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Fine words fail to camouflage East Med challenges

Geopolitical problems and surging global LNG output mean that East Med gas reserves will struggle to reach markets outside the region

Government ministers from Cyprus, Egypt, Greece, Italy, Jordan and the Palestinian Authority—members of the East Mediterranean Gas Forum (EMGF)—met in Cairo at the end of July. The grouping was formed in January to encourage greater integration in the region.

The ministers issued a statement after their meeting that ticked all the right boxes, but contained little of substance. They agreed to "promote regional energy cooperation" to "exploit the resources of the region and provide access to a sustainable regional gas market". They also pledged to "develop more infrastructure to facilitate the exploitation of future gas discoveries" and seek further involvement of the private sector in energy development.

"As a talking shop, the EMGF certainly promotes cooperation," Charles Ellinas, a regional energy expert, Tweeted. "But in terms of practicalities it has a long way to go."

Also present at the Cairo meeting, as an observer, was US Energy Secretary Rick Perry. Washington is keen to encourage closer ties between all the states represented in the forum as a way of promoting its own interests in the region in the face of geopolitical challenges. One of these comes in the form of Turkey's developing relations with Russia. 

Turkey is the elephant in the room for the EMGF—a large state in the East Med with a potentially huge market for the region's gas and now itself exploring for hydrocarbons. But it is excluded from EMGF because of geopolitical differences. Turkey and Cyprus have no diplomatic relations, Turkish troops have been stationed in the breakaway Turkish Republic of Northern Cyprus since 1974. And Turkey does not recognise Cyprus' economic exclusion zone (EEZ), instead pressing its own claim to a continental shelf that partly overlaps the EEZ. 

Defiant Turkey

Turkey is exploring for gas off Cyprus in defiance of the international community's acceptance of the Cypriot EEZ. Deeming its actions as illegal, the European Union (EU) has imposed limited sanctions on Turkey. In response, the Ankara government has said it will expand its searches around the island. Russia has indicated that it might be prepared to cooperate with Turkey in this respect—a move that would do nothing to ease tension between Ankara on the one side and either its neighbours or Washington on the other. 

With these issues remaining unresolved, and with strained ties between Turkey and Israel, there is no possibility of gas discovered in the Israeli or Cypriot offshore reaching the hungry Turkish market. The best prospect at present is for these reserves to find other local markets—in Egypt, Israel and Jordan.
Sending the gas further afield will not be easy. The idea of an East Med Gas Pipeline, a project that has EU support, looks good on paper. But the costs involved in building the pipeline and transporting the gas mean that in current circumstances it would not be commercially viable. 

A surge in LNG production is underway in Australia and the US, and Qatar plans to lift its production from 77mn t/yr to 110mn t/yr by the mid-2020s. East Med gas faces stiff competition. The EMGF will have its work cut out finding practical ways of cooperation that enable the region's gas to reach global markets. 

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