The East Mediterranean needs buyers for its gas – not easy when prices are expected to stay low
Egypt will continue to engineer its return as a natural gas exporter in 2017. But the outlook for other hopeful East Mediterranean gas exporters is less clear. Israel and Cyprus have little to show in terms of gas sales; and Lebanon has got nowhere. Success or failure for all three will hinge on Turkey's appetite for extra gas.
Egypt, once an exporter of liquefied natural gas, became an importer in 2015, preferring to supply its own rapidly growing market instead of foreign ones. But recent offshore discoveries - the biggest being Eni's Zohr field - and efforts to liberalise domestic gas prices give cause for optimism. The country will remain a net gas importer in 2017, but LNG exports could resume by 2020.
Zohr itself should come on stream in late 2017 - or that's what Eni and the government in Cairo hope. As other smaller projects join it in production Egypt will start to deal with its gas shortages. Given the pace of exploration activity, further discoveries are likely. Watch Egypt's section of the Mediterranean for news in 2017. At the very least, the area will be a hotbed of drilling activity.
Measures to reduce subsidies and diversify supply - more renewables, but also nuclear and coal - will also have increasing success in 2017, helping to restore order to Egypt's energy markets and putting the country well on the way to self-sufficiency by 2020.
That is bad news for Israel, which had hoped Egypt would be in the market for its gas. Its other problems have been largely self-inflicted: dithering on regulatory issues and confusion about how the country's gas should be used have held Israel back. The gas regulatory framework, introduced in 2016, should resolve some of this and enable the development of the Leviathan gasfield in 2017. But the delays have cost Israel credibility and probably export markets, at least ones willing to buy Israeli LNG.
That leaves Israel with little option but to sell Leviathan gas to Turkey. The plan is for Turkish companies to build a pipeline from Leviathan to Turkey. Both sides have agreed to proceed with a feasibility study for the project, making a final decision possible in 2017. It will happen with or without Cyprus's cooperation - even though the pipeline passes through Cyprus's exclusive economic zone (EEZ), Cyprus will not be able to stop it. Israel, meanwhile, launched its first offshore bidding round in 2016 and the process will continue in 2017, so it's another section of the Med to watch next year.
In Cyprus, which had also hoped to sell gas to Egypt, progress with negotiations to solve the island's division will have an important bearing on energy development. A successful resolution would make the prospects for Cypriot and Israeli gas exports much clearer. Israel and Turkey would be able to make quicker progress with negotiations on their subsea export pipeline. And Cyprus might even be in a position to negotiate a role for itself in the project, using the line to export gas from its own Aphrodite field to Turkey.
But without a resolution, and with the opportunity for gas sales to Egypt gone, low gas prices will make development of Aphrodite difficult.
The only other plausible option is floating LNG, but this hasn't yet been given serious consideration - and the technology is in its infancy. In 2017, Aphrodite might easily find itself back on the drawing board, with gas exports receding well into the 2020s.
Still, Cyprus's upstream won't lie dormant. Drilling planned by Total in block 11 will proceed in April 2017 and the prospects for gas discoveries look good. Eni will also drill in 2017, in blocks 2, 3 and 9. And a third licensing round should bring new and large players into Cyprus's EEZ in 2017. Those are all positive near-term developments, but with global gas prices staying low for the long term, exports will have to wait.
Lebanon will remain the laggard in 2017. Its problems in resuming its first licensing round are likely to continue next year, with little sign of imminent progress in upstream development.
Yet the greatest threat to the region's gas-export aspirations is the low global price for the commodity. Local politicians have cultivated a popular belief that East Mediterranean gas is of such strategic importance to Europe that cost is of secondary importance. But price matters. Competition from cheap Russian gas and American LNG make Europe a distance prospect for the East Med's hopeful developers in 2017.
This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here