1st Ministerial Energy Summit: The Day After…

Anastassios Tsiplacos - Managing Editor

Meeting in Athens, the energy ministers of Greece, Cyprus, and Israel -Kostas Hatzidakis, Georgios Lakkotrypis, and Yuval Steinitz, as well as US Assistant Secretary of State for Energy Resources Frank Fannon- have discussed their cooperation in the field of energy, while affirming their shared commitment to promoting peace, security, and prosperity in the Eastern Mediterranean region. The four met in Athens on 7 August and agreed to establish a High-Level Working Group (HLWG) that will highlight specific energy projects and propose ways of promoting their implementation. The energy agenda included renewable sources and what’s the potential for cooperation. In this field Israel, especially, can support such projects through technology. Greece is progressing well with the implementation of renewables projects, howecer Cyprus is lacking behind.

The 1st Ministerial Energy Summit was certainly important in terms of political support, encouraging regional cooperation energy projects however, there is more to be done in order to be commercially viable to move forward. This depends on markets that control demand and prices, so that companies can provide the required investment and technology to enter into purchase, sales, and construction contracts. Political intentions alone will not move projects forward. Therein lies the true challenge: East Med gas is expensive to develop and global gas prices are and will remain low, making exports difficult.

Trilateral Summits’ history

Israel, the first country of the region to make major gas discoveries, was also the first mover in the economic and political game for its monetization, in terms of new export routes and infrastructure projects. In the following years, the Israeli, Cypriot and Greek energy ministers created joint task forces to evaluate the feasibility of several options. For exportation, they are considering the EastMed Gas Pipeline to carry gas from Israel and Cyprus to European markets through Greece, and a joint Israeli-Cypriot LNG plant near Vassilikos on the southern coast of the island. However, other projects are simultaneously being evaluated by each government according to its own energy-security agenda and national interests.

The first trilateral summit between Greece, Israel and Cyprus took place on January 2016 and should be remembered for the leaders’ decision to create a committee for the planning of the EastMed, for the transportation of natural gas from Israel to Europe. In June 2017, Italy became part of this process and a working group for the supervision of the project was established. The agreement over the relevant text was achieved at the Beersheba summit of 2018.

Each country has its own reasons for becoming part of this alignment, as there are converging views on energy affairs and, among the participating states, common perceptions of threat. Additionally, the creation of a pipeline that will transport natural gas from Israel via Cyprus and Greece to Europe is crucial for the continent’s energy security, as it adds to the reduction of dependence on Arab-Muslim and Iranian hydrocarbons, something that is seen positively by the US and the Western world as a whole. What is more, the two last summits (12/2018 and 03/2019) were actively supported by the United States, as Secretary of State Mike Pompeo, for example, participated in the Jerusalem summit of March 2019.

The common denominator

Greece and Israel are two states in the Eastern Mediterranean, a region with many security challenges and fragile balances. The exploration of hydrocarbon reserves within the Exclusive Economic Zones of Israel and Cyprus in recent years has created a new dynamic in the territory, while Greece is part of the bilateral and trilateral collaboration that has been deepened. You see that in the thriving Greece-Israel relationship, the very successful Greece-Israel-Cyprus Trilateral, as well as the Trilateral of Greece-Egypt-Cyprus.

It can be said that Turkey is a source of problems diachronically for Greece, as there are several disputes with regard to the flight information region (FIR) and the expansion of territorial waters from 6 to 12 nautical miles. Also, Turkey is opposed to Cypriot efforts to explore for hydrocarbons and considers the aforementioned expansion as “casus belli.” There are also issues related to maritime zones, overflights from the Turkish side and the militarization of the Greek islands. The big geopolitical game in the Eastern Mediterranean over the region’s energy resources is on, and Greece obviously cannot shrink away from all that. It needs to protect its own vital interests and at the same time project its influence in the wider region, especially vis-a-vis Turkey and its increasing aggressiveness.

Relations between Turkey and Israel started to deteriorate at the beginning of the last decade, as there was a clash between President Recep Tayyip Erdogan and his Israeli counterpart Shimon Peres at the 2009 Davos summit during a discussion concerning Gaza. The attack by Israeli commandos against the “Mavi Marmara” humanitarian aid ship in 2010 was the incident that caused the greatest damage in bilateral relations and it is indicative that Israel did not apologize officially for this action until 2013. In this context, Greece is perceived by the Jewish lobby in the US as a useful player in the region as it has converging interests with Israel, while the coordination of Greek and Jewish lobby groups’ actions is seen helping each other significantly.

Greece: A potential energy hub for the Balkans

In recent years, the Eastern Mediterranean has become a hot bed for offshore oil and gas activity, with several big natural gas finds offshore Israel, Cyprus and Egypt. These new discoveries show there is plenty of potential in the region, but perhaps nowhere more so than in Greece. The country is expected to hold untapped oil and gas reserves in deepwater plays around Crete and Ionian Sea, where the government last year awarded several exploration licences to major companies, including Exxon Mobil and Total. Greece is also blessed with an ideal geographical location. Unlike other countries in the region, who struggle to get gas to market, Greece’s proximity to the rest of Europe means it is well placed to quickly commercialise any new discoveries. That is why it aspires to become an energy hub (gas and electricity) towards Italy and the Balkans, through its major infrastructure projects whether it’s through TAP pipeline, or Revithoussa, the Interconnector Greece Bulgaria pipeline, and the Floating Storage Regasification Unit at Alexandroupoli.

While natural gas demand in Europe is levelling off amid more renewable energy production, supply is also declining. The EU currently imports about 20% of its gas needs, mostly from Russia, and is keen to find new supplies. The addition of an entirely new productive gas region would be huge news for Europe. If we take into account Greece’s proximity to the Balkan markets, dominated by Russian oil and gas, new discoveries would also bear fruit when it comes to their energy independence.

A big hydrocarbon find and a new export market could provide an invaluable economic boost to Greece’s struggling economy. As such, the government is keen to encourage new investment and activity in its offshore waters. In a bid to revive the sector, in mid-2018, the Greek government awarded a contract to an Exxon-Total-Hellenic Petroleum consortium to explore in the West and South West of Crete. The licences cover a huge area in very deepwater, averaging 3,200m. As yet, the potential of the blocks is unknown as there is very little seismic data available, but the geology is thought to be similar to that offshore Egypt, where natural gas has also been found. Proving the region is gaining favour with the majors, in April Spanish energy company Repsol and Greece-based Hellenic Petroleum also signed lease agreements for exploration in an offshore block in the Ionian Sea. Hellenic Petroleum will also carry out exploration in another block off the Peloponnese Peninsula.

Despite all the promise, so far, not a single well has been drilled in the west and south west of Crete -so what is holding back serious activity? Investors may still be wary of the financial stability in the Greek economy, as well as the political risks, coupled with the unknown quantity and quality of potential resources, meaning investment in the area “is deemed risky.” Another issue is a lack of momentum from the government. When blocks are awarded they need to go through a ratification process to confirm the awards but that can take up to two years; it is not a fast process and there are many environmental and permitting considerations that add to the timeline.

Another important challenge is modernising the terms offered for future contracts to reflect the realities in the market; only then will investors be interested in hydrocarbon exploration and production in Greece. While the Greek government has acknowledged the importance of competitiveness and investment in its offshore energy sector, especially after the decade-long economic crisis, more political will is required from the newly elected government of Nea Demokratia, to support the set goal of turning the country into an energy hub and realising the energy and climate goals for 2030.

Overall, should there be a significant find offshore Greece, the region as a whole could stand to benefit significantly. However, considering the current rate of activity, and the potential technical challenges associated with deepwater drilling, the time frame for such a discovery is likely to still be several years away. On the other hand, if developments in hydrocarbon exploration are too slow, it may then be too late to use these fuels; there is a time frame of a couple of decades for these projects, since their profitability may come into question as time passes…

Support for the EastMed pipeline but still an uphill…

During their meeting in Athens, the four Energy Ministers reaffirmed the support of their countries for the implementation of the EastMed gas pipeline, a project of major significance for the energy security of the EU that also establishes a strategic link between Europe and Israel. For Israel, the U.S. and Cyprus, as well as Greece, the EastMed does not represent a simple gas supply pipeline, but a comprehensive strategic plan involving capital and other means, as well as the creation of security conditions in the region. The strong ties between Athens, Jerusalem, and Nicosia go well beyond the promotion of open communication links in the field of energy. The geopolitical/security perspective is crucial, but at the end of the day it is up to the market to define which project is preferable based on its needs.

Actually, the EastMed project is still not the most likely, but it is gaining ground as time goes on. It now has the support of the EU and, to a degree, the US. It has a personal commitment from Israeli Prime Minister Netanyahu -who by the way has to win the upcoming September elections- and major companies are exploring the prospects, with feasibility studies showing its viability. Italy is a question mark, as the 5-star movement has raised objections just as Italy heads towards new elections. The Italians may clarify their position in favour of the project after the vote, however, Deputy Prime Minister Salvini’s anti-Brussels orientation and his alleged good relations with Russia mean that one can’t take Italy’s degree of commitment as a given, and we don’t know how catalytically its view will be influenced by Brussels’ support for the project.

The good news is that quantities have really started to accumulate in the region, and this means we can start thinking about a combination of projects for supplying the European market. This becomes more feasible as the liquefied natural gas (LNG) supplies that use Egyptian facilities, and on the other via a future pipeline, circumvent the complications and problems that using Turkish territory would involve. Given the emerging competition and the drop, or at least, the stabilisation of oil and natural gas prices, is another defining factor in the cost.

It is rather encouraging that the involved companies in the wider region seem to be coordinating their actions while attempting to find common ground. This does not mean that the interests of states and companies converge in all cases. In the case of Egypt, for example, it seems to be against the East Med pipeline, but the creation of mechanisms such as the “East Med Gas Forum” shows each party’s level of dedication, including that of major stakeholders like the US, France, and Italy when it comes to reaching a point of mutually acceptable and beneficial agreements.

The East Med energy corridor, after all, includes the EastMed gas pipeline but also potential LNG exports from the region to Europe. Eventually, it may also include exports from Greece, should hydrocarbon discoveries be made. LNG from Egypt’s existing liquefaction plant at Idku is already been exported to Europe based on existing contracts, and exports from the second at Damietta may follow later in the year. Low liquefaction costs make LNG from both plants competitive. However, like the EastMed gas pipeline, potential future LNG exports to Europe from new greenfield liquefaction plants -onshore or offshore- will be challenged commercially. They cannot compete with prevailing low gas prices in Europe, as the experts estimate.

The US interests in the region

Washington is strongly committed to the “3+1” cooperation. Important new developments, both geopolitical and practical, led to its renewed focus on energy development and security in the Eastern Mediterranean. The U.S. has been very supportive due to its desire to counteract Russian gas to Europe, aiming to have American gas to it as well as other sources of gas, including East Mediterranean gas.

“The ministers and the United States agreed to support their countries’ energy independence and the establishment of an Energy Corridor of the Eastern Mediterranean, contributing thus to the energy security of the European Union by actively promoting the diversification of import sources and routes,” the US State Department said in a statement after the meeting. The USA back the Trillaterals, as well as, the EastMed pipeline project as they regard them as crucial for the European Union’s energy security and diversification of energy resources and a step toward regional stability. The “Eastern Mediterranean Security and Energy Partnership Act of 2019” proposed by US senators Bob Menendez and Marco Rubio in April this year, should also be considered as another example of their support for the efforts of Greece, Israel and Cyprus in the region.

Will the US commitment to Eastern Mediterranean energy cooperation -in partnership with the rest 3- move regional projects forward? Not necessarily, although it is helpful. The support of Washington adds value to regional developments as long as it does not exclude other players from the energy equation. Although Ankara seems defiant and assertive, its revisionist agenda is rather stalled by the ongoing and developing regional synergies under the US umbrella.

Solidarity for Cyprus

The three ministers and the US also reiterated their full support for and solidarity with Cyprus in exploring and developing its resources in its Exclusive Economic Zone and said they were deeply concerned by the recent provocative steps taken by Turkey’s Recep Tayyip Erdogan in the Eastern Mediterranean. Additionally, the State Department recently reiterated that “…the US considers the activities of Turkish drillship Yavuz off the north-eastern coast of Cyprus as unlawful, and urges the Turkish authorities to cease them immediately and remove the drillship from the Republic of Cyprus’ territorial sea. Only the Republic of Cyprus, acting through its government, can consent to activities such as drilling within its territorial sea.” Washington also reaffirmed its own position that the Cyrpus’ oil and gas resources should be shared equitably between both of its Greek and Turkish communities in the context of an overall settlement, which by no means is 50%-50% sharing.

In order to secure its energy plans, Cyprus participates in two tripartite treaties: The Israel-Cyprus-Greece and the Egypt-Cyprus-Greece Trilaterals, as well as to the East Mediterranean Gas Forum. Additionaly, the political decision to participate in the construction of the proposed EastMed pipeline confirms that this project, beyond its main energy nature also possesses a clear geopolitical and geostrategic one.

The meeting provided useful US support to the participating countries, but has made only general declarations and repeated earlier US positions regarding the problems between Cyprus and Greece with Turkey. Will the “solidarity with Cyprus” statement may deter Turkey’s behaviour in the region? Evidently no. Turkey has not even reacted to the statement, continuing its “energy invasion” in Cyprus’ EEZ. If anything, Turkey reasserted its position through the presence of its energy and defence ministers in northern Cyprus recently, on the occasion of the drilling rig Yavuz starting operations south of Karpasia.

Entrenching demands and testing the stakeholder’s resolve

Turkey is the only country in the region that feels left out from what is happening in the energy sector in the Southeast Mediterranean. To Ankara, the Trilateral Summits are part of what it believes to be a concerted effort to encircle (sic) Turkey, leaving it outside of the energy developments in the region. Ankara is realizing, also, that almost all Eastern Mediterranean countries, along with the U.S.A., are acting in coordination in support of Nicosia on the issue of its Exclusive Economic Zone. In an apparent bid to entrench what it sees as its rights in the Eastern Mediterranean, Turkey has planned and executes the recent “energy invasion” with “Fatih” and “Yavuz” drillships, East and West of the island and the “Barbaross” research vessel at the South, which recently completed its mission and moved northward to the Turkish port of Mersin.

Furthermore, on Monday, Turkish Foreign Minister Mevlut Cavusoglu, responding to comments by the leader of the opposition Turkish Republican People’s Party Kemal Kilicdaroglou who had questioned why Turkey did not currently have a presense in the area, announced that a fourth Turkish ship, the “Oruc Reis” surveyor vessel, is on its way to the region. Surprisingly, the State Department responded immediatelly to questions from HellasJournal.com and Cyprus News Agency “…this provocative step raises tensions,” adding that only Cyprus, acting through its government, can consent to activities such as drilling within its territorial sea. Meanwhile, Turkey has issued a series of navigational telexes (navtex) since Friday reserving areas for naval exercises using live fire off Cyprus where the Fatih is conducting drilling operations.

Turkey’s moves are seen as a gradual effort to entrench its demands in the region and to test the resolve of parties with interests in Cyprus’ EEZ, such the United States, Israel, Egypt, Greece, France and Italy. September is expected to be a critical month for Cyprus, as it’s President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci have already had United Nations-mediated talks. Meanwhile there are concerns that Turkey will make a fresh move in the Eastern Mediterranean; Nicosia fears that, in a bid to heighten tensions, Ankara might send a drillship to the island’s south, to Block 1 which has yet to be licensed, a move that would likely create practical problems for Cyprus’ energy program.

Turkey’s plan to extend its activities in the Eastern Mediterranean stem from its increasing energy needs, in particular for natural gas, where demand is estimated at 52 b.c.m. per year. At the moment, Ankara is heavily dependent on Russia and Iran, importing 55%-60% of its natural gas from the former and 20% from the latter. In effect, mr. Erdogan has maneuvered Turkey into a strategic prison of its own making. In Turkey, Russia and Iran have acquired a new energy dependent client. In its effort to find alternative energy sources for its internal consumption, as well as for the realization of its strategic aims to become a significant peripheral stakeholder, Turkey strives to subverse the current status in the South East Mediterranean with high risk actions and statements, making its claims to natural energy reserves in the region part of its long-term strategy. The Turkish Petroleum Corporation (TPAO) has extensive and long-term plans in the Eastern Mediterranean that do not only include Cyprus’ EEZ, but also areas on the edge of the Greek continental shelf…


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