The Eastern Mediterranean's Natural Gas Struggles
In the troubled region of the Eastern Mediterranean, each of the newly hydrocarbon-rich countries is struggling with hurdles of its own. While Lebanon has not been able to open its first licensing round to explore waters believed fertile in recoverable amounts of natural gas, Cyprus faced the disappointment of meager resources and Israel seems stuck in never-ending policy debates dividing the ruling class and delaying the development of its giant offshore field. Historically solely dependent on imports to satisfy domestic demand, the new discoveries in the Levant basin could significantly alter the energy landscape of the Eastern Mediterranean. The discovery of natural gas in Israeli and Cypriot waters promises energy security for decades to come, and even substantial gas revenues that could revive the strained economy of the island of Cyprus and launch infrastructure, healthcare and education projects in Israel.
Cyprus and Israel are eyeing the regional market as a first destination for their newly found offshore riches. Jordan and Egypt, both facing a severe energy crisis, make ideal customers for both Cyprus and Israel given their geographical proximity to the fields and their immediate need for the hydrocarbon. With its underused offshore LNG terminals, Egypt could also provide a solution for its gas-producing neighbours to sell gas to far-reaching markets. The Eastern Mediterranean countries’ entry into the export market is not void of hurdles. Cyprus was hoping to discover as much as 60 Tcf (trillion cubic feet of gas) in its waters. In 2011, Noble Energy discovered the Aphrodite field, estimated at 4.54 Tcf, in Block 12 of the island’s Exclusive Economic Zone (EEZ). ENI/KOGAS, licensed to drill in Block 9 of the island’s maritime zone, failed to find any amount of recoverable gas. TOTAL, licensed to drill in Blocks 10 and 11 of the island’s EEZ, has announced its temporary withdrawal from the island’s water for not having identified any “drillable prospect” according to the company's statement in late 2014. The island’s negligible domestic consumption will still allow Cyprus to export most of its discovered gas.
Israel’s most significant finds are the Leviathan field estimated at 22 Tcf and discovered by Texan Noble Energy and the Tamar field estimated at 10 Tcf, also discovered by Noble. Both fields are owned by Israel’s Delek Drilling and Avner Oil Exploration, and Texan Noble Energy. The partners in Israel’s largest offshore fields have been involved in a competition dispute with Israel’s Antitrust regulator. In December 2014, David Gilo, Israel’s Antitrust Commissioner that has since submitted his resignation from his post, has accused the partners in Tamar and Leviathan of constituting a cartel that would distort competition in the domestic natural gas market and push the price of natural gas up for the consumer. After a long debate, Israel’s rightwing government agreed on a proposal that would allow the companies to retain their shares in Israel’s Tamar and Leviathan on the condition they sold their stakes in smaller fields off Israel’s coast and reduced their shares in Tamar and Leviathan. The lenient resolution of the dispute has prompted a wave of demonstrations in Israel and the anger of leftwing politicians arguing that the arrangement was siding with Noble Energy and its partners against public interest.
The Eastern Mediterranean has no doubt the potential of bringing significant changes to the region, and particularly to the parties directly involved. Such a scenario would therefore require important prerequisites: a friendly investment climate for investors in Israel, the discovery of additional amounts of gas in Cyprus and Lebanon’s passing of the pending pieces of legislation that would launch the country’s first licensing round and allow it to explore its hydrocarbon potential.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat