Intend to use the USA and the EU for creation of the competition to Russian gas in Europe

Only a decade ago East Mediterranean was considered as extremely power scarce part of the world. Many experts did not even consider this region from the point of view of discovery prospects of considerable reserves of oil and gas here. And it is in spite of the fact that actually it is a part of the Middle East which is one of the world’s largest centers of production and export of hydrocarbons. However, by the beginning of 2010s the situation started changing promptly. In rather short time very essential reserves of natural gas on the shelf of Israel, Egypt and the Republic of Cyprus were discovered. And, though it was not revealed fabulous resources of hydrocarbons here, the oil and gas capacity of East Mediterranean was cardinally reconsidered and also its export opportunities were so far previously estimated. However, military-political and economic situation in the region, as well as geopolitical interests of the external players, having powerful influence on the east Mediterranean countries do gas export prospects of East Mediterranean not too optimistic. And economic efficiency of the export projects which are outlined here as a result appears the lowest — they remain on the verge of profitability.

At the end of the 2000s — the beginning of the 2010s the American Noble Energy in partnership with the Israeli Delek Group found a number of natural gas fields with the total taken resources about 1 trillion CBM in the Levantiysky basin of the Mediterranean Sea. It became the beginning of creation of the new world center of natural gas production. There were forecasts based on the given discoveries that reserves of gas of the east Mediterranean shelf can make not less than 3.5 trillion CBM. Subsequently estimates of potential volumes of these resources were almost doubled. And, some experts, in particular American and Israeli, are suggested that, besides gas fields, a subsoil of the Levantiysky pool may contain also deposits of liquid hydrocarbons. It is about deeper underground horizons. However, so far this information remains at the level of very tempting assumptions. Whereas the facts say that only a little bit of really significant natural gas fields are discovered in East Mediterranean — on the shelf of Israel, the Republic of Cyprus and Egypt. Initial enthusiastic forecasts about huge deposits of hydrocarbons in the region for the last decade did not come true. At the same time it is obvious that the power map of East Mediterranean gradually changes the outlines.


Till 2004 Israel was a net importer of energy resources, buying abroad energy carriers necessary for the country which vast majority on 97% consists of oil and oil products, as well as coal. However in 1999-2000 small natural gas fields were open on the shelf of the country. Their production began in 2004 thanks to what the power balance of the country started changing. But it is impossible to provide the growing consumption of gas in domestic market due to own, rather modest resource base. To solve this problem, in 2005 Israel signed the 15-year contract for purchase of natural gas at Egypt. The sea gas pipeline for deliveries of the Egyptian raw materials to Israelis (a new branch from Arab Gas Pipeline on which gas was exported from Egypt only to Jordan earlier, Syria and Lebanon) was put into operation only at the beginning of 2008. And some next years the Egyptian gas steadily provided to 60% of the growing consumption of gas in Israel. However, it lasted absolutely not for long. In 2011 Egypt was captured by political. Then huge economic problems also followed. The situation was complicated by that the Egyptian gas fields developed on the land passed to a stage of the falling production that resulted in deficiency of natural gas in the Egyptian domestic market. As a result of all this already in 2012 Egypt broke off the gas contract with Israel.
Meanwhile, the situation in Israel changed cardinally by then too. In 2009 the gas Tamar field, already rather large for the region, with the taken stocks about 300 billion cubic meters, was open on the Israeli shelf of Noble Energy. Production of raw materials began on it in the spring of 2013.  An American company (operator) and its Israeli partners (including Delek Group, Isramco Negev and others), their structure and shares in the project several times changed. It allowed providing completely domestic market of Israel with own natural gas.
And at the end of the 2010s the same Noble Energy made new discovery on the shelf of the country — a Leviathan field which taken stocks were estimated at 623 billion cubic meters of gas. Some time it even was considered as the largest in East Mediterranean. However, Israelis did not begin to hurry with its input in development. As it is quite clear now it is talked about a chance to create the full-fledged gas industry in Israel capable not only supplying domestic market with natural gas for many years but also to send considerable part of raw materials for export. But it was necessary to create rules and operating conditions of a new branch for this purpose — to define legislative norms, the rights and duties of participants of gas projects, as well as regulating role of the state. Therefore permission to development of a Leviathan field consortium from the American operator of the Noble Energy project (39.66%), and also the Israeli Delek Group (45.34%) and Ratio Oil Exploration (15%) received only in 2016. And it was put into commercial operation only in January of the current year — supply of gas to the Israeli market and on the sea gas pipeline to Egypt began.
Hopes of Israel for opening of new large resources of gas on the shelf were not justified yet. Revealed in addition to listed sea deposits of natural gas either are very insignificant, or do not represent today commercial interest at all. By the way, time will show too whether the data presented by participants of the Israeli projects on the reconnoitered taken resources of natural gas are correct. It is enough to tell that, according to information of BP Statistical Review of World Energy, for the beginning of 2019 the total proved stocks of Israel made only 400 billion cubic meters of natural gas.
Nevertheless, production and consumption of natural gas in Israel since 2013 continuously grew, having increased by the beginning of the last year almost on 40% — to 10.5 billion cubic meters a year. The power balance of the country also changed. So, consumption of oil, oil products and coal gradually falls, consumption of gas grows. Today natural gas occupies already more than 35% in a total amount of consumption of energy resources by Israel, oil and oil products — decreased to 45% (in 2004 there were 67%), coal — was reduced to a little more than 18% (was — about 30%). Thus, according to the forecasts of Israeli experts, further demand for natural gas will promptly grow in the country — minimum to annual 30 billion cubic meters. And, considering rates of development of the Israeli economy, it is necessary to count on it already in this decade but not in the following one.
The first stage of development of Leviathan field assumes bringing production level to 12 billion cubic meters of gas a year. Subsequently the output has to grow to 21 billion. That is, actually, if there are not any more considerable reserves of natural gas (and such probability, certainly, is available) on the shelf of Israel, already through rather short time the Israeli capacities of gas production will be able to provide, on a large scale, exclusively own needs of Israel. The given assumption gets more relevance taking into account legislative norms of the country which allow exporting only 40% of the extracted gas whereas 60% of its production have to go on satisfaction of demand only of the Israeli market.
Theoretically «gas breaks» of neighbors could change such a situation. But, first, so far such breaks simply are not present. And, secondly, the majority of neighboring states is with Israel if not in a condition of the open armed opposition, at least, are adjusted in relation to this country extremely unfriendly. Not to mention that practically all regional players are anyway burdened with complex problems, the end and edge to which simply is not visible.


In 2011 East Mediterranean was shaken from the next victorious reports when the same Noble Energy declared opening of a large-scale deposit of natural Aphrodite gas on the shelf of the Republic of Cyprus. The problem is that after its even not too detailed additional exploration, it became clear that potential of the revealed gas deposit is more modest than it was supposed initially — by the estimates existing today about 120 billion cubic meters of the taken stocks. It is obvious that it is very little for an offshore field of gas, which is very expensive in respect of development. Of course, considering that Cyprus has not still consumed natural gas in principle (94% of power balance of the island are a share of oil and oil products, 5.9% — of renewables and about 0.1% — of coal), here, if you really want, it would be possible to find certain prospects. However it is necessary to consider that in this case for creation of domestic market of gas Cypriots should develop corresponding infrastructure. This purpose will require not only huge financial means but also a lot of time. Meanwhile, organization of effective production and export of raw materials requires also creation of the corresponding infrastructure. It became clear that it is absolutely unprofitable at the available volumes of the taken gas reserves. So, initially, when it was supposed that Aphrodite gas resources at least are approximately twice more than revealed nowadays, it was seriously considered a possibility of construction in Cyprus of a plant on liquefaction of gas for the subsequent export of LNG to the world markets. But specification of stocks towards reduction forced potential investors to refuse this idea at once. In this situation development of resources of an Aphrodite field will be economically expedient only in two cases. Either large deposits of natural gas will be in addition open on the shelf of the Republic of Cyprus, or the powerful export infrastructure for the organization of supply of all east Mediterranean gas to foreign markets will be created in the region (with active participation of other potential exporters and external players).
However, investors do not lose hope in happy end of the begun business yet. Noble Energy is an operator of the project on development of Aphrodite (has a share in 35%), its partner still is Israeli Delek Group (30%) and at the beginning of 2016 the British BG (35%) joined them. Plans of development of the field are rather indistinct, but it is known that gas production is planned to begin here not earlier than in 2024-2025.
Perhaps, calculation goes on future progress in the geological exploration which is carried out on the shelf of the Republic of Cyprus by other potential exporters of the east Mediterranean gas. Let’s remind that they hope to find here gas deposits up to 1.5-2 trillion CBM. It is enough to tell that Italian Eni, French Total, Anglo-Dutch Royal Dutch Shell, Korean Kogas and also consortium of American ExxonMobil and Qatar Qatar Petroleum also joined a race for possible resources of the Cyprian shelf. So far the researches which are carried out in this area did not equal the hopes laid on them. Meanwhile, in 2020-2021 about ten prospecting projects are planned in an exclusive economic zone of Cyprus.
Special activity here shows Eni and Total. First of all, because they hope to confirm in the current year a number of the former practices, including, besides carrying out geological exploration on other sites, perspective on gas, seek to determine by drilling stocks of a new field on the shelf of Cyprus — Calypso. According to preliminary data, they estimated its resources at 170-230 billion cubic meters of gas. In parallel with the European companies, recently the consortium ExxonMobil — Qatar Petroleum extremely intensively operates on the Cyprian shelf. They also expect to receive positive results of exploration in the nearest future. By the way, it is also planned to carry out drilling on an Aphrodite field in the current year. It is as about obtaining additional information on the taken gas reserves and about research of the revealed deposit in the mode of trial operation.


In other situation for strengthening of positions in East Mediterranean of Israel and the Republic of Cyprus, as well as their export potential, there would be enough connection to them, perhaps, of the producer of natural gas key at the moment in the region — Egypt. However in foreseeable prospect this country will be solving its own internal power problems.
Prompt growth of internal consumption of natural gas in 2000-2011 against so fast development of stocks of the fields of natural gas which were available for the country plunged Egypt into a long energy crisis and nearly led this state to full economic breakdown. Only in 2009 Egypt set up a record on gas export volume — 18 billion cubic meters a year and already in 2014 turned in its net importer. As no wonder: since the end of the 1990s prior to the beginning of the 2010s consumption of gas by Egyptians grew almost four times — to more than 50 billion cubic meters a year. And production of raw materials on overland fields of Egypt since 2009 (having reached peak in 60.3 billion cubic meters) began to reduce progressively. And only in 2018 the country declared that it almost came for self-sufficiency by natural gas (own gas production made 58.6 billion cubic meters at consumption in 59.6 billion). Meanwhile, the situation could be much more tragic if in 2015 the new large-scale gas deposit — Zohr was not open on the Mediterranean shelf of Egypt. Italian Eni revealed it. The taken stocks were estimated at 850 billion cubic meters of gas. It appeared the largest field of natural gas opened in East Mediterranean for all history of prospecting works.
At the end of 2016 Rosneft declared arrangement on acquisition at Eni of a share in the concession agreement on development of a Zohr field and also 15% in the operator of the project — Petroshorouk, the joint parity venture Eni and the Egyptian state company EGAS (Egyptian Natural Gas Holding Company). In the fall of 2017 Rosneft finished this transaction, having become the participant of concession together with Eni (60%) and the British BP (10%). Subsequently Eni conceded a share in 10% to Mubadala Petroleum investment fund (United Arab Emirates). Gas production on a field began at the end of 2017. However it is obvious, that even it did not solve completely Egyptian energy crisis. Besides, soon it can be aggravated as in May-June of the current year Ethiopia is going to open a dam on Nile that will strongly strike on the Egyptian hydropower. And it also will demand introduction of additional electrical power capacities which can be effectively replaced only due to strengthening of gas generation.
In such a situation Egypt simply is not able to distract on projects on export of the gas, even if is also the very perspective. And, respectively, the export potential of East Mediterranean is not so high, especially taking into account that other countries of the region, without having sufficient resources of gas on the land, so far even approximately did not define possibility of production of natural gas within the sea projects. So, big opening are promised to the shelf of Lebanon, Syria and Palestine. At the beginning of 2018 the consortium Total (operator), Eni and Russian Novatek signed agreements on exploration and production with Lebanon — they acquired the right to work at two sea blocks. In 2013 Russian company SoyuzNefteGaz signed with the government of Syria an agreement on carrying out prospecting works on the Mediterranean shelf. But so far any discoveries have not made here. Sea deposits of natural gas of Palestine in a present situation do not attract potential investors.
Despite all this the USA and the European Union try to organize large-scale export of the east Mediterranean gas to Europe on the estimated EastMed gas pipeline (Eastern Mediterranean pipeline).

Political export

Sales markets of Israeli gas in East Mediterranean are strongly limited, first of all, because the countries surrounding Israel treat this state, to put it mildly, unfriendly. There are also conflicts which can complicate not only deliveries, but also production of the Israeli gas. For example, Lebanon does not recognize sea borders with Israel, applying for the gas fields opened in the Israeli sector. At the same time the natural gas extracted on Tamar and Leviathan fields can be delivered on the system of gas pipelines both on domestic market of Israel and to Egypt and Jordan. The relevant agreements were signed with these countries. However, if Egypt, being in an energy crisis, observes these agreements, the parliament of Jordan in January by a majority vote unexpectedly opposed import of the Israeli gas though from the economic point of view it is extremely irrational.
The most effective option of export of the Israeli gas out of region limits is its delivery to plants on liquefaction of natural gas to Egypt (two enterprises with a general power of 16 billion cubic meters a year) with the subsequent export of LNG. Taking into account the developed gas infrastructure of Egypt it would be not so difficult to expand these capacities. The same option would be also quite suitable for export of the Cyprian gas which production, as it was already told, was favorable only in a case of creation of the general marketing infrastructure in the region.
The pipeline route through Turkey could become the second export project for economy, but it remains impractical because of the Greek-Turkish conflict round Cyprus.
But the USA and the European Union pedal purely political project – the most unprofitable from the point of view of economy of EastMed which is urged to become the competitor to the project of Gazprom — The Turkish Stream. According to the drawn-up plans the east Mediterranean gas has to go from Israel through the Republic of Cyprus, the Greek island of Crete and continental Greece to Italy. It will be extremely difficult project from the technical and economic points of view — it is necessary to construct the most extended (about 2 thousand km) the deep-water sea gas pipeline that works in the world, costs today, according to preliminary estimates, over 7 billion dollars. Thus, as we see, even the source of raw materials for it has not been provided yet. Nevertheless, at the beginning of this year Israel, the Republic of Cyprus and Greece signed the agreement on its construction. Its power determined by this document will make only 10 billion cubic meters a year.