Politics keep Eastern Mediterranean offshore gas elusive, forum told

Political tensions will likely keep Eastern Mediterranean offshore natural gas supplies from being developed soon, speakers told an Apr. 11 forum at Johns Hopkins University’s School for Advanced International Studies.

“This is a region where multiple conflicts are superimposed on each other, including the Syrian civil war, conflicts with ISIS, and the refugee situation,” said Michael Leigh, a senior fellow at the German Marshall Fund who runs its Eastern Mediterranean Energy Program.

The rift between Israel and Turkey has grown, and Turkey continues to refuse to recognize the Republic of Cyprus, which wants to lease tracts to its immediate south, he noted.

“Diplomats, politicians, and journalists maintain gas resources could provide an incentive for cooperation. Energy companies are more skeptical,” said Leigh, who previously held senior positions in European Union institutions for more than 30 years.

A second speaker—Nikos Tsafos, an adjunct professor in SAIS’s Energy, Resource, and Environment Program who formerly headed PFC Energy’s natural gas practice—said there was excitement when Tamal field was found in 2009 and Leviathan, Aphrodite, and Zohr fields were discovered in 2010.

“Over the last 4-5 years, I’ve seen questions grow about security and market potential,” he continued. “Noble Energy, the major US player there, has reduced its Mediterranean budget. A multiplicity of options has made many people move onto the next option before giving the first one a real chance.”

More support needed

Israel and other stakeholders will need to show more support if they expect the resources to be developed, Tsafos said. “Ultimately, there needs to be more tolerance for risk, which looks even more unlikely,” he declared. “Broadly, it needs to be apportioned in a better way. I haven’t seen this happen.”

“The issue became more contentious in Israel when politicians believed oligarchs—who are called tycoons there—took too much control,” said Leigh. “I also believe ordinary citizens believe they won’t get benefits, which I think shows what a bad job the government has done in conveying the idea to the population.”

Companies considering investing in developing offshore resources to bring gas ashore to Israel are seeking a stability clause in their contracts to prevent a future Knesset from changing terms, he told his SAIS audience. “The Supreme Court has questioned this, but the companies and the government have a year now to work something out,” Leigh said.

Producers are having trouble getting governments to recognize that developing resources is a long-term process, the speakers agreed. “It’s hard to say that whatever is agreed to now will be in place in another 25 years,” said Tsafos. “The deal that led to a new pipeline to Israel from Egypt years ago wasn’t durable. The pipeline isn’t operating anymore.”

Leigh said that if the situation in Cyprus, which remains divided between Greeks and Turks, is settled, public money from Europe might be mobilized to at least bring gas to shore there. “I believe some level of public support might be necessary,” said Tsafos. “But throwing money at projects won’t be enough if private parties aren’t willing to take on more risk.”

Contact Nick Snow at nicks@pennwell.com.

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