Ukraine crisis has created opportunities for the East Med region and Cyprus gas

With the EU seeking to get-rid of Russian gas – now at 40 per cent – by two-thirds by the end of 2022 and to end Russian fossil-fuel dependence by 2027, it re-opens opportunities for East Med gas supplies to Europe that previously were considered to be commercially challenging.

But how realistic is this? What are the opportunities and what are the limitations? What follows is based on my presentation and discussions at the successful European Gas Conference that took place in Vienna between March 21 and 23.


East Med gas export potential

The fastest way to increase East Med gas exports to Europe is by utilising Egypt’s existing liquefaction plants to maximum capacity. Other options examined in the past, but considered not viable, include the EastMed gas pipeline and a pipeline through Turkey to Europe.

Export of LNG from Egypt is immediate as the liquefaction facilities exist. All the other options are greenfield and would require over five years to be constructed and become operational. As a result, they cannot contribute to Europe’s immediate needs, ie to become independent of Russian gas by 2027.

But where is this gas going to come from? The simple answer is from Israel’s Leviathan gas-field, operated by Chevron. It was discovered in 2010 and has about 625 billion cubic metres (bcm) recoverable resources.

Phase-1A development came on-stream end 2019 with an annual production capacity of 12bcm. This can be increased to 21bcm/yr through Phase-1B now under consideration, with potentially more to come at a later stage through FLNG.

Apart from supplying gas to Israeli clients, Leviathan also exports gas to Egypt and Jordan and soon Leviathan gas to Egypt will be diverted to Lebanon through Syria.

There is also additional natural gas export potential offshore Cyprus. The Aphrodite gas-field, operated by Chevron, was discovered in 2011, with about 116bcm proven reserves.

The appraisal drilling of the Glaucus gas-field has just been completed by ExxonMobil. It was discovered in 2019, with reserves estimated to be between 140-227bcm.

Another gas-field, Calypso, was discovered by Eni in 2018. But its size is shrouded in mystery and Eni has yet to announce plans for further drilling.

On and off Cyprus has been discussing export of Aphrodite gas to Egypt through a subsea gas pipeline. But this never progressed beyond intergovernmental agreements.

Chevron as the operator of both Leviathan and Aphrodite has choices about how to respond to the developing situation. Understandably, it appears to be giving priority to maximising gas exports from Leviathan to Egypt, given that the required production infrastructure is in place. This only needs additional production-well drilling and expanding export pipeline capacity, requiring low investments running into millions of dollars and can be done relatively fast.

In contrast, there is no production or export infrastructure at Aphrodite. Developing this would require substantial investments running into billions of dollars and would take about five years.

Investors may also see development of Aphrodite to be subject to geopolitical risk due to the unresolved Cyprus problem. It also extends into Israel’s EEZ, requiring a unitisation agreement that after years of negotiation still remains unresolved.

There is potential for more discoveries, but, as MEES has pointed-out, troubling for the region’s future gas developments is that wildcat drilling has slowed-down markedly over the last few years.

Majors appear to be shunning wildcat exploration, favouring searches for near-field reserves that can be more easily tied-in to existing facilities. This leads to faster returns at lower costs.

The result is that no new major discoveries have been made since 2019. If this continues, prospects for new major discoveries offshore Cyprus, Israel and Lebanon would remain bleak.


Egypt LNG exports to Europe

Egypt exports LNG from its two liquefaction plants: Idku with 10bcm capacity and Damietta with about 7bcm. It exported 2bcm to Europe in 2021 and expects this to increase in 2022.

Lack of new sizeable gas finds since Zohr in 2015 and production declines are in danger of threatening Egypt’s gas output and exports.

This is where Israel comes-in with gas to counteract Egypt’s production declines. Israel currently exports 5bcm/yr to Egypt through the EMG pipeline. This can be increased to 7bcm/yr. A new deal was signed in February to export 2,5-3bcm/yr to Egypt through Jordan, with a plan to increase this to 4bcm/yr.

These deals would enable Israel to export as much as 11bcm/yr to Egypt, allowing it to increase its LNG exports to Europe starting this year.

There is about 600bcm unutilised natural gas in the East Med, using existing gas reserves in Israel and Cyprus, to increase LNG production by another 10-15 bcm/yr by adding new liquefaction trains to Idku and Damietta. As most of the required infrastructure already exists, doing this would be cost-efficient and could be done within three years.

Most of this can be exported to Europe for as-long-as needed and then to Asia, where, according to Shell, demand for new LNG will increase substantially in the period to 2040.

As a result of its existing plants, Egypt not only is able to respond to Europe’s needs immediately, but also has potential to supply competitive LNG to Asia. This fits well with Egypt’s aspiration to become the East Med gas-hub.


East Med gas exports to Europe by pipeline

The main options considered in the past are the EastMed gas pipeline or a pipeline through Turkey.

Resurrecting the EastMed is still driven mainly by politics, often without considering carefully the message from Europe:

The goal is to find alternative sources of gas to reduce dependence on Russian gas by two-thirds this year and cease imports by 2027. The EU is also accelerating transition to RES and hydrogen, aiming to reduce gas use by 30 per cent by 2030 and by 80 per cent by 2050.

Whether Europe’s goal succeeds is questionable. What matters though is that this is what Europe is aiming for now.

It is a confusing message. Investors in long-term projects need clarity and clear policies. Uncertainty about the future of gas in Europe discourages long-term investment.

There is also resistance from the European Commission and activists that investing in new fossil-fuel projects will lock them in long-term, delaying transition to clean energy.

Who will invest billions of dollars in long-term projects, such as the EastMed, or a pipeline through Turkey, just to secure five years of exports? Such investments require the EU to confirm that reliance on gas will be longer-term, beyond 2040, something it does not, at present, appear to be prepared to do.

Without an EU change of policy on use of gas long-term, export of East Med gas to Europe by pipeline remains challenging.

With the EU accelerating transition to green energy, the future of energy around the East Med lies in a new strategy based on a rapid growth of RES, combined with energy storage, electricity interconnectors and use of natural gas regionally in support of RES during transition.


Dr Charles Ellinas is a Senior Fellow at the Global Energy Centre, Atlantic Council