Cyprus will find itself under pressure from the EU and the US to find a path out of the Cyprus problem swamp
The memories of 2020 on global energy will be long-lived. It may be remembered as the year that finally broke the back of fossil fuels, decisively ushering in the era of renewables.
Following an eventful 2020, with maritime disputes almost getting out-of-hand, 2021 is coming to the East Med with high expectations and hope.
Key factors that will shape the new year in the region are Joe Biden taking on the US presidency, the EU’s green energy policies, global oil and gas sector recovery, economic factors, rapprochements and dispute resolutions, and their impact on the East Med.
The Biden factor
I have chosen this as the key factor, as with Joe Biden in the US presidency, conflict resolution around the East Med will get a much-needed boost. The EU is riddled with too many conflicting interests and compromises to become a decisive actor in the region.
In addition, the renewed importance of Nato under the new US administration, and concerns about Russian influence, will focus US attention on finding ways to deal with Turkey – but with Nato in mind the US is likely to act cautiously.
Nevertheless, Turkey should expect a tougher time with Biden than it had with Trump, especially with regards to civil liberties and human rights, as well as aggression towards its neighbours.
Biden is committed to fully integrating climate change into US foreign and national security policies, with global implications. This will mean that oil and gas are not likely to be driving factors in shaping future US policy in the Middle East and East Med (EMME) regions.
The strategic importance of the Middle East to the US will diminish even further. The close relationship with Saudi Arabia and Israel will be placed on a different footing, with US interests taking priority – for example re-entering the Iran nuclear agreement.
Under Biden, the US will pursue a more hands-on involvement in the region, supporting negotiations and solution of disputes through diplomacy.
EU green energy policies
EU green energy policies will advance more rapidly, impacting fossil fuels, including natural gas. New rules will be announced making future funding of fossil projects unlikely – including the EastMed gas pipeline.
Achieving the new target to cut emissions by 55 per cent by 2030 will require EU member-state emission reduction, renewables and energy efficiency targets to increase. This will include Greece and Cyprus, putting increased pressure to contribute more effectively in dealing with climate change.
Development of renewables around the East Med will receive a boost.
For the international oil companies (IOCs) 2021 will be a year for consolidation. They will re-evaluate their strategies, investments and future plans and priorities – a process already in progress in 2020. Downsizing, write-offs, cost-cutting and restructuring will continue into 2021 and beyond.
As the world economy emerges from the ravages of Covid-19, oil and gas demand will increase, while global supply growth will be slow – because of under-investment in exploration and production in 2020 due to the devastating impact of the pandemic on the industry – leading, short-term, to soaring prices. But these will not be long-lasting.
Turkey’s economy is in dire-straights and the country is still being battered by Covid-19. Under the threat of sanctions from the US and the EU, and following the loss of a key friend, Trump, Turkey will be looking to restore its relations with Israel and other Arab countries and reach some kind of regional rapprochement.
In contrast, coming out of Covid-19, in 2021 Greece’s economy will exhibit strong recovery, benefiting from the €32billion it will receive from the EU’s recovery fund.
Post-Covid-19 both Greece and Turkey must lift their economies. They can do this by eliminating conflict through negotiations.
Turkey will refrain from confrontational moves that in 2020 fueled tension and mistrust. This has already started, with Turkey confining its recently announced offshore surveys to Turkish waters. If sustained, this could enable rebuilding of trust and restart of negotiations in Q1 to resolve their disputes.
Something similar will eventually happen between Israel and Lebanon, following elections and formation of a new government in Israel.
Concerns about a change of direction in US policies around the EMME region will push Turkey and Israel into re-establishing diplomatic relations and closer co-operation.
Cyprus is mired by internal problems, but will find itself at the centre of attention for both the EU and the US, with the combined pressure from both superpowers concentrating on finding a path out of the Cyprus problem swamp by March.
With both the EU and the US determined to bring Turkey from the brink back into the western world, pressure will mount early in 2021 to restart negotiations on the Cyprus problem. Europe will be keen to avoid having to actually apply meaningful sanctions on Turkey at the March Council meeting, as agreed in December. This may act as a marker to achieve progress.
East Med exploration and production
With the oil and gas sector still in recovery mode, 2021 may not be the time for resumption of East Med exploration and production, other than perhaps in Egypt.
The IOCs will focus on areas where there is potential for growth and where oil and gas can be produced at low cost and high profits, maximising cash-flow. At this stage the East Med, including Cyprus, does not fit into this.
With the priority in Cyprus in 2021 being to progress negotiations to resolve the Cyprus problem, a delay in resuming offshore exploration – beyond 2021 – may be a blessing. It will take the heat off gas, which could otherwise continue being an obstacle to an already fraught process.
The priority in Lebanon will be to concentrate on economic recovery to lift the country out of its present quagmire. Offshore drilling is unlikely to resume in 2021.
In Israel the success story will be Energean. Its priority will be to start gas production from its Karish and Tanin gas-fields as early as possible during the second half of 2021.
With Eni at the helm, Egypt’s Damietta LNG plant is set for a 2021 restart, making it possible to export some of Egypt’s excess natural gas from Eni’s Zohr and Noor gas-fields.
Resumption of exploration and development of discoveries will require resolution of disputes, including EEZ disputes, and stability. These will be key factors that will shape the East Med in 2021.
Dr Charles Ellinas, @CharlesEllinas, Senior Fellow, Global Energy Centre, Atlantic Council