal flexibility and Zero transit risk, while reinforcing the possibility of market selection and price negotiation. Several exploratory drills are planned in 2017 and 2018 by the International Oil Companies (Exxon Mobil, ENI and Total) and independents operating in the EEZ of Cyprus. The probability of success according to the revised exploration model based on the game-changing discovery of the zohr carbonate reservoir is rated to be considerable. Future liquefaction capacity can be expanded according to gas field discoveries, cooperation among the companies involved, the East Med countries joining in, such as probable future producers like Lebanon and Syria and currently-producing Israel, other potential investors, and of course European and world demand.

  1. East Med regional cooperation

The East Med gas constitutes a viable, secure and independent alternative corridor for European demand and diversification needs. In fact, the Cyprus objectives are in line with the main dimensions of EU’s Energy Union strategy. Cyprus can serve as the axis and trading junction that boosts the energy partnership between the Southern European and Eastern Mediterranean countries so as to contribute to the achievement of Energy Union goals. The development of a Mediterranean gas hub with regional supplies from a Cyprus-based LNG Plant will reduce EU dependence on specific energy suppliers, routes and fuels and contribute significantly to Europe’s energy requirements and energy security goals. Furthermore, the exploration and development of East Med gas reserves present an excellent opportunity for regional co-operation and contribution to regional political stability, peace and economic growth.