The Eastern Mediterranean Gas Reserves: Opportunity for Regional Integration or Cause of Prolonged Geopolitical Conflict?

In the past few years, we have been observing the emergence of the Eastern Mediterranean as a potential serious player in the world gas business. Let’s look at the background of these developments.

The Eastern Mediterranean as a potential strong player in global gas production: perspectives, potential and challenges. 

The significant wave of escalation of 2019 reached the Eastern Mediterranean, just as the broader Middle Eastern region. Turkey has signed an agreement with the UN-backed Libyan official government based in Tripoli regarding the demarcation of sea borders and exclusive economic zones. At the same time, Turkey has opposed the establishment of an energy hub between Israel, Greece, Cyprus, and Egypt due to territorial disputes. What happened in the Eastern Mediterranean, and why is this region becoming so critical in energy supply?

With recent discoveries, the formerly resource-poor Eastern Mediterranean region becomes a host of energy bonanza (see Chart 1). Although the three countries are late-comers as energy suppliers, in the shadow of the 2022 Russia-Ukraine war-induced European energy crisis, they would be essential sources for diversification despite the modest quantity. 

Chart 1
Selected Major Gas Fields in Operation in the Eastern Mediterranean

Source: U.S. Energy Information Administration

Gas production is either a source of internal consumption, export, or both. In 2022, Israel produced 22 billion cubic meters of gas; 57 % went for domestic consumption and 43 % for export. Egypt is the second largest gas consumer in the region after Turkey, and it is currently the 12^th largest gas exporter in the world. Despite the recent discoveries and potentials, the Eastern Mediterranean gas production and export face several challenges:

1. Technical issues and the challenge of green transition;
2. Transportation problems;
3. Geopolitical issues.

Technical Issues and Green Transition

Gas production in Egypt is declining due to a water infiltration issue caused by over-drilling. The Zohr facility in Egypt has been facing a sharp decrease in production this year while the ENI is trying to manage the situation. Besides the purely technical problems, the de-carbonization of the world economy should be mentioned as well. These countries have been investing a vast amount of money in a sector with a long payback time. The EU has recently adopted the Green Deal aimed at reaching a net zero carbon emission by 2050. Any investment in the fossil fuel sectors should be cautiously explored. Middle Eastern countries – not to mention the European and Asian buyers – are not exempt from climate change and green transition. According to the European Union plan, gas production would drop to 22 % of the total energy by 2030, further decrease to 9 % by 2050, and eventually be completely halted shortly thereafter.

Transportation Problems

Natural gas can be transported in two ways: via pipelines or, after liquification, in the form of LNG (Liquified Natural Gas). After the transportation in LNG format, a regasification is necessary. At the time of writing, the Eastern Mediterranean has four operational gas pipelines:

1. the Arish-Ashkelon pipeline, which transports gas from Israel to Egypt;
2. Arab Gas Pipeline from Egypt to Lebanon through Jordan and Syria;
3. Transadriatic Pipeline;
4. Trans Anatolian Pipeline (TANAP) or the Southern corridor through Turkey.

The existing pipelines have mainly been serving the regional countries’ interests and consumption. Israel has signed a gas deal with Jordan in 2016, providing the Kingdom with gas for 15 years. Israel has also been exporting gas via Jordan to Egypt, where, after producing LNG, the North African country reexports it to other customers in Europe or Asia. A fifth pipeline, the Eastern Mediterranean (EastMed), was proposed in 2013. It also got support from the European Union and was elevated to the level of a Project of Common Interest. The 1900 km long pipeline would transport gas from Israel and Cyprus to Italy. Turkey opposed this project due to its territorial conflict with Greece and the unresolved Cyprus issue. Due to environmental concerns, The United States withdrew its original support to this project in 2021. However, after the outbreak of the Ukraine war, talks have been renewed on the feasibility of the EastMed project. The main concerns are the EU’s payback time and decarbonization policy.

Regarding LNG, the major obstacle is the lack of liquification capacity in the region. The region has been heavily reliant on the two Egyptian LNG liquification facilities in Idku and Damietta. Egypt is the only country with liquification plants in the Eastern Mediterranean region, and their capacity is insufficient to transform all natural gas reserves intended for export.

In June 2022, the EU has signed a memorandum of understanding with Israel and Egypt aimed at importing gas from the two countries amidst the Russia-Ukraine war. However, because of the lack of transportation and gas reserve capacity, the Eastern Mediterranean could currently not provide more than 10 % of the EU’s gas. Many agreements have already been signed by Asian buyers for Egypt, limiting the EU as an option.

Geopolitical Issues

We have been witnessing a wave of normalization in the broader Middle East, as well as in the Eastern Mediterranean region. Regarding the EastMed, we should mention the Abraham Accords, a peace deal between Israel and four Arab countries (Bahrain, the United Arab Emirates, Morocco and Sudan). Turkey has started a policy of rapprochement with Israel, as well as with other neighboring countries, showing a shift in its foreign policy. With a U.S. mediation, Israel and Lebanon have indirectly signed a maritime deal demarcating sea borders, which was vital to start gas production in certain fields, such as Qana and Karish.

Although normalization is a significant shift in a highly turbulent region, it should be perceived cautiously. The rapprochement we observe in the Middle East will not solve any of the long-lasting problems like the Israeli-Palestinian issue, the dispute between Turkey and Cyprus, or Turkey and Greece, to name just a few of the existing fault lines. Until the time of writing, Turkey has not been a part of the regional gas market, although it has started to export non-Russian gas to Europe via its territory. However, the feasibility of a complete regional integration based on energy has yet to be seen.