On June 5-6, 2013, the German Marshall Fund of the United States, the Institute for National Security Studies (INSS), the Friedrich Ebert Stiftung (FES), and the Center for Political Economics (MACRO) organized a high level conference on “Natural Gas in the Eastern Mediterranean – Economic Impacts and Strategic Implications.” The conference was hosted by INSS in Tel Aviv, Israel, and brought together international experts and decision makers from the United States, Norway, Cyprus, Turkey, Israel, the EU and Russia. It considered the strategic, economic, social and environmental costs and opportunities involved in exporting natural gas resources now being produced in the Eastern Mediterranean.
Experts at the event included Sir Michael Leigh, senior advisor at GMF; Oded Eran, senior research associate at INSS; Bini Zomer from Noble Energy; Charles Ellinas, CEO of Cyprus National Hydrocarbons; Martin Skancke, former director general in charge of the Government Pension Fund of Norway; Leonidas Kioussis from the Europeam Commission’s Directorate General for Energy; Hubert Faustmann, director of FES Cyprus; Ahmet Han, associate professor at the Kadir Has University in Istanbul; and Yael Cohen-Faran, director of the Israel Energy Forum. The day-and-a- half event gathered close to a hundred participants.
Israeli Minister of Environmental Protection Amir Perez provided opening remarks, indicating that Israel should assess its domestic needs in order to accurately decide which export options should be chosen. The Minister highlighted the importance to avoid creating an opposition between energy companies and the public opinion. The conference’s first session, chaired by Dr. Oded Eran, compared dividends of domestic consumption and exports. Israel is in the process of setting-up a sovereign fund supervised by the Bank of Israel. Modeled on the Norwegian Government Pension Fund, its assets would be integrated into the national budget. Speakers warned of the pitfalls of seeing these new natural resources as an unlimited source of revenue. Risks are numerous in terms of effects on fiscal and monetary policy, and returns over time should be determined by long term strategy and not by active management of the fund.
Day two of the conference started with a session on regional cooperation chaired by Hubert Faustmann, featuring specific examples from Turkey and Cyprus. This session gave the opportunity to the participants to stress the need for coordinated cooperation between all those concerned in the region, including Jordan, the Palestinian Authority, and Egypt. Regional cooperation will not only depend on the geographical location of the findings, and on the export options preferred (pipelines, onshore or floating LNG plant), but also on costs and pricing of Eastern Mediterranean gas. For Turkey in particular, while Cypriot gas presents greater political challenges, rapprochement with Israel could go through commercial relations on energy. On Cyprus, more investments are needed to maximize the development of the energy sector. With a key interest in an Eastern Mediterranean Corridor to provide the European market with gas, the support of EU institutions, such as the European Investment Bank, is crucial.
Sir Michael Leigh chaired a third session on strategic implications of the gas findings for the United States, Russia and the European Union. In Washington, the peace process will be central to President Obama’s second term. A boost to the Palestinian Authorities economy through the development of fields off the coast of Gaza could be instrumental. For the EU, findings in Cyprus and in its close periphery may change the picture in terms of energy security. While it is too early to estimate the impact of the gas findings on the European market, both Cyprus and Israel would have enough gas for domestic consumption and exports. This would contribute to the diversification of the EU’s energy supplies. As such, should Israel decide to export its gas, the EU would consider the establishment of permanent export links. More generally, much will depend on the competitiveness of Eastern Mediterranean gas on the EU market, in terms its price and reliability. Security of demand will also be instrumental in determining the role that Eastern Mediterranean gas could play in the regional and the European markets; countries of the region should avoid mistakes that Russia made developing its gas industry. A fourth session chaired by Sagi Karni, senior advisor at the Israeli Ministry of Environmental Protection, tackled environmental concerns linked to the development of an indigenous energy sector in the region, and more specifically in Israel. Cooperation and exchange of best practices in preventing and responding to accidents will be critical.
Overall, experts agreed that cooperation on technical issues could allow for the maximization of benefits for all the countries of the region. While domestic debates are still ongoing concerning export options and corridors, there is general agreement that these findings present huge opportunities both in terms of economic development and political cooperation. With a vibrant public debate in Israel, the conference highlighted the long term gains for Israel and the region in creating links in the extraction and export of Eastern Mediterranean gas. Used both as an economic and a political tool, it could offer unprecedented opportunities for regional prosperity and stability.