E Med Conference sees Co-operation as Key

It’s not going to be easy to secure export-led development for eastern Mediterranean gas. That was the predominant view at the first ever conference on regional hydrocarbon development to be held in the predominantly Turkish northern half of Cyprus.

The contrast between opportunity and challenge was set by the programme’s keynote speaker, Dr Rafet Akgunay, Turkey’s former Ambassador to China and Canada, who noted first that “the recent discovery of hydrocarbons in this region makes it a major potential energy source of energy for Europe” and then that “delimitation of maritime areas has become a major issue” concerning export route development.

In the eastern Mediterranean, Akgunay said in his opening speech May 5, seven or eight countries still needed to reach agreement on their respective exclusive economic zones (EEZs) while even those that had already been agreed by South Cyprus – his term for the internationally recognised (and predominantly Greek-populated) Republic of Cyprus had been concluded without necessarily taking into account the claims of the other littoral powers.

Turkey: market of choice

The opportunities are certainly there, with several speakers at the three day event stressing the Turkish market, albeit with the crucial caveat that current negotiations on the re-unification of Cyprus had to succeed in order to ensure transit of eastern Mediterranean gas through Cypriot waters – and possibly across the island itself – to reach Turkey.

Cenk Pala, the Ankara representative of the Trans-Adriatic Pipeline consortium, which is building a 20bn m³/yr gas pipeline from Turkey to Italy, argued there was a significant opportunity for eastern Mediterranean gas in Turkey – while there was also scope to use the new infrastructure of the Southern Gas Corridor from the Caucasus to Italy to carry some of that gas onwards to European markets.

Pala considered that by 2019 Israel could be producing around 5bn m³/y for export from its Leviathan field, while in 2020 or thereabouts that figure could double to around 10bn m³/yr while Cyprus could be producing some 5bn m³/yr from its Aphrodite field.

Turkey offered a real opportunity, Pala argued, since it faced a likely supply gap of around 5.5bn m³/yr after 2019.

But eastern Mediterranean gas, he warned, would potentially have to compete in the Turkish market with gas from Azerbaijan’s Shah Deniz Phase Two project; with new and existing LNG  imports; with prospective floating storage and regasification units (FSRUs); with gas from northern Iraq; and even Turkmen gas delivered via Iran.

Pala noted that in 2023 the second phase of the giant 1,850-km TransAnatolian Pipeline (Tanap) project due to come on stream, even though, at present, the only gas committed to use the line remains the initial 16bn m³/yr of Azerbaijani gas that is to fill the first 16bn m³/yr phase due to enter service in 2018.

But, Pala added, “as regards the second phase of Tanap, from 16bn m³/yr to 23bn m³/yr I have to say there is no gas from Azerbaijan; there is a kind of rest (in production) there.”

However, Israel’s Dr Amit Mor cautioned that “export options for Israeli and Cypriot gas are questionable. “If there is no economic feasibility, there is no project,” he said, apparently referring to the balance between relatively high development costs and doubts concerning the volumes of gas that might be made available for export at Leviathan and the underlying volumes of gas reserves at Aphrodite. Also he added, as did many others, “you need geopolitical feasibility.”

Dr Andre Dorsman, President of the Center for Energy and Value Issues (CEVI) in Amsterdam, noted that for Egypt, despite last year’s discovery of the giant Zohr field, export options were limited because “Egypt, with a population of 90mn, will use the gas for the home market.” He, too, noted the competition the region’s gas would face from new suppliers, notably US and Australian LNG, but also, he considered, because “Iran is re-entering the market.”

His colleague at CEVI, Mehmet Baha Karan, drew attention to the comparative costs of various export options, noting that it would cost around $11bn to develop a 5bn m³/yr floating LNG facility.

Overall he considered, a pipeline from the eastern Mediterranean fields to Turkey would be the most cost-effective option, followed by floating LNG, then by a land-based LNG liquefaction plant on Cyprus itself, and, fourthly, an onshore system to deliver gas to Jordan and Turkey – a route that would have to cross war-torn Syria.

“Offshore to Turkey seems to be the best alternative in all scenarios” Karan argued.

This view was broadly shared by other participants, notably Berris Ekinci, ‎Deputy Director General at the Ministry of Foreign Affairs in Ankara, who gave what she termed “a Turkish perspective.” She argued that Cypriot demand (which other sources estimate might total around 1-2bn m³/yr at most) was too small to justify development of gas without export options. Ekinci added: “Connection to Egypt appears an option, but Zohr will soak up Egyptian demand.”

Overall, she considered, “Turkey is the most viable and profitable gateway for the export of gas resources from the eastern Mediterranean to markets.”

Matt Bryza – a former US diplomat now working with a Turkish company, Turcas, to develop a consortium of Turkish companies to buy east Mediterranean gas – said “I am absolutely convinced there will be a pipeline to Turkey in due course.” 

Leviathan wins on price – theoretically

Bryza argued that the price of Leviathan gas would be lower than the current price in Turkey but cautioned: “I think we will see the possibility of such a pipeline only when a peace settlement has been reached – or when the basic principles of a Cyprus settlement have been agreed.”

Pala argued that if regional exports were limited to around 10bn m³/yr “we won’t need to send it to Europe.” Turkey alone would suffice, he said, referring specifically to the industrial areas around the southern city of Mersin. “They can consume 8bn m³/yr.”

But if there were sufficient volumes available to justify exports to more distant European market, said Pala, then “as a TAP representative, I can say we’d be very happy to carry this gas.”

Dorsman drew attention to the many political and commercial problems confronting the developers in the region. Its natural markets he argued were to be found at the eastern end of the Mediterranean, rather than amongst the major gas importing nations of the western Mediterranean, such as Italy, France and Spain, where competition is fierce.

Moreover, he added, “the main question is: can the countries of the eastern Mediterranean work together?”

Swim together - or sink

To get gas ready for export, Dorsman said, the region had to develop a common strategy in much the same way that the major countries of western Europe first came together to form the Coal and Steel Community and then went on to form the European Union. He added: “You have to work together, as we did 50 years ago. It’s not easy.”

Ekinci took a similar line, saying: “The Eastern Med should be considered as a single basin. That’s necessary for the region’s gas to be competitive in the global gas market.”

While there was a natural focus on Turkey, this was consistently stressed in terms of Turkey’s advantage in being the nearest major gas market, thus reducing the cost of infrastructure to reach the market - and with regard to the necessity of achieving a solution to the Cyprus problem to enable this to happen.

The conference did seek to secure participation from Greek Cypriots, but no Greek Cypriots actually turned up, so their arguments for a 1,200-km subsea pipeline to Greece, as opposed to a 500-km line to Turkey, went largely unstated.

John Roberts, Chief Analyst, Natural Gas World