Opportunities for Regional Energy Cooperation in the Eastern Mediterranean: The Role of Cyprus

THE CES EASTERN MEDITERRANEAN AND EUROPEAN STUDY GROUP

OPPORTUNITIES FOR REGIONAL ENERGY COOPERATION IN THE EASTERN MEDITERRANEAN: THE ROLE OF CYPRUS A Discussion with Mr. Yiorgos Lakkotrypis March 13, 2015

The Eastern Mediterranean and Europe Study Group at the Minda de Gunzburg Center for European Studies at Harvard University brings together scholars, policymakers, and practitioners with expertise on the Eastern Mediterranean region – Cyprus, Greece, Israel, Lebanon, Syria, the Palestinian Territories, and Turkey. This Study Group focuses, in particular, on how contemporary geopolitical and cultural factors are reshaping the dynamic, reflexive relationship between the Eastern Mediterranean and Europe.

This event was made possible with the generous support of the Embassy of the Republic of Cyprus in Washington, D.C.

Eastern Mediterranean and Europe Study Group

Opportunities for Regional Energy Cooperation in the Eastern Mediterranean: The Role of Cyprus Overview The Republic of Cyprus is strategically positioned to become a key player in the Eastern Mediterranean region’s efforts to develop new energy sources and alternative transit routes. As an EU member that is centrally located in this important region, Cyprus can strengthen regional stability and multilateral energy cooperation by working together with long-time regional partners, such as Egypt, Israel, Jordan, Lebanon and Palestine. Minister Lakkotrypis will highlight Cyprus’s role in the Eastern Mediterranean energy landscape and the challenges ahead.

SPEAKER Mr. Yiorgos Lakkotrypis

Minister of Energy, Commerce, Industry and Tourism of the Republic of Cyprus

CO-CHAIRS Dr. Elizabeth H. Prodromou

Visiting Associate Professor of Conflict Resolution, The Fletcher School for Law & Diplomacy, Tufts University

Dr. Payam Mohseni

Iran Project Director and Fellow for Iran Studies, Belfer Center for Science and International Affairs, Harvard University Kennedy School of Government

TRANSCRIPT OF PROCEEDINGS I’d like to start by thanking this study group for giving us this amazing opportunity to be addressing such a distinguished audience such as yourselves. What I’d like to do is maybe take ten, fifteen minutes to give a brief outline, maybe give an executive summary of what has been going on in Cyprus and the Eastern Mediterranean at large in terms of energy and geo-politics—something which I hope will steer the conversation to whatever you wish to be discussing for questions and answers, so comments and discussions which will follow.

Let me start by saying that ever since the discovery of hydrocarbons in the Eastern Mediterranean, predominantly

by Israel and Cyprus so far, certainly Egypt for many years but we’ll be talking about Egypt in a minute as they have been falling behind in production, there’s been a lot of discussion about how that new prospect resource can shape the politics or geo-politics of the Eastern Mediterranean. You’re all aware of a historical, long conflict which runs deep through people’s DNA—a lot of question marks, how potentially that resource in how the Eastern Mediterranean at large can become an EU alternative energy source of supply so to lessen the dependency on Russia. And I have to say that the US administration has been pretty busy over the past few years trying to put things together.

To give you an outline, Israel has been producing natural gas for many years now but it has only been producing it for domestic use and right now they’re sitting on a very large reservoir called the leviathan with about 20 Tcf, about half of which is available for exporting. And so is Cyprus sitting on a very big field called Aphrodite for about 4.5 Tcf most of which is available for export, and to put the numbers into perspective for Cyprus, just keep in your minds that for every half Tcf we can generate electricity in the country for 25 years. So that’s how big the reservoir is, that’s why the orientation is for export. And so, talking techno-economically, we have been looking for one of the optimal ways that we can actually monetize these resources and I wish that we could be operating in the North Sea as I was saying this morning where the relationships between the UK, the Netherlands, Norway are perfect and pipelines can run everywhere, and ships can go anywhere they wish, the Eastern Mediterranean is certainly not a walk in the park as the Israeli foreign minister told his Swedish counterpart, it’s a little more complicated than putting together an IKEA table. So while looking at the techno-economics one cannot, for better or for worse, ignore the politics.

We have looked at various options about the possibility of liquefying the gas on either on-shore facilities or off-shore facilities and sending it to distant markets. We looked at the possibility of innovative technologies which still do not have a marine application like compressed natural gas, we’ve looked at pipeline gas, and we’ve come to the conclusion it appears both on the Israeli side and the Cypriot side that the best way to monetize the gas is through regional safes. And we have been focusing on Jordan and Egypt. Which brings me to a very good point to talk about Egypt and Jordan. Jordan has been hit pretty bad with gas shortages after the gas from Egypt through the gas pipeline stopped flowing through the Sinai. It stopped flowing for two reasons: one is terrorist attacks, it has been blown up 17 times, and because the majority of the Egyptian production is now diverted for domestic use.

In Egypt the use of subsidies has cost a lot of the companies who are operating in Egyptian waters to cut back on the development of indigenous resources on the production which has forced a few years ago the Egyptian government to divert everything for domestic use, even so there are still 3-4 power cuts a day, especially during summer months and the two LNG export terminals which have been constructed at great cost, run by European companies, British Gas and Eni are underutilized so they’re not unable to fulfill their contracts. Very relevant is one year ago British Gas declared on its Egyptian LNG contracts and had to pay almost 2 billion in Euros in penalties. So having seen these opportunities that Cyprus, Israel have the gas, Egypt has the infrastructures, we have been working very hard over the past few months to put things together and things have been progressing quite well I have to say. There should be some agreements signed today in Sharm al-Sheikh between Cypriot companies and Egyptian companies and there will be a lot of announcements taking place in Cyprus next week from the companies themselves that will be proceeding for a few development plans, declarations of commerciality, and it is a very critical milestone for Cyprus because it will be the first time we are moving from the exploration phase of the oil and gas industry to the exploita-

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OPPORTUNITIES FOR REGIONAL ENERGY COOPERATION IN THE EASTERN MEDITERRANEAN: THE ROLE OF CYPRUS ... Transcript of Proceedings

tion phase.

Having said that, again, looking at it from the techno-economic angle, I’ll put that aside and look at it from the geo-political angle. What has particularly the US been trying to do, what has our government been trying to do, we haven’t been that successful, is try through this newly found resource to bring everyone on the same table, hoping they will resolve conflict. What we have seen is rather the opposite, emotions flying high between Lebanon and Israel or between Turkey and Cyprus or between Turkey and Egypt or Turkey and Israel, things have been deteriorating.

When I was in DC on Monday and Tuesday, we sat down with the State Department, a few think tanks to look at what else can be done. And the Cypriot government suggested that we now escalate and elevate the conversation to not what divides us which is basically the natural resources, but could unite us which would be the infrastructure. So, what kind of infrastructures do we need, all of the countries, 10, 15 years from now, not tomorrow, not today in which the conflicts and differences are there, but what can we do in terms of infrastructures through a grand master plan, grand master design that would take us to the next 10, 15 years, take no exclusions including all of the countries in the region be it Greece, Turkey, Cyprus, Israel, Lebanon, Jordan, Egypt, Palestine. Let’s sit down and look at what can we do so that first of all we don’t duplicate investments, and second potentially we ensure security of supply for everyone.

I would be very interested as the Minister of Energy to discuss reverse flow with Egypt, reverse flow with Israel, reverse flow with Lebanon, in case I need it and I’m sure all the countries in the region do the same. And thirdly to maximize the potential of selling natural gas of the Eastern Mediterranean. We have one LNG terminal to enable us to ship the gas to the most distant markets should we have designs for pipelines to Greece design for pipelines to Turkey, to Egypt, to all these directions something which will insure that we have a diversified rooting of the gas. Again, this is suggestion we put on the table, it was well received, let’s see if this can be driven forward. I can give you a very small example of what problems it can surpass. Let’s take the tripoint dispute between Lebanon and Israel, it’s a strip of land of about 800 kilometers, a strip of water actually of about 800 kilometers. The dispute is primarily framed around resources, the natural gas. Now, if you elevate that conversation higher what kind of infrastructures do you need for when that natural gas will be in play then potentially you might have something there in common to talk about.

I have with me a number of maps, I think this one is the most relevant, it gives you a pretty good idea about all of the activity which is going on in the Eastern Mediterranean. We still anticipate and hope that Lebanon will move soon. They are having their own domestic internal challenges to my mind and I told my friend the Minister of Foreign Affairs Gebran Bassil that you’re arguing about the wrong thing, you’re arguing about what pieces of block of water each function in Lebanon should manage when they should be talking about how to manage the actual revenues. But we are hoping that that would move very quickly, they go through a licensing round and we increase the activity which is going on in the Eastern Mediterranean at large.

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