Hope on the horizon

The Mediterranean Basin represents a crucial source of natural gas for Europe. Despite ongoing tensions, there is cause for cautious optimism in the region’s pipeline industry, Gordon Cope explains.

Natural gas is of vital concern to Europe. The continent consumes over 550 billion m3/y, of which Russia supplies around one-third, or 180 billion m3/y. The reasons for the recent, unprecedented spike in prices are numerous, including an unexpected surge in demand, insufficient storage and dwindling domestic supplies, but the over-reliance on one major source dominates the debate. This is why attention will increasingly focus on the Mediterranean. The region has long been a pipeline conduit for energy products from North Africa to Europe, but the discovery of massive natural gas deposits in the eastern sector has fundamentally altered not only the energy landscape, but geopolitical and environmental concerns, as well.

Western Mediterranean For decades, the vast natural resources of North Africa have dominated the energy equation for the Mediterranean. Major gas lines include the 520 km Greenstream line (from Libya to Italy), the 1620 km Maghreb-Europe line (from Algeria to Spain via Morocco), the 2475 km TransMed line (running from Algeria via Tunisia to Sicily and mainland Italy), and the 575 km MedGaz line from Algeria to Spain.

Algeria, especially, plays a key role. The North African country’s conventional gas reserves are approximately 140 trillion ft3. Gas production has remained steady at 9 billion ft3/d, the majority of which is shipped to Europe via the TransMed, Maghreb-Europe and Medgaz systems.

In July 2021, state-owned Sonatrach reached an agreement with Spain’s Naturgy to increase the capacity of the Medgaz natural gas pipeline that runs beneath the Mediterranean between the two nations. The US$90 million project will involve the installation of a fourth compressor capable of increasing capacity by 2 billion m3/y. When the work is completed in late 2021, the total capacity will be 10 billion m3/y, representing about 25% of Spain’s natural gas consumption.

Although many of Libya’s oil and gas producing assets in the eastern portion of the country have suffered prolonged disruptions during its decade-long civil war, the major fields, pipelines and terminals in western Libya, under control of Tripoli’s Government of National Accord (GNA), have operated relatively unscathed. Italy’s Eni, which is the largest IOC producer in Libya, is 50% owner and operator of Greenstream (which has a name-plate capacity of 8 billion m3). Thanks to military support from the GNA, Eni has been able to maintain exports for the last five years at around 5.6 billion m3, slightly under 10% of Italy’s total gas demand.

Since late 2020, when the internationally-coordinated cease-fire agreement between the GNA and General Haftar’s forces in eastern Libya came into place, oil production and exports have stabilised. Eni is pursuing projects to enhance its 320 000 boe/d production in Libya, including the Structures A&E project, designed to enhance gas production at Bahr Essalam. The latter is Libya’s largest gas field, with an estimated 8 trillion ft3 of reserves and 1.1 billion ft3/d of production. Although most new gas will be marked for domestic electricity and industrial needs, political stability in the country will allow for exploration of the country’s immense resources, with the eventual potential to increase exports.

Eastern Mediterranean Over the last decade, exploration and drilling have uncovered vast natural gas reserves in the Levant. Egypt is home to the supergiant Zohr field, holding an estimate 30 trillion ft3 of non-associated gas. Israel lays claim to the Leviathan field (22 trillion ft3), and Tamar field (10 trillion ft3). Cyprus holds ownership of the Aphrodite field (7 trillion ft3), and the Calypso discovery region (10 trillion ft3).

The discoveries have had various impacts in each jurisdiction. Egypt has fundamentally restructured its oil and gas sector, with the potential to become a regional energy hub. ) After its discovery in 2015, the Zohr field was quickly brought into production. Two 30 in. gas lines, each over 200 km long, connect the field to processing plants onshore; by 2019, the field was producing 2.7 billion ft3/d.

) Egypt’s Dolphinus Holdings agreed to import 85 billion ft3 of Israeli gas worth almost US$20 billion over a 15 year period using the existing the Eastern Gas Mediterranean (EGM) offshore pipeline network (Chevron recently agreed to spend US$225 million to increase the EGM infrastructure).

) In addition to meeting domestic needs, Egypt is looking to revitalise up to 12 million tpy of LNG exports at its two mothballed trains. BP and Noble Union Fenosa have been examining plans to connect the Idku and Damietta LNG plants with dedicated offshore pipelines.

In order to maintain the momentum in gas, Egypt is holding an offshore licensing round for nine blocks in the Eastern Mediterranean and three blocks in the Gulf of Suez, with bidding concluded on 1 August, 2021. Several of the Eastern Mediterranean blocks are near the supergiant Zohr.

Other countries are working on large-scale pipeline systems designed to deliver billions of cubic metres of gas to Europe.

In January 2020, Greece, Israel and Cyprus signed the final agreement for the Eastern Mediterranean (EastMed) project, a 1900 km gas pipeline designed to connect the participating country’s gas reserves to Europe. The US$6.7 billion line will have a capacity of 10 billion m3/y in the first phase, with the potential to double capacity in the second phase. An FID is expected in 2022, with potential commissioning in 2025. The ROW will start in Cyprus and run to Greece, and then to Italy, running roughly 1200 km offshore, and 600 km onshore.

The pipeline has its advantages and disadvantages. The cost versus other sources is relatively high, but it monetises gas in the Leviathan and Aphrodite fields, and provides energy security to Europe by diversifying sources and routes. Turkey opposes EastMed for several reasons; it ignores its rights over natural resources in Cypriot territorial waters, as well as the maritime agreement with Libya to create an exclusive economic zone from Turkey’s Mediterranean shore to Libya’s north shoreline.

Turkstream, a 960 km gas pipeline running beneath the Black Sea from Russia to western Turkey, came online in early 2020. The pipeline, with a capacity of over 31 billion m3/y, is designed to bypass the Ukraine (where long-standing animosity between the two nations has resulted in civil war, annexations and international sanctions against Russia). Approximately half the volume is expected to be used by Turkey, with the remainder exported to the Balkans and Central Europe.

In early 2021, gas from Azerbaijan finally arrived in southern Europe with the completion of the Trans Adriatic Pipeline (TAP). The 880 km line running overland through Greece and Albania and under the Adriatic Sea to the Italian port of San Foca completes the Southern Gas Corridor project that has cost over US$30 billion and been seven years in the making. The Trans Anatolian Pipeline (TANAP), the western leg of the project running through Turkey, and the Trans Caucasus Pipeline (TSP) taps into Azerbaijan’s giant Shah Deniz 2 gas field in the Caspian Sea and runs westward for approximately 3500 km. The line, capable of delivering up to 10 billion m3 to southern Europe, is an alternative to Russian supplies.

In June 2021, Malta obtained a derogation (relaxation of a rule of law), that will allow a proposed hydrogen-ready pipeline to be recognised as a project of common interest (PCI) by the European Union (EU). The ruling, which means the project is now eligible for EU funding, is the latest step in a contracted effort by the island-nation for a permanent energy link to the continent. The original proposal called for a 159 km gas pipeline from southern Italy to Malta, but the EU declined aid on the grounds that it was inconsistent with carbon-reduction targets. The €400 million line, which is expected to enter operations by 2024, would help Malta cut shipping vessel emissions by 50%.

Challenges In 2020, the UAE and companies in Israel signed a memorandum of understanding (MOU) to create a new crude supply route to Europe for Middle East oil. The agreement calls for the UAE to deliver oil by tanker to the Red Sea port of Eilat. An existing, under-utilised pipeline controlled by state-owned Europe-Asia Pipeline Company (EAPC) and Israeli-Emirati MED-RED Land Bridge Ltd, connects to the Mediterranean port of Ashkelon, where an estimated tens of millions of tonnes of crude could then be transported by tanker to Europe. Green activists have pointed out that EAPC has a poor environmental track record, and that the project could threaten coral reefs near Eilat. Israel’s Environmental Protection Ministry has put the deal on hold pending further government investigation.

COVID-19 and environmental considerations have further delayed the Greece Bulgaria Interconnector (IGP) pipeline. The 182 km pipeline, which would allow Bulgaria to import up to 1 billion m3/y, was originally expected to be in operation by late 2020, but delayed construction-work and additional assessment for a section crossing under a dam have pushed the commission date back into latter 2022. The line connects between the TAP in Greece, and Sofia, Bulgaria. Bulgaria currently meets most of its 3 billion m3/y gas needs through Russia’s Gazprom.

The region is a long-standing powder-keg of sectarianrelated animosity. In addition to a civil war in Syria and the subjugation of Lebanon by Iran surrogates, conflicts between Israel and various Arab jurisdictions remain a constant threat to energy infrastructure. In May 2021, Israel ordered Chevron to temporarily shut down operations at the Tamar gas field

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platform after violence between Israel and Gaza flared over a religious dispute regarding holy sites in Jerusalem. Chevron, which purchased Noble Energy and its Israeli holdings in 2020, was not ordered to shut-in the Leviathan field.

The region is also replete with overlapping territorial claims. Thanks to Turkey’s general refusal to recognise Greek islands as part of the latter’s sovereignty, the two nations have a series of disagreements over waters in the northern parts of east Mediterranean. In addition, the ongoing diplomatic quarrel over the status of the self-declared Turkish Republic of Northern Cyprus and the government in Nicosia has resulted in clashes over exploration and drilling, which led to a standoff between Turkey, Greece and Cyprus in August 2020. Such aggressive moves by Ankara have pushed Greece, Cyprus and Egypt to strengthen ties and sign formal demarcation agreements to recognise each other’s exclusive economic zones.

In addition, Egypt recently organised the Eastern Mediterranean Gas Forum that includes all eastern Mediterranean states and France, while excluding Turkey. The move, which coincides with the escalation of joint military exercises, underlies the importance of France as a major arms supplier to Greece and Egypt, as well as Egypt’s political and economic considerations.

The future Long-term supplies from Algeria are being challenged by several factors. While conventional production remains steady, Sonatrach has been squeezed by falling revenues during the COVID pandemic; funds for maintenance and development, let alone exploration, are in short supply. Domestic consumption is also rising dramatically, chipping away at export capacity. The country has an estimated 710 trillion ft3 of shale gas which could supply up to 2 billion ft3/d of production by 2030, but development efforts are hampered in this parched country by widespread opposition due to the millions of litres of water usage in fracking each well.

Not all is doom-and-gloom. In August 2021, Iran announced that it had found an immense deposit of natural gas in its section of the Caspian Sea. The Chalous field is estimated to be the tenth largest gas deposit in the world, and Iranian officials speculate that it could eventually supply 20% of Europe’s gas needs. Such an undertaking would require an immense expansion of existing gas lines, as well as new projects.

In conclusion, the growth in new gas deposits in the eastern Mediterranean Sea and adjacent territories offers significant opportunities to diversify Europe’s sources away from Russia. Long-standing regional disputes, however, raise risks and complicate multi-billion dollar projects like EastMed. However, opportunities to monetise gas resources and bolster economies are motivating countries like Egypt to improve diplomatic relations and commercial ties with neighbours in ways few thought possible even a few years ago. The spike in prices will only add urgency. While many significant challenges remain, cautious optimism is on the rise in the pipeline sector of the Mediterranean.