Posted on June 15, 2013

Recent years have witnessed a series of major geological successes, from the water of Cyprus, Israel, Palestine, Lebanon and Ionian and Aegean seas in Greece to the waters off Cyprus, Israel, Palestine and Lebanon.

The scales of these findings have been such that even by conservative estimates, earlier knowledge of these deposits would have significantly improved the bargaining positions of Greece and Cyprus, helping to reduce pressure for sell-offs of government assets and massive spending cuts as prerequisites for EU and IMF assistance. In addition, it is important to note that the prospects for oil and gas being produced by Israel, Palestine, Cyprus, Greece and Lebanon would also constitute significant contributions to the EU, providing capacity for an emergency response to any threat to energy security and serving as a complementary addition to existing and future supplies from Russia.

Given all the benefits that would accrue to Europeans from the realization of oil and gas production in the East Mediterranean and Ionian, the Aegean and the Eastern Med, EU policy should be to encourage public consultation and thorough review of both external and internal strategic investments as these apply to crucial supply issues. EU energy and security policies have long been heavily “West-East” oriented, in large part because the flow of hydrocarbons is still an East-to-West phenomenon.  The advent of new flows from the Mediterranean region would instantly enhance Europe’s energy position by providing not just additional hydrocarbons but greater diversity of supply as well. In addition, the emergence of this new industry would help improve Europe’s strategic situation by ameliorating the social and economic conditions in the countries of its southeastern periphery; the implications figure to be huge for issues ranging from aid and trade to immigration and national security.  

The formulation and implementation of far-reaching revisions to existing EU energy policy are primary prerequisites if Europe is to derive full advantage from this new reality. This policy should be expanded on a variety of fronts, including appropriate planning and study for development of the Eastern Med region as new strategic pillar for EU gas supply, as well as the completion and adoption of a competitive framework agreement within the context of Euro-Med energy cooperation.

In 1995 the World Bank predicted that oil and gas development would not be constrained for the foreseeable future, largely because producing countries had at their disposal several methods of attracting private investment. This prediction has been proven true. A recent survey by Barclays Capital estimates that oil and gas exploration and production companies spent nearly US$ 600 billion in 2012 alone, an affirmation that there is still no shortage of investment capital for good oil and gas ventures. Now that there is no longer any doubt that a broad swath of the seabed stretching from Greece to Israel is densely packed with hydrocarbon reserves, the vast majority of them completely untapped thus far, a sizeable chunk of that investment should start flowing this way.

Money alone, however, will not be enough. In order to realize the full potential of these prospects to become instruments for prosperity and peace, the major powers can help by using constructive, cooperative diplomacy. This should focus on shielding the region from geopolitical contests and giving it the time, the stability, and the diplomatic space required to plan, promote and implement oil and gas projects for widespread mutual rewards.

Estimates by the U.S. Geological Survey indicate that the Levant Basin alone contains approximately 3.45 trillion cubic meters of natural gas and about 1.7 million barrels of oil, while Greek waters are believed to hold another 28 billion barrels. How important is this? Consider that in 2011, Europe’s gas consumption amounted to approximately 500 billion cubic meters, of which some 125 BCM came from Russia. With Europe’s own gas reserves dwindling, absent some genuinely game-changing developments, this dependency on Russia would only increase in the coming years.  Now consider that by 2020, the Eastern Med region could be supplying as much as 20-25% of Europe’s energy needs. This would go a long way toward satisfying some of the EU’s most important energy goals, including the diversification of supply sources (e.g. North Africa, liquefied natural gas [LNG], different pipeline routes, etc.) in order to compensate for its shrinking reserves, complement/reduce dependence on Russia, and close the supply gap safely and competitively.

In the past two decades, global natural gas supply has grown faster than demand, mainly due to increased capital and investment flows into traditional oil-producing countries, as well as increased exploration activity in others whose reserves of oil and gas are more recent discoveries. New discoveries are taking place, therefore, in a period not only of heightened global demand for natural gas, but also of increased supplies. Such has been the case in the Eastern Mediterranean region, where significant oil and natural gas exploration activity is taking place following recent discoveries offshore of Israel and Cyprus. This activity should lead to new discoveries and the launching of additional exploration offshore of other countries in the area, notably Greece and Lebanon. At the same time, there is growing demand for natural gas in the Mediterranean region itself, and in neighboring markets in Southern Europe.

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For an ultimate win-win situation that ensures maximum benefit from the hydrocarbons in the Eastern Mediterranean, Greece and Turkey should set aside their differences over Cyprus, the Aegean, and other issues in order to become fully engaged partners in the development of these massive resources for the economic welfare of all the peoples concerned. The same goes for Israel, Palestine and Lebanon. This would constitute a development of an unprecedented constructiveness for the Euro-Med political arena, making history on several levels by ensuring a whole host of positive changes, including:

  • A more level playing field in the European gas supply market
  • Less dependency on Russian gas
  • Enhanced security and diversity of supply thanks to the emergence of reliable new export partners
  • Tighter regional integration
  • Socioeconomic boosts for Greece, Cyprus, Israel, Lebanon and Palestine
  • Enhanced security and stability for both the producing and the consuming countries
  • Promotion of Euro-Med integration as a tool for constructing a stable and more peaceful geopolitical area
  • Increase in intra-EU solidarity by fostering more cooperation to overcome challenges and build the instinctively cohesive union envisaged in the Schuman Declaration of 1950

These and other advantages make oil and gas exploration and production in the East Mediterranean region a natural priority for Europe’s gas supply initiative – and a prime candidate for investment by the European Investment Bank, the World Bank and/or the International Monetary Fund.

What we have is a perfect fit. In fact, we have several perfect fits: all the geological signs point to a vast resource, the financing will always find good oil and gas ventures, the need for new supplies and diversification of supply is undeniable, and the technologies exist to carry out exploration, production and transportation cleanly and safely. Perhaps best of all, these prospects open up the opportunity for old rivals to start the process of reconciliation by working together – or at least not working at cross-purposes – toward a common goal.

The time, then, has really come for the countries of the Eastern Mediterranean to become valuable partners for Europe’s energy needs. This will further the interests of all sides, increase stability in the region, help reach the goals of the Euro-Med process, and bring the EU ever closer to the European ideal.

The lynchpin for this hopeful project is Cyprus, whose own reserves are estimated to be quite substantial but whose location is even more propitious because it makes the island the obvious choice to serve as a safe and reliable hub for processing and transportation of the Eastern Med’s energy exports. The most obvious point here is that Cyprus is the only logical starting point for the pipeline that will carry Mediterranean gas to European markets. It is also the only natural home for the LNG plant that will serve customers located too far from either new or existing pipelines, particularly electricity producers.

Cyprus will also play another role, one perhaps more subtle but no less important, especially for those who desire lasting stability in the region. The same factors that make the island a natural energy hub also make it the perfect go-between – stated or unstated – for nearby countries whose relations with one another are frayed, fraught or non-existent. It would not make economic sense, for instance, for each of Lebanon and Israel to separately transport its own gas; but both of them could gain by sharing Cypriot facilities. This access to the huge European market also would increase the affluence of both countries, reducing tensions over those areas where their maritime claims overlap by reducing the urgency to tap them and giving them a shared interest in stability. 

Again, Cyprus has to be considered the focal point of this grand ambition. In the short time since it has joined the EU, this tiny country has periodically been buffeted by forces far beyond its shores, and nonetheless it has remained committed to the European project. Now it has a chance to demonstrate its bona fides as a modern nation-state with all the legislative and regulatory acumen to serve not just as an indispensable energy hub, but also as an essential element in the geopolitical transformation of the Eastern Mediterranean.     

 The potential for positive geopolitical influences is enormous because clearly, the best solution for those countries in dispute with their neighbors is to recognize their shared economic interests and forge appropriate arrangements for joint exploration and development. The second-best option would be for these countries to go it alone, using their own budgets to support exploration by hiring the expertise to carry them out in their respective economic zones. The incentive to adopt the former route will be strong, as will that to ease political tensions for the sake of mutual economic and social benefits.  

The big question is: Will it all happen? Well, keep in mind that, amid all the changes wrought by the European financial crisis and all the pros and cons of the uprisings against Arab governments, we still see a substantial number of IOCs from five different continents moving rapidly to establish local presence and secure a piece of the action in the Mediterranean. In many ways, that tells us all we need to know.

by Roudi Baroudi

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