On January 14, the Eastern Mediterranean Gas Forum (EMGF) was inaugurated in Cairo, triggering the region’s official transition from oil dependence to the era of gas production. The ongoing geopolitical and economic calculations of the Eastern Mediterranean gas discovery in 2009 have shaped new alliances and rekindled old enmities. However, the initial hope that this offshore gas discovery would lead to an inclusive regional cooperation or integration has waned; indeed, the EMGF alliance seems to mirror the current regional status quo.
Egypt hosted the energy ministers of Cyprus, Greece, Israel, Italy, Jordan, and Palestine to form the EMGF, which represents the first time Arab states embrace Israel in a regional alliance and continues the recent trend of normalizing Arab relations with it. The EMGF primarily provides a forum between Eastern Mediterranean gas exporters (Cyprus, Egypt, and Israel) and European gas importers, with Greece and Italy as the conduits to Europe. The Cairo Declaration hoped that the EMGF would potentially lead “to the development of a sustainable regional gas market.”
However, there are challenges that might require managing the expectations of what the EMGF might accomplish. Naming it a forum—rather than an organization—reflects the fact that its founding members preferred a loose structure that would allow them to alter trade and market tactics when needed. The EMGF does not have a structure or a legal framework yet; it is expected that the member states will meet again in the next few months to agree on a charter, prepared by Cairo, that will govern the work of the organization. This forum is the culmination of a decade of tit-for-tat policies, as Eastern Mediterranean countries have been making their strategic and cost-benefit calculations to exploit and trade this energy source.
This forum is the culmination of a decade of tit-for-tat policies, as Eastern Mediterranean countries have been making their strategic and cost-benefit calculations to exploit and trade this energy source.
Yet, there are three factors that might limit the impact of the EMGF. First, Eastern Mediterranean natural gas reserves constitute less than one percent of the world’s total proven oil/gas reserves and are unable to compete with traditional gas powers like Russia, Norway, or Qatar. Second, the emerging technologies of natural gas are shifting the bargaining power to the consumers instead of the suppliers, in contrast to the oil dynamics in the second part of the 20th century; this explains the European Union’s leverage in the EMGF. Third, the logistical constraints of using the cheaper option of a pipeline and compressed natural gas (CNG) to transport the export motivate Eastern Mediterranean countries to trade among each other or with neighboring countries, and not venture far beyond the region. Hence, the EMGF could help Eastern Mediterranean countries cut infrastructure costs and offer competitive gas prices.
Geopolitical Dynamics of Eastern Mediterranean Gas
The Cairo Declaration highlighted the view of gas discovery as an impetus for “greater mutual understanding, and awareness of common energy challenges and interests.” In the past decade, these countries scrambled to settle their maritime disputes regarding their exclusive economic zones (EEZ) and to agree on the best route to export their gas; however, the results were mixed and reflected regional geopolitical trends.
Tension over Eastern Mediterranean gas reached its peak last year in two hot spots, the Lebanon-Israel and Cyprus-Turkey maritime disputes, but has gradually receded since, mostly due to US diplomatic engagement. The blue line that was drawn in 2000 between Lebanon and Israel was not extended into the sea, which is causing a dispute over 860 square meters of international waters. The US-mediated talks between the two countries reached a stalemate last year, but managed to defuse the tensions. Moreover, Turkish naval forces intervened in the Eastern Mediterranean in February 2018 to halt gas drilling by Italy’s ENI company, which had announced a significant gas discovery in southwestern Cyprus. Ankara is objecting to the development of Cyprus’s natural gas resources unless Turkish Cypriots would be able to share the financial benefits or until the island is reunited. Northern Cyprus has its own administration but is subject to Ankara’s control. However, Israel and Egypt and the United States have backed Cyprus’s efforts to explore its offshore gas. Last year, when Ankara described Egypt’s EEZ accord with Cyprus as “null and void,” Cairo made an unusual rebuke by asserting that the Turkish claim is “rejected and would be confronted.”
Forming the EMGF sends a subtle message to Turkey and Iran that a potential regional alliance is emerging to counter them.
These two developments last year were key in shaping the parameters of the EMGF. There have been no indications that Lebanon, Israel, Turkey, or Cyprus would be keen to escalate the situation, and US diplomacy has been successful in at least defusing these tensions—since resolving them seems improbable. However, forming the EMGF sends a subtle message to Turkey and Iran that a potential regional alliance is emerging to counter them. Most importantly, it is worth noting that the key members of the EMGF (Cyprus, Egypt, and Israel) share the same animosity toward Turkey, a fact that played a part in forming this energy triangle.
The Eastern Mediterranean Gas Trade Routes
While Cyprus, Egypt, and Israel have coalesced to cut the infrastructure cost of exporting gas, they continue to compete in finding their strategic advantage. The major shift that brought the EMGF together was Cyprus’s strategic decision to improve its relationship with Israel once gas in the Eastern Mediterranean was discovered. In 2010, Israel and Cyprus set their EEZ territorial waters and in 2012, Benjamin Netanyahu became the first Israeli prime minister to visit Nicosia. The island aims to become the regional hub for Mediterranean gas due to its geographic location and its EU membership. Cyprus, Greece, and Israel agreed in December to begin the construction of a 2,000-kilometer pipeline that links the Eastern Mediterranean Sea to the European Union via Greece. The construction of this EU-funded, and US-backed, EastMed pipeline is expected to take around six to seven years with a high cost of around $7 billion. This project may not be financially viable but was meant to circumvent the more cost-effective route to Europe via Turkey.
The second nexus in this transformational aspect was Israel’s gas trade with Egypt and Jordan, which became possible with US help. It is worth noting that the Eastern Mediterranean gas discovery has reinforced already existing natural gas cooperation between Israel and most of its next-door Arab neighbors. Between 2005 and 2012, Israel imported gas from the al-Arish-Ashkelon pipeline and Jordan imported Egyptian gas via the Arab gas pipeline (both pipelines were interrupted during Egypt’s instability in 2011-2014). The major difference is that Israel reversed direction and in 2019 will begin to export gas to Egypt and Jordan, and possibly the Palestinian Authority (it has already been providing electricity to the Gaza strip). As Israel engages its Arab neighbors on natural gas, it has less motivation to make a compromise on the Palestinian issue. Moreover, this cooperation makes Eastern Mediterranean countries more sensitive to each other’s politics and economies. To be sure, an unstable Egypt will impact gas trade with Israel and an economic crisis in Cyprus will create uncertainty in Egypt.
As Israel engages its Arab neighbors on natural gas, it has less motivation to make a compromise on the Palestinian issue.
While Israel is now at the center of the Mediterranean gas market, some of its export route options are mired with uncertainty. Israel’s natural gas interests remain in doing business with Turkey; however, the Turkish-Israeli reconciliation in June 2016 was not enough to advance their bilateral talks to build a pipeline that would allow Israeli gas to reach the European market via Turkey while supplying the Turkish market with much needed energy sources. Cyprus vetoed this Israeli-Turkish plan as the pipeline would have to pass through its EEZ.
Moreover, Israel’s gas trade with Egypt and Jordan is vulnerable to potential domestic public pressure in the two Arab countries. While Cairo and Nicosia reached a deal last September to construct an underwater pipeline to deliver natural gas from Cyprus’s Aphrodite field to Egypt, the missing link in this energy triangle remains the underwater pipeline between Egypt and Israel. Both sides resumed their talks this month, but the same barriers to reaching an agreement persist. The legal dispute between them became a major obstacle when Swiss and French courts ordered Egyptian energy companies to pay $2 billion in compensation for halting Israel’s gas supply to Egypt in 2012 after months of repeated attacks by insurgents on a pipeline in the Sinai Peninsula.
Egyptian president Abdel-Fattah el-Sisi signed a law in August 2017 that allowed Egyptian private companies to import natural gas, which enabled the private sector to import Israeli gas without the government’s stamp on such a highly unpopular decision. For now, American, Israeli, and Egyptian private companies reached a deal in September 2018 to operate and revive the Ashkelon-al-Arish pipeline to transfer gas from southern Israel to Egypt’s Sinai Peninsula. Egypt has the infrastructure to liquefy the imported Israeli and Cypriot gas and reexport it to potential markets in Asia or Africa. However, there are indications that Egyptian gas resources might only be enough to cover growing domestic consumption instead of turning Cairo into a major gas exporter.
Lebanon and Palestine are essentially left out in this scenario. They do not have full access to their energy resources or face pending maritime disputes. Neither is expected to become a gas exporter due to limited natural gas potentials that can barely meet domestic energy needs. While the first discovery was the Gaza Marine field in 1998, the Palestinian Authority (PA) was not able to tap into its offshore resources to supply its two power stations in Jenin and Gaza. The PA’s participation in the EMGF is symbolic as it has no access to its offshore gas in Gaza, which remains under Hamas’s control. Israel asserted that no exploration is allowed until Hamas is out of Gaza and a diplomatic arrangement is reached with the Palestinian Authority. On the other hand, Lebanon has begun the exploration phase and is already connected to the Arab gas pipeline with Jordan, Egypt, and Syria. It could also supply Turkey and subsequently the European market; however, the Lebanese government is not seriously preparing for these options until there is clarity on the amount of reserves available. Thus, it has declined for now to join the EMGF, mainly due to Israel’s participation.
Winners and Losers of the EMGF
The winners of this new regional gas landscape are Israel and Cyprus. Israel is a central player in the Mediterranean gas market with options to trade with Cyprus, Greece, Jordan, and potentially Egypt or Turkey. This strategic advantage will likely influence how Jordan and Egypt deal with Israel regarding its policies toward the Palestinians, while Cyprus has secured long-term protection from any confrontation with Turkey. Washington is playing the mediation role to ensure a smooth flow of natural gas for US oil companies invested mostly in Israel and Cyprus.
The EU increased its energy security by diversifying its energy portfolio while Turkey’s isolation is increasing in the Eastern Mediterranean. Further, there are growing indications that Ankara will continue turning to Moscow instead. Lebanon and Palestine are restrained, to varying degrees, by their own political divisions and by Israel’s attempts to restrict their access to the offshore energy resources. The best-case scenario for Egypt and Jordan might be to become self-sufficient. Cairo faces tremendous challenges at home with rapidly rising domestic demand and government-run energy subsidies programs, which in 2013 forced Egypt to stop all its liquefied natural gas exports and become a net gas importer. The largest natural gas discovery in the eastern Mediterranean in 2015, the “supergiant” Zohr field, could potentially bring Egypt closer to energy self-sufficiency and ease the pressure on the Egyptian economy.
The hopes of regional cooperation in the past few years have faded as the EMGF emerges. It is hard to imagine how Cyprus would be motivated to become united and how Israel and Lebanon could resolve their border dispute.
The year 2019 will be a transformational one for Eastern Mediterranean gas as the area’s countries are expected to begin the offshore drilling process. However, the hopes of regional cooperation in the past few years have faded as the EMGF emerges. It is hard to imagine how Cyprus would be motivated to become united and how Israel and Lebanon could resolve their border dispute. While Mediterranean gas could encourage cooperation between certain aligned countries, it seems to reinforce existing dynamics and refuel long-standing tensions. If not managed effectively, the EMGF might become a geopolitical missed opportunity with domestic and regional politics shaping the energy game plan—and not the other way around.