This article was published by The Weekly Standard.
On January 30, the deepwater drillship Saipem 12000 sent its drill bit into a cavern beneath one-and-a-quarter-miles of water and a mile of rock in the eastern Mediterranean. Italian oil and gas company ENI, which had contracted the ship, announced a week later that the cavern, called Calypso, was “an extended gas column”, estimated at 6-8 trillion cubic feet (tcf). The gas deposit belongs to Cyprus’ exclusive economic zone – an area of water where it has sovereign rights to exploit, manage and conserve natural resources - and seismic studies suggest that it represents only an intimation of the island’s future hydrocarbon wealth.
Over the next three months, ExxonMobil and the Qatar Petroleum Company are to embark on their own exploratory drilling off Cyprus’ southern shore in October. “We know the size of the structures and the possible hydrocarbons in them,” says geologist Konstantinos Nikolaou of the intended drill sites in an allotment called Block 10. “The sum of the deposits may amount to more than Zohr… it is very promising,” he says.
At 30 tcf, Zohr is the eastern Mediterranean’s largest known gas deposit, discovered three years ago offshore Egypt. Egypt plans to be energy self-sufficient by the end of 2018, doing away with oil and gas purchases worth $3bn a year. Similar deposits would make Cyprus not only self-sufficient, but an exporter.
Egypt and Cyprus are blessed with proximity to the Eratosthenes Seamount, now 700 metres below sea level. Eight million years ago it was an island surrounded by coral reefs. “These provided the biomatter that rotted and created the gas,” says Nikolaou.
A spate of gas discoveries is changing the strategic value of the eastern Mediterranean, and it began in earnest in 2009, offshore Israel, which has found about 35 trillion cubic feet of gas – enough to power the country for a century at current rates of consumption.
This has not only satisfied a decades-long quest for energy security amid hostile neighbours – Israel already produces 60 percent of its electricity from its own gas. Israel is using its hydrocarbons to power regional diplomacy. It has already signed agreements to sell gas to Jordan and Lebanon, which previously relied on Egypt and Syria. Thanks to the speed with which it is attracting investment, Israel eclipsed them as an exporter.
The United States Geological Survey estimates that the marine basin between Egypt, Cyprus, Israel, Lebanon and Syria can ultimately yield 350 trillion cubic feet of gas and 3.5bn barrels of oil. That is enough to power the region for decades, or the European Union for 20 years, and it is this prospect of exporting energy to a wealthy and strategically important region that is binding four countries in a common vision.
Birth of a pipeline
In the autumn of 2014, European Commissioner Maros Sefcovic, responsible for the European Union’s energy security, met with the energy ministers of Israel, Cyprus, Greece and Italy in Rome. The subject of the meeting was an aspirational project: a 1,900km pipeline that would convey gas from Israel and Cyprus, via Greece and Italy, to the European market.
The pipeline, dubbed East Med, was originally the brainchild of Greek energy minister Yannis Maniatis. Greece’s Public Gas Company (DEPA) and Italy’s Edison had formed an alliance the previous summer to build it, but they needed EU support.
“The Israeli minister was due to speak before us,” says Maniatis, recalling the occasion. “And he suddenly launched a verbal assault on the Commissioner and the other Europeans present saying, ‘I don’t understand why you are not more actively promoting East Med, which will convey natural gas from my country and Cyprus. Don’t you want cheaper natural gas for your citizens?’ [Cypriot energy minister Yiorgos] Lakkotrypis and I looked at each other, thinking that Israel had just emerged as our strongest ally. We had prepared a little speech of our own but we said nothing. We did not need to. Israel had just discovered Leviathan, so we were effectively being supported by the biggest gas supplier in the area.” Leviathan is the biggest of Israel’s deposits, containing two thirds of its known reserves.
Israel is a relative newcomer to hydrocarbons, but it is a pivotal player because its discoveries prompted new explorations offshore Egypt and Cyprus. After a string of Israeli discoveries in 2009-11, Egypt put up 15 offshore exploration zones for tender. And it was an Israeli company, Noble Energy, that discovered Cyprus’ first offshore gas field, Aphrodite, in 2011.
|Proposed East Med route (Courtesy Angelos Syrigos)|
Through East Med, Israel, Cyprus, Greece and Italy now seek to forge a physical and diplomatic umbilical cord with the EU. The proposal could not have been more timely, because Europe’s main source, North Sea gas, is beginning to dwindle, and Europe had just discovered the dangers of reliance on Russia.
Russia’s long reach
In January 2009, the political tussle between east and west came to a head over Ukraine. Its pro-Russian president, Viktor Yanukovich, had rejected a customs union with the EU – a milestone on the way to membership – in favour of a trade deal with Russia. The popular reaction toppled him and the acrimony spread to the two countries’ state gas monopolies. Naftogaz Ukrainy played a game of brinkmanship with Gazprom, refusing until the last minute to pay for $1.6bn of gas deliveries. On January 7, Gazprom shut off supplies to Ukraine for a fortnight.
The EU relies on Russia for a third of its gas, and Ukraine is one of two transit countries. A complete cutoff had never happened since the pipeline system had been built in Soviet times, and it caught Europe unprepared. Domestic production and deep reserves kept western Europe warm; but southeast Europe, lacking infrastructure and entirely reliant on Russian gas, suffered industrial shutdowns and frozen homes.
The Ukraine crisis was a turning point in EU-Russia relations. The European Commission sought to punish Gazprom for abuse of its dominant position, which it felt had exacerbated the 2009 shortages. In 2015, a three-year investigation found that Gazprom contravened the EU’s free movement of goods by prohibiting member states from re-selling surplus gas to each other. Gazprom was forced to renegotiate its contracts. Gazprom was also accused of making exports to Bulgaria and Poland conditional on their allowing new pipelines to be built across their territories. This effectively killed the South Stream pipeline, which would have carried Russian gas across the Black Sea to Bulgaria.
The cancellation of Russian pipelines refocused EU efforts on creating a so-called Southern Corridor for gas from the Shah Deniz fields of Azerbaijan, through Turkey and Greece. A consortium of European oil majors, Trans-Adriatic Pipeline, or TAP, has now nearly completed a pipeline that will carry gas across northern Greece to Italy, while a Turkish-Azeri consortium is completing the Trans-Anatolian pipeline across Turkey. The gas is on schedule to start flowing in 2020.
But Russia, which still supplies about 35 percent of EU gas, is proving hard to sideline. “Now gas production from Shah Deniz I has fallen, and no one knows whether Shah Deniz II will produce enough to make up the shortfall in its initial phase,” says Kostis Stambolis, executive director of the Institute for Energy for Southeast Europe. “The result is that TAP is now in advanced discussions with the Russians about taking gas that the Russians want to send to Europe through Turkish Stream. So the whole European narrative about differentiating its gas supply – which was the point of the Southern Corridor – goes out the window.”
Russia has also relaunched the cancelled pipeline across the Black Sea under the name Turkish Stream, and is building it to Istanbul instead. A sister pipeline, Turkish Stream 2, is in the offing. DEPA and Edison may now revive the idea of a second pipeline from Turkey to complete the journey of Turkish Stream gas to western Europe. Events seem to be vindicating the Russians.
“The vision was always that there will be enough gas discovered proximate to a corridor of three pipelines coming through Turkey, and that would constitute a supply counterweight to Russian gas, and would happen by 2020,” says Jonathan Stern, Senior Research Fellow at the Oxford Institute for Energy Studies. Since that EU vision arose, however, Russia and Turkey have become close allies in Syria. Russia is supplying two thirds of Turkey’s gas and is building Turkey’s first nuclear reactor.
Stern believes the Russian-Turkish energy alliance is going to prove durable, because it is based on hard-won experience in the region. “The Russians are very effective at making pipelines happen, and the Turks have found in this massive negotiation with everybody – the Iranians, the Iraqis, the Turkmens and uncle Tom probably – that you can negotiate with everyone, but the only ones who are going to deliver are the Russians. Russians have got the gas, the finance, the partners and the desire to get these pipelines done, and everyone else are basically time wasters.”
The four countries backing East Med are hoping to take advantage of waning European enthusiasm for Turkey as an alternative to Russian gas. In their proposition, the next major leg of the Southern Corridor would be entirely EU-owned and would source its gas in or near the EU. “I’m not going to say [officials in Brussels] have given up on Turkey as a transit route, but they’re less enthusiastic,” says Stern. “They’re kind of caught between not wanting to take Russian gas, and saying, ‘if we’ve got to take Russian gas through Turkey, then we’d rather take it through an EU country where we have more control.’”
Commerce versus geopolitics
Not everyone is convinced that East Med is viable in purely commercial terms. “Unless considerable additional quantities of gas are found in the eastern Mediterranean… I don’t think that this pipeline is commercially feasible,” says Sir Michael Leigh, who runs a programme on the implications of eastern Mediterranean gas discoveries at the German Marshall Fund.
Gina Cohen, a university lecturer and consultant in the East Med gas market, agrees. “Such a pipeline between Israel and Italy would be 2,000 km long and would have to be laid in extreme depths of over 3,000m of water, especially between Crete and mainland Greece. The project would need to have four landfalls and at least three compressors, all adding to complexity and costs.”
Cohen estimates the pipeline’s cost at $10bn, which would put Mediterranean gas at a higher retail price than Gazprom’s. “For the project to be viable, the EU would have to provide billions of dollars of subsidies,” she says.
|Artist's rendering of Energean's FPSO (Courtesy Energean)|
Key players, however, see those subsidies as legitimate. “It’s not enough to see [East Med] as a commercial project that will sell at prices comparable to Gazprom,” says Mattheos Rigas, who formed Energean in 2007 for the express purpose of extracting Eastern Mediterranean gas. The Russian state monopoly “is producing on land using existing infrastructure,” he explains. “Someone starting out now at depths of 2-3km will never be able to compete with that.”
Instead, he sees East Med very much like the interstate system – an “entirely necessary” public-private investment that causes private enterprise to spring up alongside it. “The installation of
pipelines allows companies
like ours to seek opportunities,” he says. Energean is building the
eastern Mediterranean's only floating production, storage and offloading
platform as part of a massive investment in two large Israeli gas fields,
Karish and Tanin. But it has also won the right to explore five smaller blocks
in an Israeli public bidding process, which remain unconnected to any
infrastructure and together could contain about 5 tcf of
gas. “They may be smaller [than the major Israeli fields], but
the new infrastructure would allow these structures to
be commercially viable.”
|Energean's fields and other discoveries, offshore Israel (Courtesy Energean)|
The head of Greece’s exploration licensing body, Hellenic Hydrocarbon Resources Management, believes that an EU subsidy will be an easy sell given the pipeline’s political importance. “We’ll raise the price of gas a few cents and we won’t even feel it. That’s how it’ll work. That’s how it always works,” says Yannis Bassias.
The EU seems to be seriously considering the project. In 2013 it listed East Med as a Project of Common Interest, one possibly worthy of EU funding. Two years later, it put two million euros into a pre-flow study, and this year approved 34.5mn euros to help draft a detailed marine survey of the route the pipeline would follow on the sea floor, and an engineering design study.
DEPA, which has drafted the only existing feasibility study, insists that “East Med is technically viable, commercially competitive and economically feasible,” although it won’t say at what gas price these things hold true. Kostas Karayannakos, its Executive Director of Gas supply, considers it “slightly more attractive” than piping the gas through Turkey, or liquefying and shipping it.
The key attraction of East Med seems to be stability. It would be a risk-free, intra-EU route carrying committed volumes of gas to Europe for a quarter century. Europe would in turn be a reliable client, in contrast to cash-poor, regional economies. “We used to seek out investors in East Med. Now they are seeking us out,” Karayannakos says.
For Karayannakos, the pipeline brings tremendous geopolitical advantages, rendering Greece, “the EU’s ‘bridge’ to the important resources of the Levantine, while it is already Europe’s ‘gateway’ for Caspian gas,” making Greece, “an integral part of Europe’s energy security chain,” and “ending the isolation of Cyprus.” The combined flows of TAP and East Med would make Greece the conveyor of six percent of the gas the EU consumes.
It is precisely this vision, of a pipeline that circumvents its exclusive economic zone, turns Cypriot energy interests into European energy interests, elevates the importance of Greece in the EU and offers Greece and Cyprus a leading role in the EU’s relations with the Middle East, that concerns Turkey. Its displeasure has already caused one high-seas standoff.
On February 23, shortly after discovering Calypso, the Saipem 12000 drillship homed in on a body of water east of Cyprus known as Block 3, where ENI also has exploration rights. Its intention was to bore a hole into a deposit known as the cuttlefish prospect. It never reached its intended co-ordinates. Five Turkish navy frigates blocked its path. The drillship trod its water until February 28, when it attempted to circumnavigate the blockade. One of the frigates threatened to ram it. The drillship turned and sailed for Morocco. During precisely the same period, a Turkish coast guard vessel rammed a Greek one in the Aegean – an unprecedented event many analysts attribute to the discovery of Calypso.
Since the discovery of Calypso, “alarm bells have been going off in Turkey and officials have been saying, ‘the Greeks are going to take advantage of this situation’,” says Angelos Syrigos, Assistant Professor of International Law and Foreign Policy at Panteion University in Athens. “Turkey has made a big investment since 2000 in becoming the basic conveyor of gas to Europe, and to a great extent it has succeeded… The discovery of new deposits in the Eastern Mediterranean threatens this position... But its main concern – and where it faces a strategic threat - is that [the energy deposits] could alter the given situation in Cyprus ahead of a solution [to reunify the island].”
Two decades of talks have so far failed to reunify Cyprus, divided by a Turkish invasion in 1974. A Greek attempt to overthrow the government in Nicosia that year led Turkey to believe that the island’s union with Greece was imminent, and that under such an arrangement Turkish-Cypriots would have no guarantee of political equality. Since then, Turkey has maintained an occupying force of almost 40,000 troops on the island, and supplanted much of the original Turkish-Cypriot population with settlers from the mainland who are more sympathetic to Ankara’s vision of maintaining strategic depth in the Mediterranean. The Turkish Republic of Northern Cyprus, proclaimed in 1983, remains an internationally unrecognized entity, and the ongoing occupation isolates Turkey diplomatically.
The Cypriot government says it will share its mineral wealth with the Turkish-Cypriots in the north after a reunification deal is struck. Concerned that this increases Cypriot leverage, Turkey insists on the wealth being shared now. To press the point home, Turkey has announced that it will send its government-owned drillship, the Barbaros Hayreddin Pasha, to explore Cyprus’ exclusive economic zone.
Turkey is something of an exception in the region. Egypt, Israel and Cyprus defined their exclusive economic zones early this century. They have ratified these bilateral agreements, sold concessions to oil majors, struck gas, and Israel and Egypt are already extracting it.
Turkey is the only country in the eastern Mediterranean that has so far found no proven and probable resources even though, in Syrigos’ estimate, it has spent at least $560mn on acquiring two seismographic research vessels and a drillship. It is also the only country that hasn’t defined its exclusive economic zone with neighbours, and disputes theirs. In 2004, Turkey suggested drawing a line midway between its coast and Egypt’s, riding roughshod on the rights of the countries inbetween. Egypt politely refused.
|Turkey's claims almost precisely overlap those of Cyprus (Courtesy Angelos Syrigos)|
In 2011, Turkey agreed an exclusive economic zone with the Turkish Republic of Northern Cyprus. The zone claimed by the TRNC sits almost exactly on top of the zone the Republic of Cyprus has already settled with its neighbours to the east. The zone claimed by Turkey sits on top of much of the zone Cyprus has agreed with Egypt, to the south. On the same day that this agreement was signed, the TRNC signed over its EEZ to the Turkish state petroleum company (TPAO), thus pitting Cyprus directly against Turkey in virtually all its hydrocarbon explorations.
“Turkey’s problem is that it sees that it has been left out of the bonanza, because all the interesting areas lie outside its territorial waters and EEZ,” says energy expert Stambolis. “It’s trying to create problems for Cyprus because its only hope is to take something from Cyprus… So it’s very irritable right now.”
The Southern Corridor is bound to give both Greece and Turkey added importance to the European Union, and that creates a common interest; but in Cyprus their interests clash, and it will be up to their allies to help bridge differences. Regional governments are pushing for East Med, and the size of deposits may eventually advocate in its favour. This makes East Med a political as much as a commercial project. “If the EU and the four governments [Israel, Cyprus, Greece, Italy] are aligned behind it, it can find financing,” says Energean’s Rigas. “There will be more discoveries in the region. We’re still at the beginning.”