In the aftermath of Russia’s invasion of Ukraine global energy geopolitics and trade flows have undergone massive realignments. With the Western embargo on Russian oil and gas, Europe has been looking for alternative supplies and Russia for alternative markets. To a large extent both have succeeded.
Europe has largely replaced Russian pipeline gas with US LNG and increased volumes of Russian LNG! Russia has found fellow BRICS countries receptive to its oil and gas.
But equally importantly, there has been a massive shift towards energy security as top priority ahead of climate change. This is driven by a number of factors and not just the Ukraine war.
The drive to replace fossil fuels by renewables is not going to plan and it is proving expensive. Intermittency remains an unresolved problem, necessitating expensive solutions, but also continuing reliance on fossil fuels to provide flexible and reliable baseload.
Nevertheless, in the present climate, with the world transiting to clean energy and net-zero emissions by 2050, the long-term future of natural gas is not assured. In 10-20 years from now the world may be facing declining gas demand and challenging markets – as Europe is now. If plans to export East Med gas outside the region do not mature soon, it risks missing the export-boat altogether.
It is necessary to understand these evolving forces that are shaping energy globally if we are to understand the energy security dynamics around the East Med.
Sadly, our regional politicians are not up-to-date with these developments or do not understand them. All of them talk about sending East Med gas to Europe to help it get rid of Russian gas. Europe does not need new gas supplies. Its policy to replace Russian pipeline gas before 2030 has largely succeeded. And long-term its REPowerEU policy is to reduce reliance on natural gas – by 30% by 2030 and more or less completely by 2050. So far gas consumption in Europe has declined close to 20% in comparison to the 2017-2021 average. The growing markets for gas are in Asia.
Unrealistic energy politics
It is not possible to understand Cyprus’ energy security dynamics in isolation. Apart from the global energy dimension, regional factors matter.
During the Nicosia tri-partite meeting, Netanyahu said the Greeks and Cypriots pressed for a shortened pipeline that would pump gas from Israel to a liquefaction terminal in Cyprus, from where it would then be shipped onward to Europe.
Beleaguered internally, Netanyahu has been looking for ways to deflect attention. He is making promises involving gas that he cannot deliver. In March during a visit to Italy he said he wanted to export gas to Europe via Italy. By early September the energy ministers of Turkey and Israel agreed to take Israeli gas exports forward.
This happened at the same time the tri-partite meeting between Netanyahu, President Christodoulides and Prime Minister Mitsotakis was taking place in Nicosia. Netanyahu subsequently told reporters that he reassured Cyprus and Greece that “what happens between us and Turkey wouldn’t hurt them!”
In reality, control of East Med gas is in the hands of the oil&gas companies. Regional governments can try to influence them, but cannot tell them what to do. Nothing will happen without their agreement. And their priorities are driven by commercial factors shaped by their global plans and markets, mindful of energy transition and longevity of hydrocarbons.
This should not be mistaken as a sovereignty issue. Oil&gas companies will not embark on unprofitable projects, at the whim of unrealistic wish-lists by politicians made for political ends with little or no attention paid to commercial factors, especially in cases that do not impinge on national security.
Where oil company plans and host government interests coincide, we get the best options, as, for example, is happening with export of Israeli gas to Egypt.
Eventually, East Med governments come round to oil&gas company thinking, driven by the realities of revenues that, within reason, trump geopolitics.
Egypt dire gas situation
The other major factor that affects East Med gas is Egypt’s dire gas situation, that, in our region, is by far the biggest gas market. Its natural gas production has declined dramatically from the highs attained in 2021, causing frequent power cuts.
This situation poses a security risk. Remember what happened to Morsi. Energy shortages and frequent power cuts contributed to public unrest and his downfall.
Egypt is in desperate need for gas. The cutoff of supplies from Tamar due to the war in Gaza is bound to make it more difficult. The war shows how fragile energy security is around the East Med.
An indication of the seriousness of the situation was a recent meeting between the heads of Egyptian intelligence and Israel’s National Security Council, where Egypt is understood to have pressed Israel to increase gas exports to help the country overcome its dire gas supply crunch. The Israeli government responded positively to this.
Cyprus should take advantage of this opportunity and expedite gas exports to Egypt, first from Aphrodite and hopefully soon-after from Cronos. Not only these can generate revenues for the island’s economy within about 5-years, but also enhance its regional status and cement its political relationship with Egypt – as Israel is doing.
Cyprus gas developments
In Cyprus appraisal drilling of Aphrodite has produced positive results that have led Chevron put forward a plan for its development. Cyprus’ government has rejected this because, it says, it would lead to lower gas recovery and less revenues for Cyprus.
But President Christodoulides told Chevron at a meeting in New York that he does not want to lose them. That gives hope for a compromise agreement by 5 November, the new deadline. Just in time to enable Chevron to start design as planned.
Similarly to Chevron, once it completes appraisal drilling, probably early 2024, Eni is expected to propose development of Cronos using subsea production facilities to be tied by subsea pipeline to Zohr. From there the gas will be transported for processing at Zohr’s near-shore facilities in Egypt.
Neither the Turkish Cypriots nor Turkey have yet taken a position on this. But it is probably safe to assume that should the Cyprus government and Chevron come to an agreement, Turkey will react. Its current rapprochement with Greece is on bilateral issues that do not appear to include Cyprus. Ahead of the Aphrodite decision, Turkish foreign minister Fidan proposed sharing Cyprus’ gas between Greek and Turkish Cypriots, even without a Cyprob solution. Is this an opening salvo? Time will show.
Lets hope that Turkey takes the constructive route, especially in the context of renewed efforts to rekindle solution of Cyprus problem.
Dr Charles Ellinas, @CharlesEllinas
Senior Fellow
Global Energy Center
Atlantic Council