The Eastern Mediterranean energy game is back on. Following a quiet period from November 2022 until the present, where many of the region’s countries were engaged in consequential elections, international oil and energy companies are once again trying to determine how to best extract the region’s hydrocarbons and deliver them to market. As always, separating fact from fiction is a challenge.
Israel remains at the heart of the region’s energy discussions. Since 2020 it has been successfully exporting natural gas to Jordan and Egypt, the latter providing an important export route to the global energy market by way of its two LNG terminals in Idku and Damietta.
Through a combination of intentional diplomacy and structural changes to the international order, Israel has leveraged its position to strengthen bilateral ties with Greece and Cyprus, reach a historic maritime boundary agreement with Lebanon, play a central role in the establishment of the Eastern Mediterranean Gas Forum, and attract foreign investment from supermajors and the Gulf States.
Still, more heavy lifting is required for Israel to advance beyond its current achievements. Despite signing a joint MOU with Egypt and the EU in June 2022 to deliver more gas to Europe, Israel’s export options for delivering gas into the global energy market still remain constrained.
Israel enjoys cooperative ties with Cairo, but even with additional pipelines in the works there is a commercial and technical bottleneck when it arrives in Egypt. Past shortages in Egyptian gas supply often resulted in the consumption of gas delivered from Israel. But even if Israel’s gas was earmarked for export – as is intended – Idku and Damietta have limited capacity and it doesn’t appear as if Egypt’s LNG capacity will be expanded in the near term. In order to increase its energy security, Israel must therefore continue to seek ways of diversifying its export options and regional partners.
This explains why there has been so much diplomatic activity around Cyprus in recent weeks, where the newly minted Christodoulides government is trying to attract foreign investment and international interest. Christodoulides’s strategy is clear: create a pathway for Cyprus to finally become a meaningful player in the Eastern Mediterranean’s energy architecture.
There are two distinct initiatives that Cyprus is pursuing to achieve this goal, both of which depend on Israeli cooperation. The first is resolving the outstanding Aphrodite-Ishai dispute. According to a recent MEES report, Chevron and the other invested partners in Cyprus’s Aphrodite field (estimated 129 BCM) are close to buying out the four firms with stakes in the Ishai license, thus removing a key obstacle that has prevented the field’s development.
The same report indicates that following recent meetings between Energy Minister Israel Katz and his counterpart George Papanastasiou, Israel and Cyprus’s ministries of energy are working on a parallel intergovernmental agreement that will help expedite Aphrodite’s development.
The second initiative underway is Nicosia’s push to develop a pipeline that would deliver Israel’s natural gas to a Cyprus-based LNG facility, either land-based or a floating LNG facility near Vasilikos port, which could then be sold on the global market. This “Plan B” version of the infamous East Med pipeline is attractive, especially as it falls within the EU’s broader ambition to diversify its energy sources (reducing its dependency on Russian gas) and earns Project of Common Interest status. Paired with the steady progress on the EuroAsia electricity interconnector project, Israel and Cyprus have multiple reasons to work together.
The creation of a new LNG terminal is a costly and time-consuming affair. And there is no clarity on who would fund such an enterprise, though as the operator of both Aphrodite and Leviathan Chevron would likely need to foot the bill to spearhead such efforts along with NewMed, Shell, and potentially newcomers like BP and Adnoc.
Will Israel, Cyprus cooperate to resolve gas crisis?
There are two questions here: Is Israel prepared to cooperate with Cyprus in such an intimate way, and is Cyprus really committed to becoming a hub? After all, the headlines out of Nicosia may be designed as a way of baiting Turkey into direct talks over the divided island. When push comes to shove, would Christodoulides pursue regional energy projects at the expense of restarting negotiations with Turkey, a much bigger geopolitical prize?
Turkey understands this, which is why it is almost guaranteed that the prospect of Israel-Turkey gas cooperation will be raised during Prime Minister Benjamin Netanyahu’s anticipated meeting with Turkish President Recep Tayyip Erdogan later this month. Turkey is the largest gas consuming market in the region, and like Egypt and Cyprus, wishes to become an energy hub. Despite all of the geopolitical disputes between Ankara and the EU, it has generally been a reliable partner for delivering energy from the Caucasus and the Middle East.
For strategic reasons, Netanyahu will neither rule out nor endorse this option, which is also paved with complications. How would cooperation with Turkey impact relations with Egypt, Greece, Cyprus, and other regional actors? If Erdogan utilized cooperation with Israel in order to sideline Cyprus, how would that serve Israel’s interests?
And who is to say whether Turkey’s foreign policy will be more predictable during Erdogan’s final term as president than it was in the past 15 years? International energy projects are dependent on trust. While Israel and Turkey are starting to turn a new leaf, pipelines aren’t going to feature in the relationship anytime soon.
Israel’s export problem isn’t going away. But between now and the end of the year, offshore drilling will continue, and bid rounds in Israel, Egypt, and Lebanon may provide companies even greater incentive to invest. The region’s interplay of geopolitics, economics, and energy demand suggests that with the right balance of political and commercial interests a win-win outcome is still attainable.
If Katz manages to develop and execute a cohesive policy in that time, he could potentially see the fruits of his labor as foreign minister when he and Eli Cohen switch positions. The Eastern Mediterranean’s great gas game isn’t over. Quite the opposite is true.
The article was published on “The Jerusalem Post“, on July 12th.