Natural Gas Europe: Eastern Mediterranean Gas: Economics First, Then Politics

The keynote opening speech of the 2nd Annual Frankfurt Gas Forum in Germany was made by Matthew Bryza, former US Deputy Assistant Secretary of State.

Mr. Bryza gave a wide-ranging tour of Europe’s energy security scene and offered his perspectives on energy projects involved in the Southern Corridor.

But this year’s Gas Forum focused on natural gas developments in the Eastern Mediterranean, something which was reflected in Mr. Bryza’s remarks. Natural gas developments in that region could exert positive effects upon tense political situations among countries in the region, like between Turkey and Greece over Cyprus, or possibly even renew relations between Israel and Turkey.

Of Eastern Mediterranean gas, he said that while policies in the region needed to be more aligned for investments to happen, if the economics were lined up they could “feed back into the politics” and create breakthroughs that would have positive impacts upon investments in the region.

He explained, “Eastern Mediterranean is a terrific example of how politics first need to line up – in this case Turkish relations with Israel, and Turkish relations with Cyprus – to enable the investments to happen. But if and when the investments happen, I think we’ll see some dramatic, even historic, breakthroughs on the Cyprus question and the restoration of the special relationship between Turkey and Israel that, in the late 1990s, was a strategic partnership that involved, not only military cooperation, but extensive intelligence sharing as well.”

Among the high notes, Mr. Bryza noted, were the Israeli government’s recent decision to allow 40% of its natural gas production to be exported, especially from its Leviathan field. Israel, he said, had also signalled that it sought two export options for its natural gas: one pipeline and one LNG option.

For Israel, selling its gas to markets like Egypt would be difficult, according to Mr. Bryza, while the permitting for onshore LNG could prove impossible given the environmental and security concerns.

If not LNG onshore, he said there were two other options: Cyprus or a floating liquid natural gas terminal, which could address some of the political issues surrounding Turkey-Israel and the Cyprus question (but that would not create significant political breakthroughs).

“Prime Minister Netanyahu would like, not only to use the natural gas to revolutionize the Israeli economy in many ways, develop new industries that are energy intensive, first and foremost ensure that Israel is self sufficient in natural gas for years to come, but I think he also wants to use natural gas exports as a way to improve Israel’s relations with key neighbors,” he said, explaining that he thought some Israeli natural gas would be exported to Jordan, and some to the Palestinian territories.

He continued, “But if you’re thinking about how to get the most geopolitical payoff for a natural gas export scheme to one of Israel’s neighbors, I would argue that Turkey is the place you want to look – a country with great aspirations in the region, problematic at times, especially towards Israel. But if the natural gas exports could be used to restore a strategic partnership between Israel and Turkey, that would be a tremendous benefit for Israel.”

Perhaps the most compelling way to get the gas to market was to build a pipeline to Turkey, which was easy he said, but this needed the permission of the government of Cyprus. Territorial delineations and allowing pipelines to pass through them, said Mr. Bryza, could be ambiguous, but states could also impose conditions on those pipelines passing through their territorial waters. Such situations created risks.

“How do you obtain Cypriot permission for a pipeline to cross its territory before you come up with  a comprehensive settlement to the Cyprus problem – which I don’t think is possible. What I do believe, is that energy investments could catalyze that breakthrough.”

This meant, according to Mr. Bryza, that one helped Cyprus obtain an LNG terminal, which it had identified as a national priority. The problem was there clearly weren’t enough proven reserves right now on Cyprus – it needed two LNG trains, he said.

He said, “Everyone has their fingers crossed that Cyprus in coming years is going to discover much more gas, two trains will be viable. Cyprus will be happy if we generate income to help it with its financial difficulties, but those revenues are not going to flow for at least 10 years.”

If everything worked out perfectly, he explained, one wouldn’t see revenues flowing to the Cypriot treasury until 10 or 11 years from now. He offered a solution.

“Perhaps there’s a way to take advantage of the fact that the same companies – Noble, Delek and Avner Oil – are developing Israel’s Leviathan field, as are developing Cyprus’ Aphroditefield. So is there a way, perhaps, to channel some of the early revenues from a pipeline from Israel to Turkey back into financing and risk reduction for an LNG facility on Cyprus?” he asked.

“And could there be even some some excess gas, after a pipeline were developed  from Israel to Turkey, that could also be used to help develop the LNG facility? Or could there be compressed natural gas, which provides a way to ramp up production in the early years, in smaller volumes, without much commercial risk really and allow for there to be a pipeline from Israel to Turkey?”

Intergovernmental agreements, he said, were needed, among Cyprus, Turkey and Israel.

He admitted, “It’s a tall order of course. It probably will require outside political leadership akin to what the US did regarding the BTC pipeline.

“Right now, I don’t think the US nor the EU are willing to jump in, but I also know that there is a genuine desire in Washington to create a breakthrough on both the Cyprus question and on Turkey-Israel relations before the municipal elections that take place in Turkey this March.”

This, of course, depended on the Turkish Prime Minister, who would have to decide whether he would play to the “less positive forces in Turkish politics, who like to take swipes at Israel and like to take swipes at Cyprus. Ultimately, only one man is going to decide whether or not Turkey is going to push for this breakthrough,” explained Matthew Bryza at the 2nd Annual Frankfurt Gas Forum.

SOURCE: Natural Gas Europe, 2013


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