Eastern Mediterranean Gas Won’t Solve Europe’s Energy Dilemmas
WASHINGTON — The energy ministers of Israel, Cyprus, and Greece are talking up possible natural gas exports from their countries as a way of diversifying Europe’s energy supplies away from Russia. They have lobbied the European Commission to conduct a feasibility study for an undersea gas pipeline to bring Israeli and Cypriot gas to Europe via Greece. Silvan Shalom, energy minister in Israel’s outgoing government, said that such a pipeline would ensure that European consumers obtain the cheapest possible gas. Such advocacy catches the mood of anxiety in Europe about possible blackouts caused by continuing hostilities between Ukraine and Russia.
However, studies for the German Marshall Fund show that the technical and commercial viability of a sub-sea Mediterranean pipeline is doubtful. The water between the offshore fields and Greece is very deep, some 2,000 meters in places, and the distance involved is 1,200 kilometers, a major challenge. Eastern Mediterranean gas would not be cheap for European consumers, given the high costs of exploration, extraction, and transport. In any event, future gas prices in different markets are uncertain, new sources of supply are coming on stream constantly, and demand for additional gas in Europe will remain subdued in the absence of significant economic growth.
The quantity of gas so far discovered offshore Israel and Cyprus limits their capacity to become major exporters. Proven reserves are sufficient to be a game-changer for their own economies but not to attract the kind of investment needed to transport gas to Europe by pipeline or by ship as liquefied natural gas (LNG). Moreover there has still been no final investment decision to develop Leviathan, the largest Israeli offshore field. Discoveries offshore Cyprus are modest and contested by Turkey, which has sent a warship to the zone. The European Commission has included a sub-sea Mediterranean pipeline or electricity cable on a list of possible future “projects of common interest.”
But without major technological breakthroughs, these notional projects will remain on the drawing broad. However, exploration is continuing offshore Cyprus, seismic surveys in the Israeli Exclusive Economic Zone have detected a possible large new field, and export prospects could be re-evaluated if considerable additional quantities are found. With elections in the offing in Israel, Greece, and, indeed, northern Cyprus, there is a temptation to brandish ambitious schemes to build pipelines or electricity cables, without worrying about the fine print. But this is likely to meet a skeptical response in the absence of significant new discoveries. It is also a distraction from more realistic options. Israel and Cyprus have significant export markets on their doorstep: Egypt and Jordan. Both countries face supply bottlenecks, and Egypt has raised fuel and electricity prices to cut state subsidies and reduce the budget deficit.
Gas from Israel could help close the gap between demand and supply in Egypt and Jordan and prevent blackouts, which are a major source of discontent in countries already facing severe political pressures. The relatively short pipelines involved would not require huge infrastructure investments. Existing LNG plants in Egypt could also process Israeli gas for export. When the Palestinian Authority builds a planned power station in the West Bank, it too could become a customer for Israeli gas. Such projects face political risks but until now the governments and companies concerned have not flinched. Israel is already benefitting from its own offshore energy.
Fifty percent of the country’s power generation now comes from natural gas. Air quality has improved and the burden of energy imports on the balance of payments has been reduced. Cyprus can look forward to similar benefits when its offshore fields come on stream around the end of the decade. Greece is prospecting for oil and gas in the Ionian Sea and in the Sea of Libya, south of Crete. Ministers from these new or aspiring energy producers should explain realistically to their publics the benefits of the prudent development of their countries’ resources. They should give priority to markets in their own and neighboring countries, eschewing the temptation to talk up grandiose export schemes unless and until the numbers add up. Above all, Cyprus, Greece, and other EU countries should work together to build a functioning European energy union that will diversify types and sources of energy and reduce dependence on dominant suppliers.
Sir Michael Leigh leads GMF’s project on energy in the Eastern Mediterranean. He is also a senior fellow with the Transatlantic Academy, an initiative of the German Marshall Fund of the United States in Washington, DC. This article draws on a letter from the author that appeared in the Financial Times on December 5, 2014
The views expressed in GMF publications and commentary are the views of the author alone.