Weekly Overview on Eastern Mediterranean Natural Gas Matters
A new row between Israel and Egypt
The past week was tensed in the Eastern Mediterranean as it was dominated by the news of a new row between Israel and Egypt. Last month' promising talks between the partners of Israel’s Leviathan and Egyptian company Dolphinus over the possibility of exporting gas from Israel to the Egyptian market via an undersea pipeline led to the signing of a Letter of Intent that would lead to a final export deal subject to regulatory approvals. This week saw however a sudden rift in the renewal of the energy relationship between the two countries following a ruling by arbitrators at the Paris International Chamber of Commerce ordering two Egyptian gas companies to pay $1.76 billion to state-owned Israel Electric Corporation to compensate it for the disruption in the flow of Egyptian gas to Israel in the aftermath of the Arab Spring in 2011 that toppled President Hosni Mubarak. As a result of the ruling, the Egyptian Government ordered the immediate halting of gas negotiations with Israel.
Israeli Prime Minister Benjamin Netanyahu pushes the natural gas framework and commits to sending a diplomatic envoy to Egypt
Prime Minister Netanyahu said he will send a special envoy to Egypt to initiate diplomatic efforts in an attempt to resolve the conflict. Netanyahu’s comments were made in the Knesset while arguing in favour of the natural gas framework that would enable Israel to fast-track the development of the Leviathan field and enter the export market in a speedy fashion. Netanyahu’s main argument was that Israel, by delaying the approval of the natural gas framework, was risking losing investors, particularly the US investors such as Noble Energy who may be losing their patience.
Cyprus unaffected by Egypt-Israel conflict
The row with Israel does not seem to affect Cyprus for the time being, nor Egypt’s appetite to import gas from Cyprus’ 4.54 Tcf Aphrodite field. Cyprus and Israel are both eyeing Egypt, not only because of its geographic proximity and its pressing need for natural gas due to the domestic energy crisis it is undergoing, but also because of its export LNG terminals that could help Cyprus and Israel monetize their riches by selling gas to lucrative far-reaching markets. Cyprus’ Minister of Energy, Yiorgos Lakkotrypis, announced that his Egyptian counterpart assured him that the conflict with Israel will not affect Egypt’s interest in purchasing gas from Cyprus. Cyprus is set to relaunch exploration efforts off its coast. The Government approved TOTAL’s renewal of licence for drilling in Block 11. The contract was expiring in February 2016 but the French giant’s interest in renewing its presence off Cyprus was welcomed by the Cypriot Government. The discovery of the Zohr field in Egyptian waters, in close proximity to Cyprus’ EEZ has revitalised companies’ interest in exploring the island’s hydrocarbon potential. Last month, BG acquired a 35 per cent stake in the Aphrodite field, an acquisition likely to facilitate a future gas export deal with Egypt given BG presence in Egypt as the operator of the Idku LNG plant. Noble Energy and ENI are also planning further exploration efforts off Cyprus.
Egypt, Cyprus and Greece still committed to maintaining close energy cooperation
Egypt and Cyprus agreed to finalise the demarcation of their maritime zones the earliest possible as part of a strategy to turn the East Med into a natural gas hub. The agreement happened during a meeting between the Egyptian President Abdel Fattah al-Sisi, Greek Prime Minister Alexis Tsipras and Cypriot President Nikos Anastasiades in Athens on Tuesday 8 December. The purpose of the meeting was to discuss Egypt’s growing role in the East Med following the discovery of the huge Zohr field by ENI in Egyptian waters. Discovered in late August, the Zohr field is estimated to hold up to 30 Tcf of natural gas field, enough to satisfy Egypt’s growing domestic needs and ensure the country’s re-entry into the natural gas market. The three leaders stressed on the importance of using this positive development as a catalyst for increased cooperation in the level of energy. The meeting will be followed by a summit early in 2016. President Sisi said the aim was to achieve concrete results through close cooperation. Aside from its own gas aspirations, Greece aims to facilitate the transport of gas from the East Med to Greece via Greece and on to Eastern Europe via pipeline. Greece’s EU membership would facilitate access of East Med into the European market at a time when the EU is looking to diversify away from Russian gas. However, the complex geopolitical landscape of the region, and the modest quantities of gas discovered so far make this scenario questionable, according to energy experts.
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