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Israel Cyprus Italy Gas Agreement

December 26, 2018

Israel Cyprus Italy Gas Agreement

ISRAEL-CYPRUS-ITALY GAS AGREEMENT

 

Background

Offshore drilling of hydrocarbons in the Eastern Mediterranean has a relatively short history. While the first offshore discovery was made on the Egyptian coast in 1969, countries like Israel stepped up their exploration of offshore gas resources after 1999. So far, large-scale discoveries of gas were made in Tamar (2009), Leviathan (2010) The Tamar gas field in Israel contains an estimated 282 billion cubic meters (bcm) of natural gas. It started production in 2013. In total, Israel has discovered more than 900 bcm of gas offshore while Cyprus’ Aphrodite gas field holds an additional 128 bcm. The larger Leviathan field is expected to be operational next year. Most of the gas coming from the Tamar field is used for domestic consumption.

 

The Eastern Mediterranean Pipeline Project

Italy, Greece, Cyprus, and Israel have agreed to the construction of an ambitious gas pipeline project called the Eastern Mediterranean (East Med), which involves an approximately 2000-km long pipeline to transport offshore gas found in the Levantine Basin to Greece and Italy. The signing of the agreement is expected to take place within the first three months of 2019. This pipeline is expected to be the world’s longest and deepest underwater gas pipeline project. The European Union has agreed to invest $100 million to conduct a feasibility study for the project before the details of the agreement were finally hammered out. The pipeline is expected to have a capacity to carry up to 20 bcm of of gas annually. It is supposed to transfer the Israeli gas from the Leviathan offshore gas reservoir via Cyprus, Crete, and Greece to reach its terminal in Otranto, Southeastern Italy.

 

Strategically, the project is of enormous importance not only for Israel and Cyprus, but also for the European Union. Europe’s gas needs are slated to increase by 100 bcm per year by 2030. The project, which is expected to take 7-8 years to complete, is going to confer the Eastern Mediterranean region greater importance as an energy provider now that Europe seeks to reduce its dependence on Russian gas. As part of the agreement, Israel and Cyprus will be granted preference over other countries in exporting gas to the European market.

 

Reactions

From Washington’s vantage point, the project is also of interest. In a meeting with the Greek minister earlier in December, the U.S. Secretary of State, Mike Pompeo, called the region “an important strategic frontier” for Washington, which is working to strengthen its relations with “democratic allies there like Greece and Cyprus and Israel.” Moreover, in an interview with the Greek language newspaper Kathimerini, the Assistant Secretary of State, Wess Mitchell, said investing in the development of the region’s hydrocarbon reserves would curb Iran’s ambition to “open a window” to eastern Mediterranean through Syria.

 

Meanwhile, gas explorations by Greece and Cyprus in the Eastern Mediterranean, especially in the Aphrodite gas field have also created the potential for friction with Turkey, a big regional economic power house which has recently launched its own gas exploration project to reduce its dependence on Russian gas. Against the backdrop of heightened exploration activity by Cyprus, Turkey has often objected to what it called the “Greek Cypriot administration’s unilateral drilling activity in the during which it commissioned American, French and Italian energy companies like Exxon, Total and ENI.” Turkey’s defense minister, Hulusi Akar, also said that Turkey would continue to “safeguard its rights and interests both in the Aegean Sea and the Eastern Mediterranean” in a thinly veiled warning to Greek and Cypriot officials. It also needs to be borne in mind that Israel deliberately opted for the Cyprus-Greece-Italy connection for the delivery of its natural gas rather than the Turkish route. Regional competition and political skirmishes, despite the deep trade relations, are marking the Israel-Turkey bilateral relations which in turn is affecting the risk landscape in the region.

 

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