East Med energy – the message from Europe and the IOCs

During the last ten days the island was privileged to host two senior officials key to the energy future of Cyprus: European energy commissioner Kadri Simson, and Director, frontier exploration, ExxonMobil Tristan Aspray. Both attracted major headlines, but not always for the right reasons.

Kadri Simson’s visit to Cyprus

Kadri Simson was in Cyprus on October 13 and 14 for the inauguration of the start of construction of the Interconnector project and to attend the East Med Gas Forum (EMGF) meeting held in Cyprus.

To better understand what the Commissioner said and the messages she gave on the future of energy in Cyprus and the region, the best source is the in-depth interview she granted the Politis newspaper, published on October 16. It is based on her own words, in response to questions, without interpretation.

Responding to a question ‘The East Med region is emerging as a key region for Europe’s energy security. In this context, what is the role of Cyprus?’, she said: “Our neighbours have a special role to play in our [Europe’s] energy future, and we want to see that our neighbourhood can take care of its own needs. In some parts of the East Med, we are seeing increasing energy demand. And we want to support them in how they can secure consumption by promoting renewable energy.” She then went on to talk about the Interconnector and its undoubted importance.

She also talked about the promising discoveries of natural gas in the East Med and the need to find alternatives and replace Russian gas. But went on to say “Unfortunately, many of the discoveries will not be available during the next years. And in this regard, it is important to analyse whether there is demand in the European market for the next decades.”

Searching for clarity, the interviewer asked whether ‘natural gas therefore remains useful for Europe’s energy sector.’ She confirmed that “Europe will continue to use natural gas for decades to come. At the same time, we are doing everything we can to decarbonise the natural gas market in the long term. So, some sectors will replace natural gas with hydrogen for example, and this is an investment supported by the EU budget.”

She then talked about the green transition. “The goal is to reduce greenhouse gas emissions by 2030 by promoting renewable energy sources and energy efficiency measures to save energy. If we achieve all this… then we will reduce gas consumption in the EU by 30 per cent by 2030 and we will no longer need Russian gas. We have no time to waste and faster action is required on our part. We have to replace, in a very short period of time, 155 billion cubic meters of Russian natural gas. How can we do this? We need to find alternative natural gas supplies.”

But she did not include the East Med among the alternatives. She said “So far natural gas from Russia has been replaced by liquefied natural gas or pipeline gas that came to Europe from Norway, Azerbaijan or Algeria. And [US] LNG played an important role” – all from existing facilities. She also referred to the measures currently being discussed by European leaders to reduce energy consumption and strategies by which to reduce natural gas consumption.

With regards to her participation at the EMGF meeting, she said she found the forum useful not only in terms of discussing natural gas, but also “about future projects and how this region can accelerate renewable energy production. Because one day, these natural gas pipelines have to be ready for hydrogen, and they have to be operational after 2050, but then they have to transport clean gas.” She expanded on the EU’s hydrogen strategies and about what Europe is doing to achieve energy independence.

At all stages she avoided building up expectations that Europe needs more East Med natural gas/LNG, other than what is committed through the EU-Egypt-Israel MoU signed in June. Europe’s gas needs are in the short to medium term, ie to 2030 – which is also the duration of the MoU – to support the drive to phase out reliance on Russian natural gas.

During the EMGF the energy ministers of East Med countries stated very clearly what they would like to see happen – you may call it ‘the East Med gas wish list’. It is revealing that Egyptian energy minister Tareq El Molla asked the EU and major financial institutions to invest in the development of East Med gas projects. Something that is unlikely to happen, especially as EIB and EBRD have made it clear that they are no longer funding gas projects. In fact, the EIB president said last year “gas is over”.

It is important to listen carefully to what it is the EU wants, and heed Kadri Simson’s messages. Ignoring these and holding onto the ‘dream’ of near-term East Med gas exports to Europe distracts from what we should be concentrating on: “promoting renewable energy.” That’s exactly what Kadri Simson recommended.

Europe’s new gas needs are short-term and, as such, can come only from existing facilities.

With the acceleration of the EU’s transition to green energy and hydrogen, the future of energy in the East Med will depend on a new strategy based on the rapid development of RES, combined with energy storage, upgrading of electricity networks, electricity interconnections and use of natural gas at the regional level, to support RES during the energy transition period.

What exactly did Tristan Aspray say?

And now something different. A good example of lost in translation.

In his presentation at the Economist Summit on Wednesday, Aspray reiterated what he has said a number of times before: hydrocarbon resource development requires billions of dollars of investment from the consortia. To do this, the industry requires appropriate support through predictable fiscal policies, ie long-term stability in government hydrocarbon tax policies. This was translated as requiring ‘fiscal support’. In other words, something entirely different and totally unrelated to what Aspray said, and certainly not what the IOCs are asking for.

He also said that East Med gasfields are small and in deep water and expensive to develop, requiring long-term exports. He requested that East Med countries and Europe provide assurances about the future security of demand – in other words, accept long-term gas-purchase contracts to facilitate their development.

Dr Charles Ellinas, @CharlesEllinas is Senior Fellow, Global Energy Center, Atlantic Council