East Med juggles win/losses and win/wins
Rivalry continues to impact energy projects across the region. But collaboration will be essential to achieve economic potential
The discovery of a significant new hydrocarbon play in the Eastern Mediterranean a decade ago shone a greater geopolitical spotlight on the region. A series of discoveries fueled ambitions on the part of littoral states, attracted the interest of outside powers and made the East Med a potentially significant pivot point for European energy security and diversification.
These finds also drew unprecedented attention to the region's—at times strained—political, economic, and security relations. They facilitated the establishment, or strengthening, of cooperation between states but also sparked rivalry and/or accentuated existing conflicts. A decade later, the East Med finds itself at a crossroads, with more discoveries, some cooperative initiatives in place, but serious challenges.
Gas discoveries in the region represent just 2pc of global proven reserves. Important though they may be for the province and its immediate vicinity, they neither are nor will be a game changer at a global level, even if more resources are found. East Med gas deposits are also found at great depths and their extraction is extremely costly.
An abundance of gas resources—including volumes that have recently come to market, those under construction and those competing to take FID, both for LNG and pipeline transport—has adjusted the global gas price picture, potentially for years to come. This worldwide dash for customers has added significantly to the challenge for East Med gas in securing markets. Its proximity alone to European demand centres will not simply be enough.
Geopolitics poses another potential obstacle to exploitation of the region's resources. Of course, a large majority of energy exploration and exploitation projects have a geopolitical component. But the specifics of the East Med discoveries and the characteristics and infrastructure of the countries in whose waters they have been found are particularly complex.
2pc — the East Med's share of global gas reserves
The East Med has the potential for significant geopolitical volatility, with few of its actors able to offer a cast-iron guarantee of long-term stability. And, unfortunately, unlocking the economic opportunity offered by the new-found hydrocarbon reserves can be achieved only through realism, swift action, concerted efforts, and determination from the actors involved.
Key existing or emerging geopolitical issues in the region include both home-grown ones and those that are a reflection or outcome of international developments. They all have the potential to heavily impact the exploration and exploitation of its energy resources.
Developments in existing conflicts, like Syria and Libya, shape security structures and regional relations. The involvement, or indeed absence, of larger powers are also of great consequence. Or, to take the example of a long-standing, if dormant, conflict, the unresolved Cyprus problem not only threatens the smooth development of resources in the Cyprus exclusive economic zone (EEZ) but also the potential of the island to become a transit node or gathering centre for regional gas.
Turkey's sabre-rattling in the broader area—combined with deteriorating relations with the EU and US, diminishing those actors' leverage on the Ankara regime—signals a paradigm shift and possibly indicates that, ultimately, trying to exclude Turkey entirely from a wider East Med energy solution might prove unrealistic. For example, when Turkey chooses to project its power through gunboat diplomacy—in the case of Cyprus, through active harassment and/or disruption of drilling operations, or even aiming to drill in Cyrpus' internationally recognised waters—the impact on the appetite of IOCs, either in reality or potentially, to engage can swiftly diminish to the extent that Turkey's activities cannot be ignored in practical terms.
Energy resources, particularly newly-discovered molecules, are often triggers of new, and aggravators of existing, conflicts, which then in turn impede the efficient development of said resources. But, in the case of states without major pre-existing bilateral issues, hydrocarbon findings can lubricate cooperation. The East Med saw swift bilateral agreements for EEZ delimitation; the establishment of tri- or quadrilateral alignments between Cyprus, Egypt, Greece and Israel; and even the establishment of the East Med Gas Forum, although from which Turkey and, to a lesser extent, Lebanon were both notable absentees.
Notwithstanding the need for Turkey to be a more responsible, it must be acknowledged that—helpful as they may be—if such alliances remain not fully inclusive, then the prospect of East Med discoveries reaching their full potential are limited. If conditions so permit, an inclusive regional forum may be better placed to deliver meaningful bodies and agreements.
Despite considerable international and regional challenges, East Med gas can conceivably still have a bright future. But its success will require pragmatism; outside-the-box thinking; a sense of urgency; the deconstruction of unrealistic expectations, including the abandonment of literal pipe-dreams; the development of fully inclusive cooperation arrangements; and the espousal of options that are more based on business realities and less on political posturing.
A big win would be integrated programmes and synergies that would keep costs low. This would require regional states to collaborate truly meaningfully, moving beyond past and present entanglements. This could prove vital, as possibly the best—if not the only—future for East Med gas is a local one.
Harry Tzimitras is director of the Cyprus Centre at the Peace Research Institute Oslo
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