EURODIALOGUE, Volume 4, CYPRUS GAS RESOURCES AND GEOPOLITICAL GAMES

L E D RA

COLLEGE N I C O S I A

EURODIALOGUE Autumn 2015 Volume 4

CYPRUS GAS RESOURCES AND GEOPOLITICAL GAMES Journal of International Relations, European, Economic and Social Studies A Publication of LEDRA COLLEGE – VUZF UNIVERSITY

DEPARTMENT OF M.A. IN INTERNATIONAL RELATIONS, GLOBAL ECONOMY AND STRATEGIC ANALYSIS

and EUROPEAN RIM POLICY AND INVESTMENT COUNCIL (ERPIC) in co-operation with Dr. Eleni THEOCHAROUS MEMBER OF THE EUROPEAN PARLIAMENT

This Publication is a cooperation of the Member of the European Parliament Dr. Eleni Theocharous with Ledra College – VUZF University, Department of M.A. in International Relations, Global Economy and Strategic Analysis and the European Rim Policy and Investment Council (ERPIC).

EDITOR:

Yiannos CHARALAMBIDES Doctor of International Relations and European Studies Head of the Department of M.A. in International Relations, Global Economy and Strategic Analysis, Ledra College - Vuzf University

CONTENTS FOREWORD ..................................................................................................................................................... 3 POLITICAL INTRODUCTION

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Maroš ŠEFČOVIČ

PART I POLITICAL BACKGROUND AND LEGAL ASPECT SECURITY, NEW GEOPOLITICAL ENVIRONMENT ..............................................................................

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AND EU ENERGY SUPPLY Eleni THEOCHAROUS ENERGY STRATEGY TO THE BENEFIT OF CYPRUS..............................................................................

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AND THE CYPRIOT PEOPLE Neoklis SYLIKIOTIS EASTERN MEDITERRANEAN GAS FIELDS ................................................................................................

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AND A NEW ENERGY CORRIDOR TO EUROPE Nikolas IOANNIDES

PART II GEOPOLITICAL AND TECHNICAL ANALYSIS THE TURKISH DIPLOMATIC RESPONSE TO THE DELIMITATION ...........................................

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AGREEMENTS IN THE EASTERN MEDITERRANEAN SEA Solon KASSINIS NATURAL GAS—FUNDAMENTALS, GEOPOLITICS AND THE WAY FORWARD .........

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George Chr. PELAGHIAS EXPLOITATION OF GAS RESOURCES AND STRATEGIC OPTIONS FOR ISRAEL Yiannos CHARALAMBIDES

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FOREWORD Dear reader,

This journal deals with energy issues and particularly with gas resources discovered in the Eastern Mediterranean Sea. Through the articles below, as collected by the publishers for the purposes of this journal, the readers have the opportunity to deeply look into the core issues of energy policies and strategies.

Thus, the readers can realise the importance of the various aspects of energy which are relevant to the exploitation of gas and oil in terms of geopolitics. Technical matters, conflicting and convergent national interests, security and political as well as economic issues, strategies or strategic deficits are factors upon which decisions can be usually made by the parties involved.

These are variables which can define the rightness of a decision. In this regard, one of the main issues is to examine whether natural resources such as gas and oil are instruments of cooperation, prosperity stability and peace or causes which may trigger frictions, crises and even conflicts. Therefore, the articles of this journal explore ways to avert worst case scenarios and to create a fertile ground for cooperation and prosperity, for best case ones.

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EDITORIAL SCIENTIFIC ADVISORY BOARD Members of the Board Savvas KATSIKIDES Professor of Social and Political Sciences/University of Cyprus Dr Gagik HARUTYUNYAN Executive Director of Noravank Foundation Christodoulos PELAGHIAS Doctor in Law Chairman of European Rim Policy and Investment Council (ERPIC) Vahagn R. AGLYAN Ph.D., Noravank Foundation, Advisor, Deputy Director, Center for Political Studies

SUPPORTING EDITORIAL TEAM Mary PANOUSSI DES in Translation-Conference Interpretation, Université de Mons-Hainaut (UMH) Executive Masters in Public Relations, Marketing and Advertising, Université Libre de Bruxelles (ULB) PhD Candidate in Environmental Communications, Frei Universität Berlin Thalia LIVADIOTOU MA in Public Sector, Panteion University, MBA general, Leicester University Marios PETROU Law degree (LLB), University of Essex Charis KYRIAKOU BSc Business Management-University of East-Anglia MSc Advanced Business Management-University of East-Anglia Lecturer of Digital Marketing TARAMA DESIGNS - Nicosia Marios CHARALAMBOUS Cover Design, Layout Design and Type Setting Zafiria STEFANOPOULOU Proof Reading and Corrections ISSN 1986-4698 4

Copyright:

Dr Eleni Theocharous Dr Yiannos Charalambides

Legal responsibility:

Dr Yiannos Charalambides

All rights reserved. No part of this publication may be copied, reproduced, stored in a retrieval system, or transmitted, in any form or means, without the prior expressed permission in writing of the publisher of the journal.

PUBLICATION ADDRESS: LEDRA College Department of M.A. in International Relations, Global Economy and Strategic Analysis, 13 Langada str., 2023 Strovolos, Nicosia, Cyprus VUZF University Gousla Str. 1, Sofia 1618, Bulgaria EUROPEAN RIM POLICY AND INVESTMENT COUNCIL (ERPIC) PO Box 40758 6307, Larnaca Cyprus Eurodialogue is a periodic journal. Articles and book reviews may be sent to the address below: Dr Eleni Theocharous, MEP ASP 08E246 – European Parliament 60 rue Wiertz, 1047 Brussels, Belgium The journal can be acquired by contacting the editors.

The full responsibility regarding the content of the articles belongs exclusively to the authors.

This Journal has no commercial purpose and it is distributed for free.

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POLITICAL INTRODUCTION Maroš ŠEFČOVIČ* We live at a time of remarkable changes and shifts to the international energy landscape. These changes oblige us to respond to a number of major challenges.

Secure, sustainable and affordable energy is a priority for the EU. Securing reliable and affordable energy supplies for European citizens and the economy has been a long-standing goal of the EU’s energy policy. Energy security, based on solidarity and trust is also the first pillar of the genuine Energy Union. The recent events in Ukraine have brought energy security to the top of the political agenda in Europe and the diversification of supplies is a must in this context.

Secure, sustainable and affordable energy is also a key priority for the Southern and Eastern Mediterranean countries. Energy cooperation is a key priority for the Euro-Mediterranean Partnership, and I am delighted to see here tonight many ministers from both rims of the Mediterranean Sea. The EU and the countries of the Southern and Eastern Mediterranean now have a unique opportunity to work together towards developing new sources of energy, new gas and electricity networks, integrating our markets, and cutting demand through improved energy efficiency.

Our energy relationship with the Southern Mediterranean countries has largely been based on the mutually beneficial trade of fossil fuels. In fact, North Africa is the third largest supplier of natural gas to the EU after Russia and Norway. In 2013, Algeria, Libya and Egypt accounted for 15% of the EU’s total gas imports.

Mediterranean neighbouring countries’ contribution to diversification and the security of gas supply in Europe could further increase in the future, thanks to the potential for additional production in the region. *

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Vice-president for Energy Union

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Algeria has huge unexploited gas resources, including technically recoverable shale gas reserves, estimated to be the third largest in the world.

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New supplies of offshore gas are expected to be produced in the Eastern Mediterranean.

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The Mediterranean is also set to become a transit route for gas, either through pipelines from the South and the East, or through existing and future LNG terminals, evenly distributed along Europe’s coasts.

But for all this to happen, producers, exporters and consumers of gas in the Mediterranean need to cooperate more closely. The European Commission is happy to facilitate such cooperation and tomorrow there will be an in-depth discussion on how to intensify our cooperation and turn the Mediterranean into a gas hub.

If hydrocarbons will remain a key part of the Euro-Mediterranean partnership, we shouldn’t forget the great potential for renewables in the region. More renewable energy would benefit the EU, as well as the Middle East and North African countries. Given their abundance of solar and wind resources, investing in renewables makes even more sense for Southern Mediterranean countries.

A larger share of renewables is a priority for all these countries and you have already and rightly started to put in place ambitious strategies for its development. The EU fully supports your efforts and is willing to provide technical assistance and project financing within the framework of the European Neighbourhood policy.

However, generating more low carbon power is only one aspect of the challenge we are facing. We need also to expand, modernize and interconnect our electricity grids. In the EU we have been carrying out for years, and we are now close to complete, a process of integration of our national electricity systems. There are obvious reasons to think that the integration of the electricity networks and markets should be pursued also among Southern-Mediterranean countries and between the southern and northern rims of the Mediterranean Sea.

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An integrated regional electricity market delivers benefits in terms of more secure, more stable and more affordable supply. The Commission has supported and will continue to support the gradual establishment of a Mediterranean electricity regional market, working together with all partners in the region and in particular with the regional associations of the energy regulatory authorities (MEDREG) and of the transmission systems operators (MEDTSO).

Securing sustainable and affordable energy supplies is not only about increasing production, though. Reducing consumption through the more efficient use of energy is also vital. Moderating energy demand is therefore the third pillar of the genuine Energy Union as energy efficiency is the most effective tool to reduce our external dependence. In Europe we have made great progress in making our buildings and appliances more energy efficient and we can share our expertise through Euro-Mediterranean cooperation.

The potential for energy savings is similarly huge in all Mediterranean countries.

Let me conclude by stressing that secure, sustainable, and affordable energy is key for stability and prosperity across the Euromed region. The best results will only be achieved when the EU and its Mediterranean partners work together to tackle their common energy challenges.

18 November 2014 Rome, High Level Conference “Building a Euro Mediterranean bridge: the strategic importance of gas and electricity networks in the context of energy security�

SPEECH/14/1902

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PART I POLITICAL BACKGROUND AND LEGAL ASPECT

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Security, New Geopolitical Environment and EU Energy Supply

SECURITY, NEW GEOPOLITICAL ENVIRONMENT AND EU ENERGY SUPPLY Eleni THEOCHAROUS* Cyprus already holds a place in Europe’s energy map. The presence of commercial hydrocarbons within the maritime Exclusive Economic Zone (EEZ) of Cyprus and the contiguous corresponding zone of Israel, creates a new geopolitical and geostrategic landscape in the region.

The modern world, and especially the EU and US have energy-intensive systems and energy is a factor that ensures and requires security safety conditions.

It is admitted that when there is no security, no investments can be made; there cannot be any exploitation of the natural wealth, there can be no development and there is no market stability.

Therefore, the question is whether and how Cyprus can operate in the European and global market?

Let’s not forget that Cyprus is the only European country under occupation since the Turkish invasion, and with a constantly disputed sovereignty.

The question is not the presence or absence of hydrocarbons in the plot 12 and in other parts of Cyprus’ Exclusive Economic Zone but whether we are able to manage them. This is an issue that causes great concern.

A possible alliance with Israel will have significant advantages, following the recent changes in the political map of the Eastern Mediterranean, after the Arab Spring Revolution. However, in order to create an alliance the relationship between the two countries needs to be strengthened.

Strategic alliances are important and should also cover other essential aspects, apart from the military one, such as economic and diplomatic relations.

Strengthening Cyprus is therefore a prerequisite for the fair solution of the Cyprus problem. Cyprus will be able to negotiate differently and will be able to claim everything that is rightfully its own.

Other issues are the safety measures, the drilling and transport of gas, (pipelines to and from Cyprus) and the processing of gas, meaning the *

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Member of the European Parliament Chair of the EU-Armenia Friendship Group in the European Parliament

ELENI THEOCHAROUS

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construction of terminals for the liquefication and storage of gas. Thus, appropriate infrastructure is necessary and to that effect studies need to be contacted.

It is essential to form a strategy that reshapes and redefines the relations of Cyprus with: 1.

Other countries that already exploit their hydrocarbon reserves

2.

Greece, Turkey and Israel

3.

Russia and USA and of course the EU

Our relations with international markets as well as the need for appropriate infrastructure and security systems are key factors for success.

Currently there is common interest in exploiting the natural wealth of the Eastern Mediterranean, along with Israel. Therefore, based on our common interests, the relation between Cyprus and Israel must be intensified In my opinion, our single option at this point would be to transfer our natural gas as raw material in Cyprus in order for it to be processed, used and exported.

Israel, on the other hand, has more options. Either to transfer the natural gas via Egypt, Turkey, or Cyprus, or even to its own coasts. (In either case I will not be examining the technical problems and difficulties that may arise such as the economic cost etc.)

However, transferring the Israeli gas via Egypt seems to be problematic. Israel wants to detach itself from the existing energy dependence from Cairo. It is worth mentioning that 20 % of Israeli energy demand is covered by Egypt whereas at the same time the pipeline extending from El Arish in Sinai is constantly under attacks and therefore its safety is highly questionable. Moreover, the political instability in Egypt as well as the country’s influence and long-term efforts to gain leading role in the Arab and Muslim world are the reasons why Israel would rather break its dependence from it.

The same applies to the relationship between Israel and Turkey, which as an emerging regional military and economic power could pose a potential threat to Israel’s supremacy in the Middle East. Turkey wishes to become the leader of the Islamic and Arab world, seeking to replace Israel as the greater power in the region. Considering that, and the greater length of the underwater pipeline transferring the natural gas from Israel to Turkey, Israel seems unwilling to move towards a deal with Turkey.

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Security, New Geopolitical Environment and EU Energy Supply

Cyprus, in my opinion, would constitute the best and most profitable option for Israel as it will be able to export gas as a raw material directly to the EU, making it much more competitive. Furthermore, «Noble Energy» is in charge for both, Cyprus’ marine field 12 or Aphrodite as well as that of Israeli “Tamar” and “Leviathan” fields.

The question arising is whether we are willing to move towards the creation of a terminal on our southern shores, which will be available for the exploitation of any marine field regardless of the company that will carry out the drilling.

Cyprus of course, must acquire protection mechanisms for the production of natural gas. At the same time it needs to manage a possible reaction coming from Russia, whose interests might be affected. Let’s not forget that Russia has always been an important political and economic ally for Cyprus and its effective involvement in this respect is essential to further strengthen our position.

In the midst of the economic crisis, Moscow had offered to the Republic of Cyprus a loan of 2.5 billion euro with an interest rate of 4.5 %. It is no secret that Gazprom has shown great interest as well in two marine plots in the Cypriot EEZ, which shows Russia’s interest in taking part in the co – exploitation of Cyprus’ natural wealth. However, we have not positive results yet.

It is quite evident at this point that there are mutual interests between Cyprus and Russia and Cyprus and Israel that could be better served with the creation of a natural gas terminal in Cyprus. However, such a decision is related to the Russian interest in Turkey, which is, in fact, an attractive market for Moscow. So far Russia is not get involved into the procedures regarding the exploitation of Cyprus gas recourses.

Today’s realities actually indicate that the EU has massive needs in energy consumption and therefore needs to have a reliable supplier. For the moment, the EU obtains its gas supplies from Russia via Belarus and Ukraine. At the same time Turkey, taking advantage of its strategic location, is trying to become Europe’s energy hub breaking to that effect Russia’s monopoly, even though it has no resources of its own.

What is more, the economic recession has created internal problems in all Member States and has created uncertainty regarding the future of the euro and Europe’s cohesion. However, the EU has not ceased to explore ways towards loosening its dependence from Russia when it comes to energy resources.

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ELENI THEOCHAROUS

EURODIALOGUE Journal of International Relations, European, Economic and Social Studies

If Cyprus manages to transport and channel its natural gas and the Israeli gas to the EU, then it will become an important and reliable European energy supplier.

This would be the greatest challenge for Cyprus.

On one side Israel wants to proceed with the exploitation of natural gas as soon as possible but on the other side Cyprus seems unwilling in taking a decision, for various reasons, towards building the terminal on its shores. Thus we run the risk that Israel and «Noble Energy» might loose interest.

So it is of imperative importance to finally make the decision and to create the terminal for the exploitation and liquification of natural gas. Otherwise we face the risk that Israel proceeds with an alternative option, such as the transportation of natural gas in Eilat, on the Gulf of Aqaba.

I do wonder whether, in case the government of the Republic of Cyprus fails to take a decision soon, how we are going to build our own terminal and gas pipelines for processing and liquification. One might say that the project will be taken by companies and investors, but the potential cooperation with Israel would probably be lost. This of course does not mean that other companies from other countries will not be showing interest in research and exploitation of resources from other marine areas and thus channel the raw material to Cyprus, i.e. the EU. Russian companies are much interested, as mentioned already.

The point is that today Israel seems be ready to invest towards the construction of the onshore terminal and collaborate with Cyprus in order to protect this facility. Such opportunity must not be lost. “Noble” itself claims that it may start channeling gas, just four years after the agreement is signed. Thus, as long as Cyprus’ government delays towards taking a decision and determining what will be its relation with Israel and whether the latter will be its main partner (since anyway “Noble” is the one in charge for the exploitation of the gas recourses in all three, Aphrodite, Leviathan and Tamar) the chances of missing the opportunity of a strategic alliance with Israel are increasing.

We must create an “energy shield of interests” around Cyprus, which will offer protection from any Turkish threats. This, of course does not automatically mean that Ankara will give up its aggressive policy. Besides, the tension created by the Turkish occupying forces just off west of the island, in the Paphos sea area, and the questioning of Cyprus’ EEZ, has a purpose on its own. Turkey seeks to prevent any foreign companies from showing interest in exploring Cyprus’ natural resources. Also Turkey aims to the questioning of the continuity of the

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Security, New Geopolitical Environment and EU Energy Supply

Greek EEZ with Cyprus’. Moreover, it aims to creating tension between Egypt and Greece so that the Eastern Mediterranean, from Marmaris to Alexandretta, can be turned into a Turkish “lake” that surrounds Cyprus.

The aforementioned might as well be the result deriving from the deficit –if I may be allowed the term – of military power between Greece and Cyprus and their constant concessions towards Turkey.

Greece is weakened and essential security issues are created, which effectively means that Cyprus cannot adequately protect its own EEZ. So what would be Ankara’s next steps, especially after Cyprus will assume the Presidency of the EU? From my point of view, Turkey will be reacting by deploying its fleet and research vessels in the west of Cyprus, especially in the event of the determination of Greece’s EEZ, including Kastellorizo. This determination of EEZs should have been done long ago whereas the safety of both Cyprus’ and Greece’s EEZs would have be guaranteed by the Doctrine of Joint Defence Area, the design of which was not at all accidental. It was integrated into the logic of Cyprus’ coupling strategy with Greece.

If the Doctrine was formed today, Cyprus and Greece would have had military, economic, commercial, marine and energy leverages that would have multiplied their power from the Balkans to the Middle East and would have served the common European interests at the same time.

With proper strategic alliances, based on international law and mutual respect under the EU, we could become a strong European power with an important geostrategic role.

In order to prevent any Turkish threats we must form a strategic approach or we should just accept a solution to the Cyprus problem which will entail assignment of our sovereign rights to foreign powers.

With the proper strategic approach we could become a regional power, increase our political influence and thus improve the prospects for resolving the Cyprus problem on the basis of the principles and values of the EU. Proper solution of the Cyprus problem is essential for many reasons. It most of all creates conditions for security and mutual benefit, which are essential prerequisites for attracting investments and development of the entire region.

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ELENI THEOCHAROUS

EURODIALOGUE Journal of International Relations, European, Economic and Social Studies

Cyprus would be depending on Israel regarding its defense and security, which will be enforced with the prospect of an Israeli-Cypriot-Greek agreement. Such alliance would be very important for both Cyprus and Greece especially due to Israel’s military power and its relation with the USA. On the other hand, they could provide Israel with strategic elements such as military facilities, co – exploitation of natural gas, strengthening of its relations with the EU and mostly excluding the possibility of Israel being isolated within a fundamentalist Islamic region.

The aforementioned must take into consideration the involvement of American, European and Russian interests that would limit the Turkish expansionist policy.

Turkey as well should proceed towards resolving its disputes with neighboring states within the framework of EU principles and the acquis communautaire, part of which includes the Law of Sea. Turkey will be obliged to ratify the Treaties, respect and implement them, a necessary step toward its EU accession.

The natural gas may be the catalyst that will change the balance of powers and that may effectively lead to the democratic solution of the Cyprus problem and not to a solution that will dissolve the Republic of Cyprus.

Cyprus may be established a strong European naval power in the region whereas at the same time a strategic (economic, military etc) alliance between Israel, Cyprus and Greece will be essential since an alliance with Israel may bring upon other enemies, those against Israel.

The EU’s power supply is important for both Cyprus and the EU as a whole.

The liquefied gas can be transported to Europe through pipelines to the terminal of Revythoussa, or by Greek and Cypriot tankers. It can even be converted into electricity in Cyprus and be transported to Greece and Europe or Israel and the Middle East. This might even be more profitable and safer regardless probable the huge environmental burden of exporting liquefied gas. However, this crucial issue should be examined at a later stage by experts.

In conclusion, Cyprus with its huge gas reserves has the potential of becoming a strategic supplier of energy throughout the EU offering an alternative solution to its dependence on Russia and Turkey.

This text was written before the aggressive invention of Turkey with its flit into the CEEZ late October, November and December

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ENERGY STRATEGY TO THE BENEFIT OF CYPRUS AND THE CYPRIOT PEOPLE Neoklis SYLIKIOTIS* The discovery of significant quantities of hydrocarbons in the Exclusive Economic Zone (EEZ) of the Republic of Cyprus undoubtedly changes the course of Cyprus’ history. Together with the findings in Israel, which confirm that the Levantine basin and wider maritime area of South-eastern Mediterranean represent a considerable source of energy1, the region’s geo-political and geo-economic map is undergoing changes, signaling an impending geostrategic reversal.

Natural gas is perhaps the most significant hope our State and people ever had for social prosperity, economic growth and political upgrading. However, the utilisation of the new realities to the benefit of Cyprus and our people are subject to political decisions.

In 2003 the government of Glafcos Clerides signed an agreement for a delimitation of the EEZ with Egypt2 and in 2007 the government of Tassos Papadopoulos signed a corresponding agreement with Lebanon3. Assuming the Presidency of the Republic, the Christofias Government, despite many pressures to do otherwise, proceeded rapidly, completing the first Licensing Round on 24th October 2008 by signing a Production-Sharing Agreement with the American company Noble Energy International Ltd for Block 12 of Cyprus’ EEZ. Thus, the Route of the Natural Gas we had envisioned began to take shape.

The Christofias Government had set as a clear strategic objective the safeguarding of our energy self-sufficiency, the strengthening of the geostrategic role of Cyprus through the recording of the energy potential and the rational uti*

Member of the European Parliament, Vice-President of the GUE/NGL group, Former Minister of Interior (2006-2012). Former Minister of Energy, Commerce, Industry and Tourism (20122013)

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S. Zemach, former Director General of Israel’s Ministry of Energy and Water Resources, “EU Energy Security – The role of the Eastern Mediterranean”, Challenges and Opportunities Overview, presentation at the event “2030 EU Energy Security: The Role of the East Mediterranean Region”, at European Economic and Social Committee, Brussels, 02.12.2014.

Agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone-17 February 2003-at http://www.un.org/depts/los/LEGISLATIONANDTREATIES/PDFFILES/TREATIES/EGY-CYP2003EZ.pdf Ministry of Commerce and Tourism, ‘Hydrocarbon Exploration-Legal and Regulatory Framework’ http://www.mcit.gov.cy/mcit/mcit.nsf/All/A6D222B09D72E659C2257441002EE9BE?OpenDocument.

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EURODIALOGUE Journal of International Relations, European, Economic and Social Studies

lization of the energy raw materials and ultimately the transformation of our country into a regional energy center for the assembly, processing, passage and transportation of energy resources from the surrounding region to the European and international markets.

From 2008 until 2013 big steps were taken in the energy sector and in particular with regard the exploitation of our natural wealth in the Cyprus EEZ. The positive results we had achieved were the result of a correct, prudent and well thought-out policy.

After completing the first Licensing Round, in 2010 we signed an important agreement with Israel for the demarcation of our countries Exclusive Economic Zones4, a development that formulated new given conditions for the relations between us, but also more widely. Subsequently, in September 2011, one and a half months earlier than the predetermined time, due to the speeding up of the procedures we had initiated, Noble Energy International proceeded with the first exploratory drilling in Block 12, the results of which, when announced on 28th December 2011, referred to the existence on average of 7 trillion cubic feet of natural gas5, confirming the new perspectives created in the region, but also the new dynamic regarding Cyprus’ role in the ongoing energy developments. In fact during the press conference on the results of the exploratory drilling Keith Elliot, Vice-President of Noble Energy and responsible for Eastern Mediterranean issues, noted that the company could extract natural gas by 20166.

Provided, of course, that the necessary infrastructures would be ready.

As the Minister of Energy, Commerce, Industry and Tourism of the Republic of Cyprus, from March 2012 until March 2013, the most crucial and decisive target I had was to put solid foundations so that the utilisation of the Cypriot natural gas reserves would be done in a way that would ensure benefits both for the current and future generations of Cypriot citizens but also to create real conditions for social equality, economic growth and the political upgrading of our country and people.

4

Agreement between the Government of the State of Israel and the Government of the Republic of Cyprus on the Delimitation of the Exclusive Economic Zone, 17 December 2010 – at h p://

www.un.org/Depts/los/LEGISLATIONANDTREATIES/PDFFILES/TREATIES/cyp_isr_ eez_2010.pdf 5

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ΝΟBLE (2011), “Noble Energy Announces Significant Natural Gas Discovery Offshore Republic of Cyprus”, at h p://investors.nobleenergyinc.com/releasedetail.cfm?ReleaseID=635912, [accessed 28/12/2011].

Financial Mirror (2013), ‘’Noble: Cyprus natural gas domestic needs could be met by mid 2016’’, at http://www.financialmirror.com/news-details.php?nid=31232, [accessed 15/10/2013].

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Energy Strategy to the Benefit of Cyprus and the Cypriot People

We did not allow any time to be wasted as, taking also into account the geostrategic position of Cyprus, we believed that the time when decisions are taken is very important. That is why we acted quickly. On 11th February the opening of the 2nd Licensing Round for twelve research Blocks in the Cyprus EEZ (Block 1 with 11 and 13)7 was announced in the Official Journal of the EU. The end of the application period on 11th May 2012 demonstrated the true dimension of the success of our efforts, because we had received a total of 33 applications from 15 consortia and giant companies from 14 countries in total8.

At all the stages we had gone through the procedures we followed were completely transparent, impartial and fair and hence we managed to secure our country’s credibility and prestige. On 24th January 2013 we proceeded to the signing of contracts with the Italian-Korean consortium ENI/KOGAS for Blocks 2, 3 and 9 and on 6th February 2013 with the French company Total for Blocks 10 and 119.

At the same time, on 11th February 2013 we signed the contracts for the transfer of 30% of the rights of Noble Energy to Block 12 to the Israeli companies Delek and Avner.

The signing of the contracts with these colossal companies shielded Cyprus, particularly with regards the exercise of its sovereign rights while simultaneously conveying a powerful message about the prospects that were opening up for the Cyprus economy. Equally important is that the signing of the contracts safeguarded the leading role of the state in the exploitation of the reserves and the management of the infrastructures, while it also constituted a strong card in our hands so that we could move forward with the implementation of infrastructure projects for the natural gas.

However for the proper management of the hydrocarbons we also had to proceed to the creation of the necessary institutions. Therefore on 1st October 2012 we took the decision to establish the Cyprus National Hydrocarbons 7

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Official Journal of the European Union, (2012) “Notice from the Government of the Republic of Cyprus concerning Directive 94/22/EC of the European Parliament and of the Council on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons “, 2012/C 38/10, [accessed 11.2.2012].

Speech by the Minister of Commerce, Industry & Tourism, Mr. Neoklis Sylikiotis, at the closing ceremony of the 2nd Licensing Round of the Hydrocarbon Exploration in respect of certain acreage in the Exclusive Economic Zone of Cyprus. at http://www.mcit.gov.cy/mcit/mcit.nsf/ All/92D1F1742C8EB034C22579FE0035A54E?OpenDocument Ministry of Commerce, Industry and Tourism of the Republic of Cyprus, N. Sylikiotis, Letter of the Minister to the European Commissioner of Energy, Gunther Oettinger, informing about the 2nd Licensing Round Offshore Cyprus, 12.02.2013.

NEOKLIS SYLIKIOTIS

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Company (KRETYK)10, following the successful Norwegian Statoil model. The foundation of KRETYK met the need of establishing a new state institution that would undertake the procedures for the timely construction of the necessary infrastructure and better utilisation of hydrocarbons.

We also moved ahead with the establishment of the Energy Policy Council, as well as to the modernization of our legal framework by clarifying the responsibilities of each stakeholder governmental agency (PAEK, KRETYK, DEFA and Energy Agency). The tabling in the House of Representatives of Cyprus of the Bill setting up the National Fund for Hydrocarbon Reserves in line with the Norwegian standard Government Sovereign Pension Fund Global was also very important. The bill stipulated that the revenues of the fund would be allocated first to support the industry of hydrocarbons, also including investment for the creation of the necessary infrastructures, secondly to enhance the annual state budget and thirdly for investments with long-term returns for the benefit of the future generations of Cypriot citizens.

We had to simultaneously move and in parallel on many levels in order to promote the strategic objectives we had set ourselves and that’s why the implementation of one objective depended on the realization of the other. In terms of infrastructure, we set in motion the procedures for the construction of the terminal for the liquefying of natural gas at Vasiliko, a project that could be the biggest investment in the history of the Republic of Cyprus, but also offer a safe way to export our gas to European and international markets. The natural gas liquefaction terminal at Vassiliko, would have enabled us to strongly take the path of a new era of growth and development, since it would have created thousands of jobs, it would have given us the possibility to export our gas to European and international markets, while simultaneously creating all the prospects to transform Cyprus into a regional energy hub11.

The successful fulfillment of the goals we had set to a great extent dependent on our ability to capitalize on both the traditional honest relations of friendship and cooperation with our neighbors, as well as on our participation as a full member of the EU. 10 Decision taken by the Council of Ministers of the Republic of Cyprus no. 74.222 dated 01.10.2012, “Cyprus National Hydrocarbons Company – Board Appointment”.

11 Cyprus Profile, Interview of Dr. Charles Ellinas, Executive President, Cyprus National Hydrocarbons Company (CNHC) at http://www.cyprusprofile.com/en/interviews/view/ dr.-charles-ellinas-executive-president-cyprus-national-hydrocarbons-compan.

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Energy Strategy to the Benefit of Cyprus and the Cypriot People

The strengthening of our relations with Israel, Lebanon and Egypt led to the delineation of our Exclusive Economic Zone and to a structured dialogue for the coordination of our actions.

As far as the EU is concerned, we made use of our position when assuming the Cyprus Presidency to promote our comparative advantages12 and project our country as a safe bridge connecting the Middle East with Europe in the energy sector13. Together with the European Commission we co-organized the Ministerial Meeting of the countries of South East Mediterranean and the EU member countries, which was held in Cyprus on 12-13th December 2012. Undoubtedly, this meeting was an important step for highlighting the role Cyprus can play in the supply of energy to the EU. The idea of creating the South-East Mediterranean Natural Gas Route was promoted to enhance Europe’s energy security through the provision of natural gas from our region to the EU via Cyprus.

The European Commissioner for Energy issues, Gunter Oettinger, had stressed back then the EU’s strong interest with regards the proposals for the transfer of the natural gas of the eastern Mediterranean to the EU underlining that it was one of the goals of EU policy. He also stated the readiness on the part of the European Commission to support Israel and Cyprus on natural gas issues, since as he said, the region can become an area that will contribute to EU energy security, but also as its potential supplier14.

Making use of our status as an EU Member State in June 2012 we had also submitted three proposals to the European Commission for the co-financing through the programme “Connecting Europe” for an electric Israel-Cyprus-Greece interconnection (EuroAsia-Interconnector), the creation of an underwater natural gas pipeline linking the three countries, Israel, Cyprus and Greece (Trans-Mediterranean Gas Pipeline) and creating a storage terminal for liquefied natural gas (Mediterranean Gas Storage). The fact that these three proposals were deemed eligible by the EU, in conjunction with the energy reserves in the region can really help towards channeling cheap energy to Europe, but also towards lifting 12 Interview of the Minister of Energy, Commerce, Industry and Tourism, N. Sylikiotis, on the priorities of the Cyprus Presidency of the Council of the EU, 22.06.2012 at http://www.mcit.gov. cy/mcit/mcit.nsf/All/157A2BE91B2E1D98C2257A2500245987?OpenDocument 13 Cyprus News Agency (2013), “Minister of Energy of the Republic of Cyprus, N. Sylikiotis: “New perspectives for peace and prosperity in the South East Mediterranean because of the discovery of hydrocarbons” Cyprus, [accessed 13.12.2012].

14 Cyprus News Agency (2013), “The strong interest of the EU for transporting natural gas from East Mediterranean, underlined the Commissioner for Energy “, Cyprus, [accessed 13.12.2012].

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the energy isolation of the states of our region. In fact the financing of the studies of the EuroAsia-Interconnector project from the EU has already been approved.

This is how we succeeded in laying the foundations for the transformation of Cyprus into a regional energy center, entrenching our state sovereignty against Turkish threats and, above all, giving to Cyprus and its people real hope in a new course for development, prosperity and progress. Nothing of what we had achieved was easy. However, by following a multilevel foreign policy based on international law we succeeded in ensuring the sovereign rights of the Republic of Cyprus in alliance with the UN Security Council, the EU, but also with our neighboring countries.

All the things we achieved from 2008 to 2013 entrenched the prospect for economic growth and the political upgrading of our country and people. However, there is still a lot to be done and for this reason it is necessary that we act with decisiveness and consistency to draw up and implement an integrated strategic plan so as to succeed in establishing Cyprus as a regional energy centre.

On 28th May 2014, the European Commission published a communication on Energy Security15. In the communication there is no substantial reference to the significant gas reserves that have been discovered in the Eastern Mediterranean. There is only a general reference to the creation of a Mediterranean hub. Later on, on 25th February, the Commission published a communication on Energy Union16. The absence of any reference to the need to take advantage of the opportunities that emerge from the gas reserves of the Eastern Mediterranean in this communication is a very problematic development for Cyprus. Equally negative is the absence of any reference to the need to exploit the very important role that Cyprus can play both in enhancing the EU’s energy security and also in developing the cooperation with the neighboring countries.

It is therefore necessary to convince the EU to stop overlooking the prospects associated with the natural gas reserves in the Cyprus EEZ, to realise that the Eastern Mediterranean can contribute in strengthening the EU’s energy security, and also to support the energy investments that are needed in the region. All my efforts and actions, as a member of the Committee of Energy, Industry and Research of the European Parliament, and coordinator on behalf of the GUE/ NGL group are invested towards this direction.

15 COM(2014) 330 final, “European Energy Security Strategy”, Brussels, 28.5.2014.

16 COM (2015) 80 final, “ENERGY UNION PACKAGE: A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy”, Brussels, 25.2.2015.

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Energy Strategy to the Benefit of Cyprus and the Cypriot People

Cyprus remains isolated from the big energy networks and is dependent almost exclusively on the import of oil. Moreover, natural gas reserves may have been discovered in the Cyprus EEZ but drilling is a high risky procedure. The success rate in exploratory drilling is around 50%. Indications are positive but it is very important to pursue the exploratory work and drilling so that more natural gas can be discovered.

No one can deny that Cyprus has the potential to export natural gas to Europe and to establish itself as an important supplier to the EU. The initial Aphrodite reserves amount to 4,5 TCF and 150 BCM17. Cyprus’s needs are 0,6-0,7 BCM each year. This leaves large quantities of gas for export. We therefore have no other choice but to remain focused on implementing an ambitious but also realistic strategic plan of which a key element should be the creation of a land based LNG. Such a plan can turn Cyprus into a regional energy hub18.

The EU’s announced turn towards liquefied natural gas and the start of the consultations on 8th July 2015 regarding the strategy that will be followed for the creation of further liquefaction terminals confirm the importance of creating an LNG terminal in Cyprus too. What is more, with the Zohr gas field it appears that Egypt’s domestic consumption needs are covered. This implies that Egypt most probably will have no need for Cyprus’s reserves. For all these reasons we should not abandon the goal to create an LNG terminal. On the contrary, it is imperative that we begin right away to explore the ways and methods for building one.

A natural gas liquefaction terminal can function both on the basis of our own future reserves and also on that of the region’s reserves. Also, the terminal, contrary to pipelines, provides us with the possibility to have a choice of markets for supplying natural gas and not be dependent on one and only market with what this entails.

By abandoning the goal of building a terminal LNG, in essence we abandon the vision of transforming Cyprus into a regional centre for the liquefaction and export of natural gas to the world markets as well as the goal of attracting to our country investments worth several billions that would create thousands of 17 DELEK GROUP (2014), PRESS RELEASES-”Delek Group Announces Consolidaed Results for the Third Quarter of 2014” at http://ir.delek-group.com/phoenix.zhtm?c=160695&p=irol-newsArticle&ID=1993324.

18 C. Ellinas, presentation at the European Parliament at ITRE Hearing, ‘’Cyprus and the Eastern Mediterranean Hydrocarbons Resources: Energy Resources and Opportunities”, Brussels, 5 November, 2014.

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jobs. That is why we should focus our efforts on securing investments and funds for the necessary infrastructure projects, such as the natural gas liquefaction terminal. Equally important, is that we make sure that our State maintains control over this infrastructure. This is a precondition, among other things, for maximising the benefits for our people as well as the revenue for our State. Such a development will contribute to a quick disentanglement of Cyprus from its creditors.

The people of Cyprus must benefit from the natural gas. In this respect, it is important that the bill introduced by the Christofias Government regarding the distribution of the revenue from the exploitation of the hydrocarbon reserves be brought back to the table.

It is true that we have been overtaken by events. The huge Zohr natural gas field that potentially contains 30 trillion cubic feet (tcf) of gas19 as well as the Leviathan field that represents the largest exploration success in Noble Energy’s history, with gross mean resources of 22 tcf of natural gas20, create new standards that can be utilized by the countries in the region but also by the E.U. providing important opportunities to achieve a greater degree of energy diversification and energy security. At the same time there are still possibilities and opportunities for Cyprus to become an energy hub and a bridge that will connect the EU with the Eastern Mediterranean region in the energy sector.

We have no other choice but to focus on the implementation of an ambitious, but also realistic, strategic plan. Such a plan will turn Cyprus into a regional energy centre and will upgrade our region through the potential creation of the South-Eastern Mediterranean Natural Gas Corridor. In this way, we will successfully lift the energy isolation of the states in our region; we will contribute to the economic prosperity of the peoples and also at the same time we will strengthen the EU’s energy security.

19 Eni (2015), “Eni discovers a supergiant gas field in the Egyptian offshore, the largest ever found in the Mediterranean Sea”, at http://www.eni.com/en_IT/media/press-releases/2015/08/ Eni_discovers_supergiant_gas_field_in_Egyptian_offshore_the_largest_ever_found_in_Mediterranean_Sea.shtml , [accessed 30/08/2015].

20 Noble Energy (2014), “Noble Energy Announces Second Quarter 2014 Results”, at http://investors.nobleenergyinc.com/releasedetail.cfm?ReleaseID=861742, [accessed 24.07.2014].

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THE TURKISH DIPLOMATIC RESPONSE TO THE DELIMITATION AGREEMENTS IN THE EASTERN MEDITERRANEAN SEA1 Nikolas IOANNIDES*

Introduction In the wake of the 21st century, the discovery of significant hydrocarbon reserves in the seabed and subsoil of the Eastern Mediterranean Sea compelled regional states to get together and discuss in what fashion they could reap the benefits of the offshore oil and gas bonanza. Accordingly, Exclusive Economic Zone (EEZ) delimitation agreements were penned between Egypt-Cyprus, Lebanon-Cyprus (pending ratification by Lebanon) and Israel-Cyprus. These treaties were indispensable in the sense that in order for offshore exploration and exploitation activities to be carried out, a definite demarcation of the sea domain lying off the coasts of the interested littoral states is necessary.2 Despite the looming trend in favour of regional cooperation with respect to energy and maritime affairs, Turkey chose to place obstacles in the way towards such collaboration. This article focuses on the diplomatic correspondence between the states involved, in essence Turkey and Cyprus, leaving aside the Turkish navy and other government vessels’ conduct in the maritime space surrounding the island of Cyprus.

*

Candidate for PHD in Public International Law - University of Bristol

1

The term “diplomatic” is used in order to make a distinction between the activities of Turkey on the political plane and those actions undertaken in the context of law enforcement/military operations. As a Turkish writer has bluntly put it: “…Turkey often conducts naval exercises as an instrument of gunboat diplomacy and grants seismic research rights for oil & gas exploration activities in its potential EEZs within close proximity of Kastellorizo and Cyprus islands as a way to demonstrate its refusal to accept Greek and Greek Cypriot claims to EEZs”. Serhat S. Çubukçuoğlu, ‘Turkey’s Exclusive Economic Zone in the Mediterranean Sea: The Case of Kastellorizo’ (2014) Master’s Thesis (The Fletcher School of Law and Diplomacy) p. 20 <https:// www.academia.edu/9532225/Turkeys_EEZ_in_the_Mediterranean_Sea_The_Case_of_Kastellorizo> last accessed 03 November 2015.

Dispute between Argentina and Chile concerning the Beagle Channel (1977) 21 Reports of International Arbitral Awards 53, para 18; Aegean Sea Continental Shelf (Greece v Turkey) (Judgment) [1978] ICJ Rep 3, para 85; Bangladesh/India Award (2014) para 218 <www.pca-cpa.org/ showpage.asp?pag_id=1376> last accessed 03 November 2015.

2

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An overview of the diplomatic correspondence As soon as Egypt and Cyprus concluded their delimitation agreement in 2003,3 Turkey reacted in a rigorous way. On 02 March 2004, Turkey transmitted an information note to the UN Secretary-General in order to make clear that it does not recognize the arrangement as: “…the delimitation of the EEZ or the continental shelf in the Eastern Mediterranean, especially in areas falling beyond the western part of the longitude 32° 16’ 18” [just outside Cyprus’ territorial sea], also concerns Turkey’s existing ipso facto and ab initio legal and sovereign rights, emanating from the established principles of international law… the delimitation of the EEZ and the continental shelf beyond the western parts of the longitude 32° 16’ 18” should be effected by agreement between the related states at the region based on the principle of equity.”4 It was the first time Turkey explicitly declared its interest in the particular sea area in respect of the continental shelf, as the reference to “ipso facto and ab initio” rights denotes,5 since Turkey does not claim an EEZ in the Mediterranean Sea. Additionally, Turkey through the above-mentioned note reiterated its non-recognition of the Republic of Cyprus using the term “Greek Cypriot Administration of Southern Cyprus”, which, so the Turkish argument goes, does not represent the Cypriot people in its entirety, thus it is not entitled to conclude international agreements on the part of the Cypriot Turks.

On its part, Cyprus responded to the Turkish arguments with a statement sent to the UN Secretary-General.6 Cyprus rejected the Turkish positions as “vague and unfounded”, while it condemned the attempts to diminish the sovereignty of Cyprus, a member-state of the European Union. The statement also stressed the long-standing adherence of Cyprus to the law of the sea rules, whereas it stigmatized Turkey’s unwillingness to accede to the United Nations Convention 3

4

5

6

Agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone (17 February 2003) <www.un.org/depts/los/LEGISLATIONANDTREATIES/PDFFILES/TREATIES/EGY-CYP2003EZ.pdf> last accessed 03 November 2015.

Information note by Turkey, concerning its objection to the Agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone, 17 February 2003. Reproduced in 54 Law of the Sea Bulletin 127.

This terminology was introduced by the International Court of Justice in a case which has served as a source for the Turkish arguments on the law of the sea ever since. North Sea Continental Shelf Cases (Judgment) [1969] ICJ Rep. 3, paras 19, 39.

Statement of the position of the Government of the Republic of Cyprus, dated 28 December 2004, with respect to the information note by Turkey, concerning the latter’s objection to the Agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone of 17 February 2003. Reproduced in 57 Law of the Sea Bulletin 124.

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The Turkish Diplomatic Response to the Delimitation Agreements in The Eastern Mediterranean Sea

on the Law of the Sea 1982 (LOSC).7 Further, as a response to the Turkish claims for the area western of the longitude 32° 16’ 18”, Cyprus stated: “…when deciding on the extent of the delimitation line, both countries agreed to avoid extending that line in areas where the rights of third coastal States could be affected (disclaimer), without abolishing their sovereign rights to do so in the future, when an agreement with those States could be reached.”

Cyprus also pointed out that the Turkish positions in respect of the area western of the longitude 32° 16’ 18” aims at refuting the capacity of islands to generate maritime zones and disregards the obligation set forth in Articles 73 and 84 LOSC, namely that delimitations should be effected by virtue of international law in general. Greece was, also, involved in this conundrum by a note verbale communicated to the UN Secretary-General, whereby it noted that it is one of the interested states in the region and reaffirmed its commitment to the principle of equidistance/median line.8 In late 2005, Turkey returned to the matter with another note verbale, in which it reiterated its previous positions seeking cooperation regarding maritime delimitations on the basis of the enclosed or semi-enclosed seas regime: “… according to one of the general principles of international law of the sea, States bordering an enclosed or semi-enclosed sea, such as the Mediterranean Sea, are under an obligation to cooperate with each other in the exercise of their rights and in the performance of their rights”.9 Although Turkey considers the aforementioned concept as a general principle of international law purportedly creating obligations for collaboration on every matter in such seas, this interpretation is not in accordance with the Convention inasmuch as the Third United Nations Convention on the Law of the Sea (19731982) rejected this. As a matter of fact, no additional rights should be afforded to states bordering semi-enclosed seas nor there should any further limitations be imposed upon them.10 Even Turkish authors admit that the LOSC provisions 7

United Nations Convention on the Law of the Sea (signed 10 December 1982, entered into force 16 November 1994) 1833 United Nations Treaty Series 3.

8 Note verbale dated 24 February 2005 addressed to the Secretary-General concerning Turkey’s objection to the Agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone of 17 February 2003. Reproduced in 57 Law of the Sea Bulletin 129.

9 Turkey’s note verbale dated 04 October 2005 from the Permanent Mission of Turkey to the United Nations addressed to the Secretary-General of the United Nations. Reproduced in 59 Law of the Sea Bulletin 34.

10 Myron H. Nordquist (ed), United Nations Convention on the Law of the Sea 1982: A Commentary Vol. III (Martinus Nijhoff 1985-2012) 365; Faraj Abdullah Ahnish, The International Law of Maritime Boundaries and the Practice of States in the Mediterranean Sea (Oxford University Press 1993) 268.

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applicable to semi-enclosed seas are confined solely to exhorting coastal states to cooperate over living marine resources.11 Again, Cyprus replied via a note verbale upholding the postures contained in its previous statement; further, perhaps without having understood the essence of the argument, Cyprus agreed with the Turkish position on cooperation in semi-enclosed seas and tried to reverse it by noting that: “The Republic of Cyprus infers from this statement [on semi-enclosed seas] that Turkey concurs with the rest of the international community in recognizing the Republic of Cyprus as a State under established norms of Public International Law and expects that Turkey will engage constructively in bilateral consultations in order to reach an analogous agreement of delimitation with the legitimate Government of the Republic of Cyprus”.12 Later on, following the conclusion of the Lebanese-Cypriot delimitation agreement (2007),13 Turkey transmitted a letter to the UN on behalf of the Turkish Cypriot leader, who considered the particular treaty as null and void since, so the Turkish argument runs, the Republic of Cyprus does not represent the Cypriot Turks.14 However, as Lebanon has not ratified the agreement, no further confrontation took place on this matter.

11 Oral N, ‘Non-Ratification of the 1982 Law of the Sea Convention: An Aegean Dilemma of Environmental and Global Consequence’ (2009) 1 Berkeley Journal of International Law Publicist 68; the relevant articles of the Convention refer to cooperation on fisheries, marine environment, marine scientific research. Law of the Sea Convention (n 7) arts 122-123.

12 Note verbale dated 19 October 2006 from the Permanent Mission of the Republic of Cyprus to the United Nations addressed to the Secretary-General of the United Nations. Reproduced in 62 Law of the Sea Bulletin 164; additional letters against Turkish threats regarding Cyprus’ oil and gas activities and maritime delimitation agreements: Identical letters dated 31 January 2007 from the Permanent Representative of Cyprus to the United Nations addressed to the Secretary-General and the President of the Security Council UN Doc A/61/726–S/2007/52 and Letter dated 6 August 2007 from the Chargé d’affaires a.i. of the Permanent Mission of Cyprus to the United Nations addressed to the Secretary-General UN Doc A/61/1020–S/2007/474; the latter document came as a response to a letter from Turkey opposing to the Cypriot government’s call for an international tender concerning some of the offshore blocks in its EEZ: Letter dated 23 July 2007 from the Permanent Representative of Turkey to the United Nations addressed to the Secretary-General, UN Doc A/61/1011–S/2007/456. In that letter Turkey repeated its unfounded position that when it comes to maritime delimitation in a semi-enclosed sea the consent of all states bordering such a sea is required.

13 Agreement between the Government of the Republic of Cyprus and the Government of the Republic of Lebanon on the Delimitation of the Exclusive Economic Zone (17 January 2007) (pending ratification by Lebanon). Reproduced in David A. Colson and Robert W. Smith (eds), International Maritime Boundaries VI (Martinus Nijhoff, 2005-2011) 4452.

14 Letter dated 2 February 2007 from the Permanent Representative of Turkey to the United Nations addressed to the Secretary-General, UN Doc A/61/727 – S/2007/54.

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The Turkish Diplomatic Response to the Delimitation Agreements in The Eastern Mediterranean Sea

In a similar vein, Turkey also objected to the delimitation agreement of Cyprus with Israel,15 although it did not lay any claims regarding the delimited sea space; conversely, once again the Turkish arguments evolved around the incapacity of the Republic of Cyprus -which Turkey does not recognize- to represent the Cypriot Turks: “Turkey does not have any claim regarding the maritime areas subject to the said EEZ delimitation agreement. Turkey approaches this issue within the context of the Cyprus Problem… Turkish Cypriots also have rights and jurisdiction over the maritime areas of the Cyprus Island. The Greek Cypriot Administration does not represent in law or in fact the Turkish Cypriots and Cyprus as a whole. Therefore, agreements signed by the Greek Cypriots with countries of the region are null and void for Turkey.”16 In another letter transmitted to the UN objecting to the Israeli-Cypriot treaty, Turkey stressed that any maritime boundary delimitations concerning Cyprus should be concluded after a solution to the Cyprus Problem is reached, whereas: “The attempts of the Greek Cypriot administration to create a fait accompli in the Eastern Mediterranean through unilateral acts, such as negotiating and concluding agreements as regards the delimitation of the sea areas of Cyprus, continue to undermine stability in the Eastern Mediterranean region as a whole… Thus, we expect that the Greek Cypriot leadership finally focuses on the negotiating process and refrains from taking unilateral steps, which are detrimental to the efforts aimed at a comprehensive settlement [of the Cyprus Problem]”.17 On the other hand, Cyprus replied by saying: “The recent Agreement on Delimitation of the Exclusive Economic Zone, which was co-signed by the Republic of Cyprus and the State of Israel, was within the framework of exercising the Republic’s sovereign rights… The Republic of Cyprus is the only legitimate state in Cyprus, which is fully and internationally recognized and represents the people of Cyprus as a whole, including Turkish Cypriots. Turkey not only does not have the authority to question the legitimacy thereof, but it has the obligation to recognize the 15 Agreement between the Government of the Republic of Cyprus and the Government of the State of Israel on the Delimitation of the Exclusive Economic Zone’ (17 December 2010) <www. un.org/depts/los/LEGISLATIONANDTREATIES/PDFFILES/TREATIES/cyp_isr_eez_2010. pdf> last accessed 03 November 2015 16 Letter dated 23 December 2010 from the Permanent Representative of Turkey to the United Nations addressed to the Secretary-General, UN Doc A/65/674–S/2010/674.

17 Letter dated 25 January 2011 from the Permanent Representative of Turkey to the United Nations addressed to the Secretary-General, UN Doc A/65/702–S/2011/46. A decision of the “TRNC” “Legislative Assembly” condemning the delimitation between Israel and Cyprus was appended to the letter.

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Republic of Cyprus, within the framework of its EU accession course… These agreements involve and benefit the people of Cyprus as a whole. What prevents Turkish Cypriots from benefiting of the initiatives of the Republic of Cyprus is the illegal Turkish occupation of the northern part of Cyprus”.18 Nonetheless, as a member state of the EU, Cyprus found support from the Council of the European Union, which has repeatedly emphasised “…the sovereign rights of the EU Member States which include, inter alia, entering into bilateral agreements, in accordance with the EU acquis and international law, including the UN Convention on the Law of the Sea” (as of 2011 the Council added the right of the Member States to explore and exploit their natural resources in the wording).19

Concluding Remarks It goes without saying that the hydrocarbon windfall in the Eastern Mediterranean is a first class opportunity for regional states to give a boost to their economies and upgrade their geopolitical status. On top of that, the efforts made with a view to achieving cooperation in such a volatile region merit attention for they contribute to the establishment of a peaceful environment in pursue of prosperity and progress. Nevertheless, the vehement reactions on the part of Turkey raise barriers to the aforementioned attempts and render the creation of a stable environment in the region far from feasible. At any rate, the rule of law should always prevail so as to avoid tensions and friction on the one hand and to achieve peace and stability on the other. Hence, the Eastern Mediterranean states observing international law are in a position to gain profits from the oil and gas deposits, whereas those acting in contravention of the rule of law will find themselves on the sidelines.

18 Letter dated 20 January 2011 from the Permanent Representative of Cyprus to the United Nations addressed to the Secretary-General, UN Doc A/65/695–S/2011/31.

19 Council of the European Union, ‘Council Conclusions on Enlargement/Stabilisation and Association Process’ (7-8 December 2009), para 12; Council of the European Union, ‘Council Conclusions on Enlargement/Stabilisation and Association Process’ (14 December 2010), p. 3; Council of the European Union, ‘Council Conclusions on Enlargement and Stabilisation and Association Process’ (5 December 2011), para 21; Council of the European Union, ‘Council Conclusions on Enlargement and Stabilisation and Association Process’ (11 December 2012), para 21; Council of the European Union, ‘Council Conclusions on Enlargement and Stabilisation and Association Process’ (17 December 2013), para 14. At the end of the paragraph another sentence was added in relation to the previous years: “…and also stresses the need to respect the sovereignty of Member States over their territorial sea”.

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PART II GEOPOLITICAL AND TECHNICAL ANALYSIS

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NATURAL GAS - FUNDAMENTALS, GEOPOLITICS AND THE WAY FORWARD Solon KASSINIS* A. Natural Gas Fundamentals and Characteristics The word ‘Gas’ was proposed by the 17th century Flemish chemist Jan Baptist van Helmont, as a phonetic spelling of his Dutch pronunciation of the Greek word ‘chaos’, which was used since 1538 after Paracelsus for ‘air’1. Natural Gas is a gaseous fossil fuel consisting primarily of methane, but with minor quantities of ethane, propane, butane and pentane-heavy hydrocarbons2.

Natural Gas, as the name suggests, is a naturally occurring hydrocarbon compound, usually found in the earth as a mineral resource. Natural gas is colorless and odorless (an artificial odor is purposely added to it in order to help detect leakages during pipeline transport), and is lighter than air3.

Natural Gas can be commercially produced from conventional, or unconventional, oil fields and natural gas fields. Other types of gas, however, also exist (see figure 1 below4).

Figure 1: Town gas vs Biogas vs Landfill gas.

*

Served as: Director of Energy Services, Cyprus Government - Advisor on energy to former Prime Minister of Greece - Executive Vice-President at the Cyprus National Hydrocarbons Company

1

Adapted from: ‘Gas’, courtesy of New World Encyclopedia, http://www.newworldencyclopedia.org/entry/Gas, site accessed in July 2014 Adapted from: ‘Natural Gas’, courtesy of Wikipedia, http://en.wikipedia.org/wiki/Natural_ gas, site accessed in July 2014 Adapted from: ‘Natural gas composition’, courtesy of DEPA (the Greek Public Gas Company), http://www.depa.gr/content/article/002002001002/65.html, site accessed in July 2014 Figure produced from information adapted from: ‘Natural Gas’, courtesy of Wikipedia, http:// en.wikipedia.org/wiki/Natural_gas, site accessed in July 2014

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Natural gas is mainly composed of methane (see figure 2 below5), of the alkanes group, which is the simplest hydrocarbon; yet being a fossil fuel it encompasses very many forms and uses today. Associated Gas, Non-Associated Gas, Gas hydrates, Coal Bed Methane (CBM), shale gas, tight sands, are some of its source forms known to date, while the use of natural gas has been extended, from power generation purposes, to petrochemicals production, heating/cooling, cooking and co-generation of heat and electricity.

Figure 2: Typical natural gas components (methane is the primary component).

Gas was used since the 1820s in the Fredonia City of New York for lighting purposes6. In Athens (Greece), the production of gas from coal (mainly lignite) began in the late 1850s, with the construction of gas production facilities in an area known as ‘Gas Works’7. This gas was used for around 60 years for street lighting, while its use then extended to houses and factories8. After the mid-1980s gas production operations from coal ceased and gas production operations from naphtha began (naphtha was obtained from the crude oil refineries), 5 6 7 8

Figure produced from information adapted from: Pierre-René Bauquis, Total Professeurs associés (2008) Adapted from: ‘The History of Natural Gas’, courtesy of DEPA (the Greek Public Gas Company), http://www.depa.gr/content/article/002002001001/12.html, site accessed in July 2014 Adapted from: ‘The History of the Gas Production Factory’, courtesy of Technopolis – Gazi S.A., http://www.technopolis-athens.com/web/guest/museum/history, site accessed in July 2014 Adapted from: ‘The History of the Gas Production Factory’, courtesy of Technopolis – Gazi S.A., http://www.technopolis-athens.com/web/guest/museum/history, site accessed in July 2014

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Natural Gas - Fundamentals, Geopolitics and the Way Forward

followed finally by natural gas imports from external suppliers in the late 1980s9.

Nowadays, natural gas serves more purposes than power generation and lighting as it is used for cooking and domestic heating.

B. The Formation and Forms of Natural Gas Natural Gas was created after millions of years of thermal anaerobic (i.e. in the absence of air) decomposition and compression of organic matter buried deeply underneath the earth’s surface10.

The following five characteristics are essential for a system of hydrocarbons to exist: 1.

SOURCE ROCK (a deep rock within which hydrocarbons are formed/generated from its original organic matter)

2.

MIGRATION (the movement of hydrocarbons from the source rock to the reservoir rock over time)

3.

RESERVOIR ROCK (a porous, permeable sponge-like rock which retains the hydrocarbons in place)

4.

TRAP (the overall geological structure within which hydrocarbons gather)

5.

CAP ROCK (an impermeable seal which prevents hydrocarbons from escaping)

Hydrocarbon systems involve complex geological functions as described below11 and as shown in figure 312: 1.

Figure 3: The functions of hydrocarbon systems.

Generation I.

Oil and Gas are formed in Source Rocks

2.

Migration I.

Oil and Gas move over time from the Source Rock to the Reservoir Rock

9

Adapted from: ‘Historical Review’, courtesy of Attica Gas Supply Company, http://www.aerioattikis.gr/Default.aspx?pid=6&la=1, site accessed in July 2014 10 Adapted from: Theodoropoulos T.E., “The Secret World of Energy: Oil, Gas and Petrochemicals”, International Edition (2010), Caye Global Investments Ltd., ISBN: 978999219105, pgs. 55 and 56 11 Theodoropoulos T.E., “The Secret World of Energy: Oil, Gas and Petrochemicals”, International Edition (2010), Caye Global Investments Ltd., ISBN: 978999219105, pgs. 64-66 12 Taken from: http://doddys.files.wordpress.com/2006/10/petroleum-system.jpg, site accessed in July 2014

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II. Reservoir Rocks have the following characteristics: i.

Porosity – to store oil and gas

ii. Permeability – to allow oil and gas to move through the reservoir rock 3.

Accumulation and Entrapment I.

Oil and Gas are retained in Reservoir Rocks (sedimentary rocks such as limestone or sandstone), which are buried deep below the surface

II. A geological trap halts the movement of oil and gas and allows accumu lation of entrapped oil and gas Natural Gas found deeply underneath the earth’s surface can be either Biogenic Gas or Thermogenic Gas, depending on the actual mechanism by which the gas in place was originally formed13. Biogenic gas formation is very identical to biogas generation and thus biogenic gas usually has very pure methane content, while thermogenic gas formation is an indirect consequence of kerogens generation (kerogens are derived from organic matter under conditions of high heat and pressure)14. The figure that follows (figure 4) provides a summary of the main characteristics of each formation mechanism15.

Figure 4: Biogenic Gas vs Thermogenic Gas.

Natural gas can exist either as ‘dry gas’, which is pure methane, and ‘wet gas’, which is mainly methane together with heavier hydrocarbons in varying proportions16. The presence of inert components in natural gas, such as nitrogen and carbon dioxide, tends to reduce the calorific value of the gas. On the other hand, hydrogen sulfide, when present in natural gas, needs to be removed 13 Adapted from: ‘Natural Gas’, courtesy of Wikipedia, http://en.wikipedia.org/wiki/Natural_ gas, site accessed in July 2014 14 Adapted from: ‘Origin: Biogenic vs. Thermogenic’, courtesy of U.S. Geological Survey, http:// pubs.usgs.gov/of/1996/of96-272/ch03s07.html, site accessed in July 2014 15 Figure produced from information adapted from: ‘Origin: Biogenic vs. Thermogenic’, courtesy of U.S. Geological Survey, http://pubs.usgs.gov/of/1996/of96-272/ch03s07.html, site accessed in July 2014 16 Adapted from: ‘Wet gas’, courtesy of Wikipedia, http://en.wikipedia.org/wiki/Wet_gas, site accessed in July 2014

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during initial processing because of its toxicity and corrosiveness. The presence of hydrogen sulfide accounts for the ‘sourness’ of natural gas (natural gas with the absence of hydrogen sulfide is called ‘sweet’ gas), while the presence of significant quantities of acidic gasses, such as hydrogen sulfide or carbon dioxide, make the gas ‘acidic’17.

Gas fields with an appreciable proportion of heavier hydrocarbons are known as condensate deposits (‘condensates’). While wet natural gas and condensates are found near to, or in combination with, oil deposits, dry gas is usually found alone in individual gas fields. This is due to the fact that most of the dry natural gas derives from terrestrial plants.

There is also a distinction between ‘associated gas’, which is natural gas associated with crude oil, and ‘non-associated gas’, which is generated individually (see figure 518).

In the case of ‘associated gas’, natural gas is dissolved in the crude oil and released during production due to the pressure relief (from a high pressure inside the underground reservoir to a lower pressure, close to atmospheric pressure, at the surface). If crude oil is supersaturated, then part of the gas migrates upwards and forms a gas dome, which under certain conditions may be exploitable.

Figure 5: Conventional Oil & Gas Fields Configurations.

The main components of natural gas deposits are often related with crude oil, particularly as to their formation. Oil and gas are often found in the same geological strata of a region. ‘Dry gas’, which is mainly a product of carbonization, can also be found next to oilfields, as the majority of natural gas fields around the world is related with oil deposits.

The recovery of oil and gas from the hydrocarbon fields can be carried out by various mechanisms. In most cases, and for newly producing fields, the reservoir 17 Adapted from: ‘Acid gas’, courtesy of Wikipedia, http://en.wikipedia.org/wiki/Acid_gas, site accessed in July 2014 18 Figure produced from information and diagrams adapted from: Pierre-René Bauquis, Total Professeurs associés (2008)

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pressure causes the fluid (oil or gas) to rise to the surface when a bore hole is drilled down to the Reservoir Rock. This reservoir pressure diminishes along with production and therefore, at some point, other methods (usually physical and chemical) must be used to recover the rest of the hydrocarbons in place (such methods can be fluid injection – water or CO2, fracking, injection of chemicals etc.)

The portion of hydrocarbons that can be brought to the surface is called recoverable’ The level of recoverable hydrocarbons depends on the physical properties of the reservoir and the recoverability is categorized by the probability of recovery – 10% for Possible Reserves, 50% for Probable Reserves, 90% for Proven Reserves.

C. The Importance and Marketing/Trading of Natural Gas Natural Gas is gaining more and more ground as the ‘preferred’ conventional fossil fuel for the coming decades due to its characteristically more efficient and cleaner combustion. It has yet to become the next most utilized fossil fuel, replacing oil. The complete (integrated) natural gas market value chain is shown in figure 6 below19.

Although being a gas fuel, rather than a liquid fuel (such as oil), makes it lighter and therefore with a low energy density. This in turn makes its transportation and storage more costly per energy content when compared to oil. Its distinct characteristics give to it many more advantages (in addition to the ones referred to above) - mainly versatility and robustness in its use, as well as safety and flexibility during its transport (this is especially true for LNG which is contained and transported at atmospheric pressure by special Figure 6: The natural gas market value chain.

marine tankers).

Gas fields in remote areas are utilizable only if the market price makes the processing and export of natural gas economically feasible. A common concept (in 19 Taken from: ‘What is Natural Gas? – Gas Pipelines’, courtesy of Vivek Chandra, www.natgas. info, site accessed in June 2015

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the case of large volumes and large distances) is the liquefaction of natural gas to produce LNG (Liquefied Natural Gas) and its subsequent export by special marine tankers to consumer countries (figure 7 shows the LNG chain20). Likewise, associated gas or ‘stranded’ gas may be used as feedstock for the production of petrochemicals (such as methanol, DME, ammonia, urea, ethylene, synthetic gasoline etc.).

Crude oil, similarly to gold and other

Figure 7: The LNG chain.

valuable goods, is traded today as a

commodity, and is available through spot markets on a global basis. Spot price and trading of natural gas differs between regions and continents, while gas supplies (either in natural form or as LNG) are most usually/commonly carried out through long-term Sales & Purchase Agreements (SPAs).

D. Ways of Utilizing and Monetizing Natural Gas As mentioned previously, natural gas can have many uses – from large scale power generation and industrial co generation, to petrochemicals production and even to small scale domestic heating and cooking. The uses of natural gas by sector are as follows (Table 1): Industrial Sector

Commercial Sector

• Power generation • Co-generation of power and heat • Heating • Raw material for the production of petrochemicals (such as methanol, ammonia etc.)

Transport Sector

•

Central heating

•

Heating/Cooling

•

Hot water production

Domestic Sector

• Mainly for central heating and

• Cars

cooking

• Trains • Trucks • Buses • Ships Table 1: Uses of Natural Gas by Sector.

20 Taken from: ‘What is Natural Gas? – Liquefied Natural Gas Chain’, courtesy of Vivek Chandra, www.natgas.info, site accessed in July 2014

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The monetization (exportation) of natural gas can take many forms the main ones being the following: 1.

2.

Liquefied Natural Gas (LNG) i.

Small-scale Liquefaction Plants (small-scale LNG)

ii.

Large Scale onshore Liquefaction Plants (LNG Plants)

iii.

Floating Liquefaction Plants (FLNG)

Petrochemicals i.

Petrochemical Plants (using natural gas as a raw material for the production of petrochemical products)

ii.

Natural Gas Liquids (NGL) – used in the production of LPG and natural gasoline

3.

Gas-to-Liquids (GTL) – used for the production of synthetic gasoline

4.

Compressed Natural Gas (CNG)

5.

i.

Pipeline CNG

ii.

Marine CNG (this technology is not yet commercially available)

Electricity (using natural gas as a fuel for power generation and subsequently exporting the electricity that is produced)

E. Natural Gas Operations & Processes – Purification, Liquefaction, regasification, Storage and Petrochemicals Production Prior to any further use/processing, raw natural gas produced by the upstream oil/gas fields needs to be treated and purified. This process occurs at a Gas Processing Plant (or Gas Plant) and mainly involves the separation of the gas from any water and condensates (i.e. heavy hydrocarbons, that have condensed out of the vapor phase during transport) using a three-phase separator followed by water treatment and condensate stabilization: a.) acidic or corrosive gasses are removed by contacting the dry gas with amine absorbers, b.) drying using glycol dehydration towers to remove any water vapor in solution with the gas and c.) natural gas liquids are removed through cooling/expanding the gas, and fractionation of the liquids in a series of distillation columns to purify each NGL and the methane gas.

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Liquefied Natural Gas (LNG) is natural gas (predominantly methane) that has been converted into liquid form for ease of storage and transport21, by cooling it down to – 161oC, through a series of refrigeration cycles. LNG is an odorless, colorless, non-toxic and non-corrosive liquid that can float on water (i.e. it is less dense than water)22. LNG has the great advantage of taking up about 1/600th of the volume of natural gas in the gaseous state23; therefore it can be stored and transported over long distances and in large volumes more practically and economically.

The stages of the natural gas liquefaction process are these: (see also figure 8 below24): 1.

a. Pretreatment (to remove impurities and water) b. Pre-cooling (to remove any condensates)

2.

Liquefaction (by a series of refrigeration cycles to liquefy the gas)

3.

Storage (maintain the LNG until needed) and loading onto LNG carriers (to transport/export the LNG)

Figure 8: The Natural Gas liquefaction process.

Following regasification at a Regas Terminal, LNG is converted back to natural gas and fed into the transmission system (for delivery to the power generation plants and other large industrial units), and then into the distribution network (for distribution to the commercial, domestic and transport sectors). The process at the Regas Terminal entails the following steps:

21 Adapted from: ‘Liquefied natural gas’, courtesy of Wikipedia, http://en.wikipedia.org/wiki/ Liquefied_natural_gas, site accessed in July 2014 22 Ditto 23 Ditto 24 Figure produced from information adapted from: ‘What is LNG?’, courtesy of Goldboro LNG, http://goldborolng.com/about-lng/what-is-lng/, site accessed in July 2014

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1.

Storage (keeping LNG until needed).

2.

Pumping the LNG out of tanks and into the gas send-out system.

3.

Passing the LNG through a re-condenser unit (to liquefy any boil-off gas collected from LNG vaporizing inside the tanks; thus balancing the process).

4.

Pumping the LNG through a series of heat exchangers (usually Open Rack Vaporizers â&#x20AC;&#x201C; ORVs, which use seawater as the heating medium) to vaporize it back to gas and heat it up to atmospheric temperature.

5.

Compressing the gas and feeding it to the transmission system.

Gas storage is absolutely necessary considering that gas consumption throughout the year is typically uneven and that demand and supply need to be matched.

Natural gas can be temporarily stored in its natural form (as an artificial gas deposit) in natural underground reservoirs, such as depleted gas reservoirs, aquifer reservoirs, and salt cavern reservoirs. Alternatively, natural gas can be stored in its liquid form (i.e. as LNG) in full containment tanks; assuming of course that natural gas is liquefied before storage and then regasified before use.

Petrochemicals are produced in Petrochemical Plants through a series of processes (chemical reactions and purification methods) that turn the feedstock (natural gas) into chemical or fuel products (petrochemicals). Most final products can be produced directly or indirectly from their preceding compounds (see figure 9 below25).

Figure 9: The petrochemicals production process.

25 Figure produced from information adapted from: â&#x20AC;&#x2DC;About the Appalachian petrochemical projectâ&#x20AC;&#x2122;, courtesy of Shell U.S., http://www.shell.us/aboutshell/projects-locations/appalachia/about-project.html, site accessed in June 2015

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The most important petrochemicals are: 1.

Lower or lighter alkenes (olefins): e.g. ethylene, propylene and butadiene

2.

Aromatics: benzene, toluene, xylene, dimethyl ether (DME)

3.

Ammonia, methanol, synthesis gas (Carbon Monoxide â&#x20AC;&#x201C; CO & Hydrogen â&#x20AC;&#x201C; H2)

Alternatively, natural gas can be converted into liquid products via a process called Gas to Liquids (GTL); these liquid products, together with the NGL recovered from the initial processing and the liquefaction of the gas, can be used as fuels, mainly for the transportation sector.

F. The Geopolitics of Natural Gas in the Eastern Mediterranean Region The Eastern Mediterranean Region has been a hydrocarbons producer for many decades. Hydrocarbon production facilities have been in operation for many years; especially in Egypt, but also in Israel (although at a much lower level and only for gas).

Moreover, Palestine has an offshore gas field located at 30km off the coast of the Gaza Strip, pending development.

Cyprus joined the energy fraternity recently and is now engaged in many ongoing hydrocarbon exploration activities, while Lebanon has been making different attempts towards the launching of hydrocarbon exploration activities in its EEZ. Greece, which has been producing oil for some years and recently made significant steps towards the launching of hydrocarbon exploration activities in its EEZ, seems to have more or less stalled at the moment, mainly due to the new political and economic situation.

It can be deduced from the above that currently the main players in the region are Cyprus, Egypt and Israel. A multilateral regional cooperation between these states (i.e. Cyprus-Egypt and Cyprus-Israel) regarding hydrocarbon development and exploitation will clearly benefit the Eastern Mediterranean Region discovery and exploitation process. Cooperation between the above three countries can also set the baseline, for a future extension towards Greece and Lebanon, and possibly Palestine, which also have an important role to play in the Eastern Mediterranean Region. Overall, the Eastern Mediterranean Region pres-

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ents many opportunities as well as challenges that can be offset by some common facts (see figure 10 below).

Figure 10: Opportunities, Challenges and Facts for the Eastern Mediterranean Region.

Some of the new investments and recent major actions recorded in this region include the following: •

Memorandum of Understanding for the preparation of a technical study for the export and sale of natural gas from Block 12 to Egypt signed between the Cyprus Hydrocarbons Company and EGAS.

•

ENI is enlarging its investments/activities in the energy sector of Egypt.

•

Noble Energy is to supply Egypt with 7 LNG cargoes.

•

Memorandum of Understanding for cooperation in the field of oil and gas signed between Cyprus and Egypt.

G. Hydrocarbon Prospectivity in the Eastern Mediterranean Region An assessment from USGS in 2010 estimated that the Nile Delta Basin had 1.76 billion bbl of undiscovered oil and 223 tcf of undiscovered natural gas reserves, while the Levantine Basin had 1.68 billion bbl of undiscovered oil and 122 tcf of undiscovered natural gas reserves26 (the corresponding geological regions are shown in figure 11—map —next page27).

26 Adapted from: ‘Assessment of Undiscovered Oil and Gas Resources of the Nile Delta Basin Province, Eastern Mediterranean’, U.S. Geological Survey Fact Sheet 2010–3027, May 2010; and Assessment of Undiscovered Oil and Gas Resources of the Levant Basin Province, Eastern Mediterranean’, U.S. Geological Survey Fact Sheet 2010–3014, March 2010 27 Figure produced from information adapted from: Assessment of Undiscovered Oil and Gas Resources of the Nile Delta Basin Province, Eastern Mediterranean’, U.S. Geological Survey Fact Sheet 2010–3027, May 2010; and ‘Assessment of Undiscovered Oil and Gas Resources of the Levant Basin Province, Eastern Mediterranean’, U.S. Geological Survey Fact Sheet 2010–3014, March 2010

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These estimates were later updated by Noble Energy Inc., following the announcement at the highlights of the 2013 Analyst Conference held in Houston, Texas on Dec 17, 201328: “In the Eastern Mediterranean, discovered gross resources have grown to Figure 11: The Nile Delta Basin and the Levantine Basin.

approximately 40 trillion cubic feet of natural gas…. Significant exploration potential remains on the Company’s acreage position

in the Eastern Mediterranean, with approximately 3 billion barrels of gross unrisked oil potential in the deep Mesozoic play in both Cyprus and Israel and four trillion cubic feet gross of natural gas potential in Cyprus. Current plans are to resume exploration drilling in the Eastern Mediterranean in late 2014 or early 2015.”

H. Bilateral Projects of Common Interest between Cyprus and Greece Cyprus and Greece are both included in the European Southern Corridor for Gas and Electricity, with two jointly proposed projects of common interest. Through these bilateral projects of common interest of the Southern Corridor, Greece can become a major transit country for the supply of Eastern Mediterranean gas to Europe.

In addition, through these projects, Cyprus can assume the role of a central and integrated energy hub for gas exports from the Eastern Mediterranean Region.

The example of the European Southern Corridor is shown in figure 12 that follows on the next page29: The two bilateral projects jointly submitted within the context of the Southern Corridor by Cyprus and Greece (see figure 13 that follows30), are the EuroAsia Interconnector, a submarine cable for the transmission of electricity between Israel-Cyprus-Crete-Greece(mainland), and the Trans-Med/East-Med Gas

28 Adapted from: ‘Noble Energy Announces Highlights of 2013 Analyst Conference’, courtesy of Noble Energy Inc., Houston, Texas, December 2013 29 Taken from: ‘Energy priorities for Europe’, Presentation of J.M. Barroso to the European Council, 22 May 2013, courtesy of European Commission 30 First picture taken from: ‘Electricity Interconnection – North-South electricity interconnections in Central Eastern and South Eastern Europe’, Project of common interest: 3.10.2, courtesy of European Commission, January 2014; Second picture taken from: ‘Gas interconnection – Southern Gas Corridor’, Project of common interest: 7.3.1, courtesy of European Commission, January 2014

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Figure 12: The proposed European Southern Corridor.

Pipeline, a subsea gas transmission pipeline between the Levantine (offshore) Cyprus-Crete-Greece(mainland). Both projects can provide diversification and additional means for hydrocarbon exploitation. In addition, the EuroAsia Interconnector project could provide an â&#x20AC;&#x2DC;interim solutionâ&#x20AC;&#x2122; to Cyprus and security of energy supply for Cyprus, Greece and Israel.

Figure 13: Bilateral projects of common interest between Cyprus and Greece.

I. The Case of Hydrocarbon Exploration in Cyprus Early onshore hydrocarbon exploration attempts in Cyprus have been carried out by different foreign companies between the period of 1938 and 1970. Between 1938 and 1949, a series of onshore geophysical surveys were carried out, while for the rest of the period up to 1970 various onshore exploration wells have been drilled between long time intervals31.

31 Adapted from information obtained from the Cypriot Ministry of Energy, Commerce, Industry and Tourism

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These efforts had no success in finding oil or gas, and were followed in 1975 by an 8,000 km 2-D offshore seismic survey in the Eastern Mediterranean conducted by Sefel Geophysical Ltd (in collaboration with Delta Exploration Inc.) and in 1985-1987 by studies on the seabed bathymetry, stratigraphy, lithology, sediments etc. led by the Soviet Academy of Sciences (in collaboration with the Geological Survey Department of Cyprus)32.

In 1999, Spectrum Energy & Information Technology Ltd carried out a study on the seismic lines and reprocessed the seismic data acquired in 1975 by Sefel Geophysical Ltd, while in 2000 the same company conducted an offshore 2-D seismic survey of 12,300 line-km in the greater South-Eastern Mediterranean region33.

Exercising its sovereign rights, as derived from the United Nations Convention on the Law of the Sea (UNCLOS ’82), Cyprus signed in 2003 its first agreement, regarding the delimitation of the exclusive economic zone, with the Arab Republic of Egypt. Likewise, agreements with the Republic of Lebanon and the State of Israel followed in 2007 and 2010, respectively (figure 14 next page shows EEZ median lines34).

These actions were of paramount importance in attracting oil and gas companies to invest in the exploration activities in offshore Cyprus, as well as for further strengthening of ties of cooperation with countries neighboring Cyprus, especially Israel, but also Lebanon and Egypt.

Cyprus officially inaugurated its ofshore Figure 14: Exclusive Economic Zones’ Median Lines between Cyprus and Egypt, Lebanon, Israel (in yellow, red and green colour, respectively).

exploration activities in 2006 with the acquisition of 2-D, and some 3-D, seismic data, followed by further 2-D seismic

data acquisitions in 2008, and subsequent interpretation of the processed data (see details that appear in figure 15 regarding the new seismic surveys conducted

by PGS offshore Cyprus35). These seismic surveys were the basis for the prepara32 Ditto 33 Ditto 34 Figure produced from information obtained from the Cypriot Ministry of Energy, Commerce, Industry and Tourism 35 Figure produced from information obtained from: PGS and the Cypriot Ministry of Energy, Commerce, Industry and Tourism; and Map taken from: ‘Cyprus MC’, courtesy of PGS, http:// pgs.com/Data_Library/Middle-East-and-Mediterranean/Cyprus/, site accessed in June 2015

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tion of the relevant seismic data Interpretation Reports that followed each survey and accompany each seismic data set that was acquired.

Figure 15: Seismic surveys acquired offshore Cyprus by PGS between 2006 and 2008, and relevant grid map showing all seismic surveys.

During early 2007, Cyprus proceeded with its first hydrocarbon licensing round with a total of eleven offshore blocks on offer, attracting three applications from two applicants. Within this context and following negotiations one hydrocarbon exploration license was awarded to Noble Energy International on 24 October 2008 for Block 12 (a relevant Production Sharing Contract was also signed on that date). Following all the necessary preparatory work and data assessment, Noble Energy International proceeded with drilling its first exploratory well in September 2011.

The breakthrough for Cyprus came in December 2011 when Noble Energy announced, after the first exploration well, the discovery of natural gas (7 tcf gross mean estimated resources) in Block 12 within Cyprus’ exclusive economic zone (the deposit was named ‘Aphrodite’). The appraisal well of that discovery that followed in 2013 resulted in an updated estimate of approximately 5 tcf mean gross resources of natural gas.

The success in Block 12, coupled with a clear regime and transparent legislative framework that was established in full harmonization with the relevant European Directives, caught the attention of the international oil and gas companies around the globe and created a huge interest in Cyprus’ second hydrocarbon licensing round, held in 2012, with 33 applications from 15 companies/consortia.

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After evaluation of the applications that were submitted, three different hydrocarbon exploration licenses for the Blocks 2, 3 and 9 were granted to Eni/Kogas on the 24th of January 2013, while on the 6th of February 2013 two different hydrocarbon exploration licenses were awarded to Total for Blocks 10 and 11 (see figure 16 showing map of licensed blocks36).

Figure 16: Licensed blocks for Hydrocarbon Exploration offshore Cyprus [block in green outline: Noble Energy International – 70% (Delek and Avner were later added with a 15% participation share each), blocks in yellow outline: Eni(80%)/Kogas(20%), blocks in red outline: Total(100%)].

Relevant Exploration and Production Sharing Contracts (EPSCs) were also signed with the two above-mentioned licensees, for each one of the awarded blocks. Through these contracts, the two licensees are committed to execute an ‘ag-

gressive’ exploration work program for each one of the awarded blocks.

J. Eastern Mediterranean Oil & Gas Developments – Update New arrangements have been made with TOTAL (licensee in Blocks 10 & 11 within the Cypriot EEZ). Based on this, TOTAL will continue its exploration plans in Cyprus, focusing on Block no. 11, with some potential for exploration in the neighboring Blocks (mainly no. 7 and 8) in order to get a better picture of the geology.

Noble Energy is proceeding with the drafting of the Development Plan for the exploitation of the ‘Aphrodite’ gas deposit in Block 12 within the Cypriot EEZ. ENI has completed the drilling operations for two (unsuccessful) exploration wells in Block 9 within the Cypriot EEZ and will review its geological models before returning again to continue with the drilling of further exploration wells in Blocks 2 and 3 of the Cypriot EEZ. As far as Israel is concerned, production in the Tamar field is ongoing but regarding Leviathan, Noble Energy put its development plans on hold just before the Governmental elections in Israel, while the whole situation will probably remain unchanged until the scene concerning the new monopolistic rules is clarified.

36 Figure produced from information obtained from the Cypriot Ministry of Energy, Commerce, Industry and Tourism

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Regarding Egypt, a Mega Survey tender procedure (for the Western Part offshore Egypt) is being followed by EGAS. More extensive offshore exploration will help identify new targets leading potentially to new hydrocarbon discoveries especially in the deeper zones.

The current situation in Lebanon remains as before, making it difficult to predict any future progress (following the pre-qualification of 12 companies as “Operators” and 34 as “Non-Operators”, out of all the applicant companies, the licensing round stalled with little progress in the past year). The situation remains the same (pending adoption by the Government of the necessary decrees for the licensing round involving Block delineation and the Exploration & Production Agreement), making prediction of any future progress difficult.

Similarly, Greece’s plans for the Oil & Gas industry are difficult to predict at this moment and it is unknown at this stage whether matters will go forward or not. The new Government seems to be supporting a different regime for hydrocarbon exploitation where Production Sharing Contracts are favored over Concession Agreements.

K. The Role of Cyprus in the Eastern Mediterranean Region As things stand the oil & gas sector can be a new booming industry for Cyprus; the country has already attracted worldwide attention and hopefully this will lead to improved prospects for serious international investment. The discovery of substantial quantities of natural gas, in combination with the potential utilization of other gas deposits and future gas findings in the area, opens up new perspectives and gives new impetus to the role of Cyprus in the global energy map and the European energy market. If Cyprus is to grasp this great opportunity it would need to swiftly proceed with the planning and development of the required energy infrastructure and facilities for the exploitation of natural gas reserves.

The Development Plan for the ‘Aphrodite’ field within Block 12 is under preparation by Noble Energy and is expected to encompass the following (once approved by the Cypriot Ministry of Energy, a 25-year long Exploitation License will be granted to Noble Energy for the ‘Aphrodite’ field within Block 12 – currently Noble Energy holds only an Exploration License for Block 12):

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•

Drilling the production wells.

•

Installing an FPSO (Floating, Production, Storage and Offloading) platform over the field to collect the gas, process it to separate out any liquids (condensates + water) and treat it to remove any other impurities potentially present.

•

Transporting the gas (gas may be delivered to the local and nearby markets) through subsea pipelines, for export/utilization from/at (existing or new) related infrastructures.

Potential gas export pipelines include: •

Pipeline to Egypt for export through existing LNG production facilities.

•

Pipeline to Cyprus for the local market – gas supply for power generation and petrochemicals production.

•

Pipeline to Jordan for the local market (potential, pending discussions and agreement).

Opportunities exist for serving the power generation stations (market volume of 0.5bcma for all power stations) and the prospective petrochemicals industry (planned market potential of 1bcma for a single methanol production plant). Two main operating power stations exist in Cyprus and these belong to the Electricity Authority of Cyprus (EAC), while other IPPs (Independent Power Producers) have filed applications and obtained licenses to operate. The ‘Methanol Plant in Cyprus’ is a project involving the installation and operation of a production unit and associated facilities in Cyprus, to produce methanol from natural gas. This project is promoted by Dor Chemicals of Israel, who already deal with methanol and other petrochemicals. In addition to these infrastructures, some shore-based services for the Offshore Industry already exist in Cyprus (at a quite small scale though). Two O&G industry services companies (Halliburton and Schlumberger) are already established in Cyprus with their own facilities and operations (supported by local marine and engineering companies). There are also plans for a new port with large-scale shore-based facilities to serve the offshore industry.

Such initiatives in Cyprus, an EU member that is strategically located in the Eastern Mediterranean Region, can significantly contribute to the efforts towards establishing secure natural gas resources and diversified energy corridors for the EU and beyond. Once Cyprus is successful in establishing the necessary infrastructure in the region for hydrocarbons operations and exports, this will 50

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then stimulate additional oil and gas exploration and production activities across the Eastern Mediterranean, leading to the evolution of the oil and gas industry in the area.

These developments will be by far the largest investments in the islandâ&#x20AC;&#x2122;s history and will certainly constitute the key driver for the monetization of Cyprusâ&#x20AC;&#x2122; offshore gas resources. No doubt, these energy infrastructures will upgrade the geostrategic role of Cyprus in the Eastern Mediterranean Region and will yield great benefits for the local economy and industry by generating a significant amount of new jobs, creating new business opportunities and revenue, stimulating [rapid] technological development within the manufacturing sector, and developing new industries such as the production of petrochemicals. In addition, the energy development will open up the possibility for Cyprus to become a major energy hub, able to handling natural gas from its own fields, as well as from adjacent offshore gas discoveries of the neighboring countries.

L. The Importance of Human Resources in the Hydrocarbons Sector The manning requirements and skills sets that would be required for Cyprus to undertake large oil and gas projects were first recognized in 2006. In response many activities have taken place since then in the direction of educating and training potential cadre for this undertaking. Development programs were unveiled covering a broad spectrum on such needs: technical, administrative, managerial and so on (a time line of educational and training events appear in table 2 next page37).

37 Table produced from information obtained from the Cypriot Ministry of Energy, Commerce, Industry and Tourism, the Cypriot Human Resources Development Authority and Noble Energy Inc.

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Year

Main Developmental Event(s) Initial training programmes (and preparation of related material) of-

Mid 2011

fered by the Energy Service (Ministry of Energy, Commerce, Industry and Tourism) covering the oil and gas sector and energy in general.

Preparation of Study by the Cyprus Human Resources Development

Late 2012

Authority (HRDA) covering the early identification of employment needs and requisite training in the direction of preparing cadre to manage effectively natural gas in Cyprus.

2012/2013

Academic institutions in Cyprus began offering a series of degrees in the oil and gas sector.

Noble Energy completed a study in which it identified local employee/

Early 2013

labour requirements for the Cyprus LNG Project (construction phase and operational phase).

A new, two-year, Professional Diploma in Oil & Gas was established.

This programme was specifically designed to educate and train stu-

Late 2013

dents in professions related to the technology, practices, processes and operations employed in the oil and gas sector, thus preparing them to become skilled blue-collar workers, e.g. mechanical engineering technicians, electrical engineering technicians, welders and drilling engineers.

Table 2: Time line of related events in the education and training of human resources in Oil & Gas matters.

Although current training programs feature vocational education and some engineering specialization for the oil and gas industry, these programs lack essential ‘hands-on’ practice that would allow students to blend knowledge and practice thus making them effective and productive at work upon employment.

More needs to be done in the area of education and training including: •

Advancement of skills and work expertise through more training on location.

•

Cooperation between educational institutions and large oil and gas services companies to enable students work as internships or visiting students.

•

Creation of a regional Training Centre for technical training in the Oil & Gas sector (potentially to be located in Cyprus).

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Global Oil & Gas Market Overview – Update Oil prices have been declining recently (with rare but temporary signs of recovery) whilst historically oil prices were rising. This trend in oil prices has also affected natural gas prices to a certain degree even though demand seems to remain basically unchanged.

These new trends had a major impact on the commerciality of hydrocarbon discoveries: •

Major oil companies are cutting down their u stream (exploration and production) business.

•

Operations and jobs in the oil and gas sector have been reduced.

•

All cases of shallow, deep and ultra-deep water exploration have been affected.

Declining oil prices affected LNG export projects as well as LNG prices: •

LNG prices are falling due to their link with oil prices and the price renegotiation/re-opening clauses in Sale & Purchase Agreements. Spot LNG prices, however, remain fairly stable despite reduced global output from some LNG export plants.

•

The commerciality of LNG Export projects was impacted, although most major plans in Canada and the US seem to be going forward.

•

According to the Gas Union President ‘…destination clauses on LNG will soon fade away’, since unlike piped natural gas a cargo of LNG can be diverted en route.

This particular feature gives consumer nations flexibility in the management of their supplies and at the same time enables producers to optimize the monetization of their assets.

Demand for natural gas is expected to continue rising, though at a slightly slower pace than before considering the global economic turmoil and international oil prices. Stronger economic growth, lower oil and gas prices and the growing need for reduction of emissions are the main causes of increasing global natural gas demand.

The world is now experiencing significant trends including: rise in local gas production in the U.S. (mainly from shale), ‘reboot’ in Japan’s nuclear energy industry, drop in the internationally traded oil prices and, most importantly: new players (producers) coming onto the scene and novel technologies coming online.

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CONCLUSIONS Energy matters in Cyprus are interrelated with economic, political/geopolitical, national security, strategic/geostrategic, historical, social/cultural, EEZ, etc. issues. These issues make energy matters more complex than they already are.

Cyprus is at a relatively early stage in energy experience and as such it would need to be particularly careful in managing its every step. The country would need, therefore, to concentrate on: taking rational decisions and managing professionally

major

hydrocarbon

exploitation

prospects.

Rational

decision-making and wise management will prove to be absolutely vital for Cyprus if the country is to meet successfully the many technical, geopolitical and economic challenges that will certainly arise in the future.

Cyprus will need to establish strong alliances with its neighbors in the region, but also with Russia. At the same time it would need to develop its hydrocarbon exploration activities and its oil & gas businesses keeping in mind the interests and plans of the superpowers (and their meddling). If Cyprus manages to deal successfully with the major energy issues the country can then hope to reap benefits across all major areas of interest to the country, i.e. political (Cyprus Problem), economic (recession), demographics, unemployment, GDP growth, productivity, financial (liquidity) etc. In the process Cyprus would need to remember that the road ahead will be bumpy, decisions would be complex and that superpower involvement will be unavoidable, while alliances will certainly prove necessary.

The economy of the Republic of Cyprus was dominated for many years by the financial services and tourism sectors. The former were distorted in the face of the measures enforced by the Troika. The exploitation of natural gas reserves (without excluding the possibility of oil discoveries) offers Cyprus a path out of the economic vicious circle that it finds itself into now. But, the country would first need to navigate all sorts of obstacles, which are complicated by the historical geopolitical tensions of the Eastern Mediterranean Region. Cyprus would thus need to brace itself for some difficult decision-making the outcome of which can make the difference as regards Cyprus’ economic and maybe political future.

Cyprus remains to this day an isolated ‘energy island’ since it has no interconnections with the trans-European electricity or gas networks, nor does it have the necessary infrastructure to be able to take part in the single European energy market. This puts an additional burden on the competiveness of local enterprises, the economic prospects and the cost of life in general.

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Added to the above, the world economy has been in turmoil for the last five years and this has had a very negative impact on the economies of certain European countries in particular, most of which are now planning their economic recovery.

However, the austerity measures still remain in effect and suppress the full and true recovery of the economy of Cyprus. The country needs urgently long term growth and development. To this end, oil and gas can play a major positive role. The large investments in infrastructure and installations for the production and export of oil and gas can be instrumental in rejuvenating the economy. The substantial natural gas deposits that were discovered in the South Eastern Mediterranean Region in the last few years justify the developments and investments in large infrastructure and interconnection projects.

In the meantime many major geopolitical, exploration and production challenges will need to be managed before benefits can materialise. These include, amongst others, bilateral or trilateral (or even multilateral) cooperation between countries in the region, pipelines versus marine transport, risks and returns, technical issues and many more. In addition, the market outlook, that is demand and supply trends, oil and gas and LNG prices, LPG-LNG-CNG, shale gas, sustainability, energy alternatives, energy prices, finance and investments and new innovations/technologies all need to be considered carefully and weight against probable future outcomes.

Based on the above mentioned facts, the new situation as it shapes today renders the energy sector key to the achievement of Cyprus’ economic restart and growth. But, critical issues need to be dealt with first: •

transforming the hydrocarbon wealth into a sustainable, equitable and human-centered development;

•

building broad consensus over the efficient management of the wealth resulting from hydrocarbons;

•

developing appropriate proactive measures to safeguard the security and environmental integrity of the island.

A number of other outstanding issues (all significant) need to be addressed and resolved through the taking of specific steps. The main issues include: •

Conclusion of the Development Plan for the ‘Aphrodite’ field in Block 12 and the subsequent granting of an Exploitation License.

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Natural Gas - Fundamentals, Geopolitics and the Way Forward

•

Decision over Cyprus’ involvement in the natural gas exploitation infrastructure. Given the current difficult economic environment, the State’s involvement would need to be limited to infrastructure and services that would be supportive to the oil and gas industry but which could generate significant revenues for the State.

•

Creation of a bilateral framework of cooperation with Israel, Egypt and Greece, for natural gas exports through common infrastructure.

•

Conclusion and signature of the relevant agreements with Israel and Lebanon for the joint exploitation of hydrocarbon deposits extending across the median line.

•

Establishment of a National Hydrocarbons Fund through the drafting of the relevant legislation.

•

Creation of a more favorable business environment for implementation of projects in the field of services/supplies for the oil and gas industry aiming to serve both the domestic as well as the markets of the Eastern Mediterranean.

A pipeline to Egypt seems to be what Noble Energy is now planning in Block 12 as far as infrastructure is concerned. However, this pipeline should be complimented with a gas supply pipeline to the shore, to serve the local Cypriot market (a large potential exists, in particular for a petrochemicals industry); geopolitical reasons dictate the need to supply Cyprus with its own gas.

Clearly, the outcome of the recent exploration plans by TOTAL and ENI was not as expected. Despite this, the initial plans for the hydrocarbons sector in Cyprus should remain firm as the future is expected to be more prosperous with successful explorations and new hydrocarbon findings. These actions should be complimented by efforts directed at implementing prospective projects regarding exports targeted towards the EU and possibly in cooperation with Russia in the future. One needs to remember, however, that a new slump in oil prices could create further problems to scheduled gas export projects and to plans for hydrocarbon exploration and production.

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ABBREVIATIONS & UNITS OF MEASUREMENT 2-D

two-dimensional

3-D

three-dimensional

bbl

‘blue’ barrels of liquid (barrels of oil)

CBM

Coal Bed Methane

CNG

Compressed Natural Gas

CO

Carbon Monoxide

CO2

Carbon Dioxide

DME

Di-Methyl Ether

EAC

Electricity Authority of Cyprus

EEZ

Exclusive Economic Zone

EGAS

Egyptian Natural Gas Holding Company

EPSC

Exploration and Production Sharing Contract

EU

European Union

FPSO

Floating, Production, Storage and Offloading

FLNG

Floating Liquefied Natural Gas

GTL

Gas to Liquids

H

Hydrogen

2

IPPs

Independent Power Producers

km

kilometer (one thousand meters)

line-km

line kilometer

LNG

Liquefied Natural Gas

LPG

Liquefied Petroleum Gasses

NGL

Natural Gas Liquids

ORVs

Open Rack Vaporizers

PGS

Petroleum Geo-Services

sq. km

square kilometer

SPAs

Sales & Purchase Agreements

tcf

trillion cubic feet

UNCLOS United Nations Convention on the Law of the Sea USGS

United States Geological Survey

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Natural Gas - Fundamentals, Geopolitics and the Way Forward

BIBLIOGRAPHY 1. Arthur J. Kidnay, William R. Parrish, “Fundamentals of Natural Gas Processing” (2006), Taylor & Francis 2. Economides M.J., Rae P., Kalfayan R., “The Energy Imperative”, English Edition (2010) Energy Tribute Publishing Inc. ISBN: 978-960-7623-77-5 3. G. Margaret Wells, “Handbook of petrochemicals and processes” (1999), Ashgate 4. George A. Olah, Arpad Molnar, “Hydrocarbon Chemistry” (2003), John Wiley & Sons 5. James G. Speight, “The Chemistry and Technology of Petroleum” (1999), Marcel Dekker 6. John M. Hunt., “Petroleum geochemistry and geology”, New York (1996), W.H. Freeman ISBN 0716724413 7. Jon Gluyas and Richard Swarbrick, “Petroleum Geoscience” (2004), Blackwell Pub. ISBN 0632037679 8. Theodoropoulos T.E., “The Secret World of Energy: Oil, Gas and Petrochemicals”, International Edition (2010), Caye Global Investments Ltd. ISBN: 978999219105 9. Wikipedia – The Free Encyclopedia (web version)

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EASTERN MEDITERRANEAN GAS FIELDS AND A NEW ENERGY CORRIDOR TO EUROPE George Chr. PELAGHIAS* EXECUTIVE SUMMARY Several states in the Eastern Mediterranean, including Israel and Cyprus are currently developing their offshore hydrocarbon resources. In 2010, the US Geological Survey estimated that the Levant Basin (offshore Israel, Gaza, Lebanon, Syria and Cyprus) holds reserves of 1.7 billion barrels of recoverable oil and approximately 122 trillion cubic feet of natural gas, while the Nile Delta Basin Province (offshore Egypt) holds reserves of 1.8 billion barrels of recoverable oil, 223 trillion cubic feet of recoverable gas, and 6 billion barrels of natural gas liquids. The prospect of large recoverable energy resources promises important economic and other changes for the region.

Existing and proposed natural gas transit routes from Russia and the Caspian region form the main East-West energy corridors to Europe. As EU dependency on natural gas is expected to increase by 40% in the next twenty years, the establishment of an Eastern Mediterranean Energy Corridor linking current and future offshore natural gas discoveries in the Eastern Mediterranean with the European continent would allow the EU to further diversify its energy supplies.

The Eastern Mediterranean Energy Corridor is a project that could enhance bilateral relations and EU involvement in the Eastern Mediterranean. Israel and the Republic of Cyprus have already moved closer, and are looking at different options of extending their cooperation in the energy field. Lebanon is also making preparations for a first offshore licensing round, and it too is likely to develop into a natural gas producer and potential exporter.

Cyprus, together with other southern EU member states should take the initiative for the construction of a new natural gas corridor to Europe and its incorporation into the broader energy security policy of the EU. Hand-in-hand, a regional liquefaction facility in Cyprus would facilitate the further exploration and production of the Eastern Mediterranean gas fields, and help provide other regional gas producers ready access to the European energy market. *

Executive Director of European Rim Policy and Investment Council (ERPIC) Holds an M.A. in History and an LLM from Uppsala University, Sweden.

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Eastern Mediterranean Gas Fields and a New Energy Corridor to Europe

INTRODUCTION Recent discoveries of natural gas in the Eastern Mediterranean are already altering the geopolitical map of the region. The idea of coordinating the export of energy resources of Israel and Cyprus is being widely discussed. Existing pipelines from Russia, North Africa, and Norway together with the proposed pipeline projects from the Caspian Sea Basin through Turkey form the main natural gas corridors to Europe. All of these transit routes are sourced from, and/ or controlled by, non-EU member states, some of whom are not natural allies of the EU. A new East-West transit route linking current and future Eastern Mediterranean Gas Fields1 to the European continent, would diversify Europe’s energy supplies, and further improve European energy security. Without minimizing the difficulties of such a project, the concept of an Eastern Mediterranean Energy Corridor merits serious consideration.

BACKGROUND In March 2010, the U.S. Geological Survey (“USGS”) published two studies entitled “Assessment of Undiscovered Oil and Gas Resources of the Levant Basin Province, Eastern Mediterranean”, and “Assessment of Undiscovered Oil and Gas Resources of the Nile Delta Basin Province, Eastern Mediterranean”.

The USGS estimated that the Levant Basin held potential reserves of 1.7 billion barrels of recoverable oil (“bbl”), and a mean of 122 trillion cubic feet, (“tcf”), (approximately 3.45 trillion cubic meters) of recoverable natural gas, while the Nile Delta Basin held 1.8 billion bbl of recoverable oil, 223 tcf of recoverable gas, and 6 billion bbl of natural gas liquids.2 During recent years, there have been important offshore hydrocarbon discoveries in the Eastern Mediterranean that tend to confirm these estimates. Countries in the region are now at various stages of exploration and development.

In Israel, the Ministry of Energy and Water Resources estimates (May 2012 assessment) that Israel’s total offshore natural gas reserve potential, is about 49.4

1

2

60

The term “Eastern Mediterranean Gas Fields” as used in this paper describes natural gas fields located in the Levant Basin (an area that covers offshore Syria, Lebanon, Cyprus and Israel), the Nile Delta Basin (offshore Egypt), as well as the area between islands of Cyprus and Crete U.S Geological Survey, ‘Assessment of Undiscovered Oil and Gas Resources of the Levant Basin Province, Eastern Mediterranean March 2010’, http://pubs.usgs.gov (Last accessed 02.07.12); U.S Geological Survey, ‘Assessment of Undiscovered Oil and Gas Resources of the Nile Delta Basin Province, Eastern Mediterranean, March 2010’, http://pubs.usgs.gov (Last accessed 02.07.12).

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tcf (1400 billion cubic meters “bcm”).3 Israel natural gas consumption stood at 5.3 bcm in 2010 out of which 60% was supplied by domestic fields.

The remainder was, until 2012,4 supplied by Egypt. British Gas estimates the discovered reserves offshore Gaza to around 1 tcf (approx. 28.3 bcm)5. In 2011 proven reserves in Egypt stood at 77.36tcf (2188.8 bcm), and in December 2011, the first

well

in

Cyprus’

Exclusive

Economic Zone (“EEZ”) indicated a possible reserve of approximately 5-8 tcf (141.5-226.5 bcm).7 In May 2012, Cyprus launched a second offshore licensing round which attracted several major international exploration companies.

Meanwhile,

Lebanon

is

preparing to launch its first offshore licensing

round

by

the

end

of 2012. These important energy resources at the Eastern end of the Mediterranean

could

form

an

additional

Natural

gas

supply

for

Europe. Of particular importance, in the security context is that a sizable proportion of the reserves are situated in the EEZ of an EU member state.

EUROPEAN ENERGY SECURITY According to the International Energy Agency, natural gas accounts for approximately 22% of the world energy mix.8 Compared with other fossil fuels, 3

4

5 6 7

8

Ministry of Energy and Water, Israel, ‘Directorial Abstract of the Inter-Ministerial Committee to Examine the Government’s Policy Regarding Natural Gas in Israel: published 4 May 2012, http://energy.gov.il (Last accessed 25.06.12).

Egypt and Israel signed a memorandum of understanding for the import of natural gas from Egypt to Israel in 2008. At the same time, a natural gas purchase agreement was signed between the Israel Electric Corporation and the Israeli-Egyptian joint venture company Eastern Mediterranean Oil & Gas (EMG). In April 2012, Egypt cancelled the 20 year contract on the basis that the Mubarak regime had concluded the agreement below market price BG Group Homepage - Where we Operate, http://www.bg-group.com/(Last accessed 20.07.12).

BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’ http://www.bp.com/ (Last accessed 02.07.12).

The results from the first well indicated an estimated gross resource range of 5 to 8 tcf, with a gross mean of 7 tcf. Noble Energy Inc. Homepage – ‘Press Release’, 28.12.11, http://investors. nobleenergyinc.com/ (Last accessed 02.07.12).

International Energy Agency, ‘Natural Gas’, http://www.iea.org/ (Last accessed 02.07.12).

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natural gas offers many advantages such as relatively low greenhouse signature, far fewer pollutants than coal, energy efficiency and ease of use. With the EU’s own proven natural gas supplies limited,9 the need for greater diversity in the petroleum and natural gas sector is vital to the energy security of the 27-member economic and political union. Although over the next 10 years fracking technologies for shale gas are likely to considerably add to Europe’s natural gas reserves, there are widespread concerns over the extraction process, which may delay the exploration of this valuable asset. In 2011, EU consumption of natural gas was approximately 447.9 bcm.10 In 2007 the EU Directorate-General for Research released a report, under the title of “Energy Corridors: European Union and Neighboring Countries”,11 which called for a European Energy Policy that considered both internal and external dimensions. The “internal” dimension referred to the emergence of new energy technologies while the “external” dimension focused on “Energy Corridors” linking the EU to its neighbors, both as suppliers and for transit. The report concluded that energy corridors are a key element of EU energy policy as they contribute to security of energy supply and ultimately to the competitiveness and sustainability of the Union.12 The report identified several gas corridors into Europe through the North Sea, the Baltic Sea, the Mediterranean and Turkey. Within these corridors six pipeline projects emerge as priority projects: the Langeled (between Norway and the UK), the Nord Stream (between Russia and Germany, Medgaz (between Algeria and Spain), Galsi (between Algeria and Italy), Nabucco (starting at the Caspian Sea and through Turkey and connecting to Greece and/or the Eastern Balkans and Austria).13 All projects, except Nabucco, have been realized with Nord Stream being the largest. Operated by Nord Stream AG, it runs from Vyborg in Russia to Lubmin in Germany, stretching for 1,224 km making it the longest offshore pipeline in the 9

10 11 12 13

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EU proven reserves of natural gas stood at 64.4 tcf in 2011, accounting for approximately 0.9% of the world’s proven reserves. BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’, http://www.bp.com/ (Last accessed 02.07.12).

BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’, http://www.bp.com/ (Last accessed 02.07.12).

EU Bookshop, ‘Energy Corridors European Union and Neighbouring Countries (2007), http://bookshop.europa.eu, (Last accessed 02.07.12).

EU Bookshop, ‘Energy Corridors European Union and Neighbouring Countries (2007), http://bookshop.europa.eu (Last accessed 02.07.12).

EU Bookshop, ‘Energy Corridors European Union and Neighbouring Countries (2007), http://bookshop.europa.eu/ (Last accessed 02.07.12).

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world. The twin pipeline system will, by its completion in late 2012, be the most direct connection between gas reserves in Russia and the EU market with a capacity of 55 bcm/year.14 The project is, however, not without controversy as it has been criticized for its environmental impact on the Baltic Sea, and for increasing Europe’s dependence on Russian gas. Natural gas imports from Russia stood at 140.6 bcm in 2011, which accounted for 38% of the EU’s total gas imports that year. These imports are destined to increase with the final implementation of the Nord Stream pipeline system.

In November 2010, the European Commission outlined its energy infrastructure priorities until 2030. In an effort to diversify from its dependence on Russia, Europe’s new priorities included the “North-South Corridor” in Western Europe, aimed at removing internal bottlenecks and enabling better use of external supplies; the “Southern Corridor” carrying gas from the Caspian Sea through Georgia and Turkey; and the linkage of the Baltic region to Central and South Eastern European energy markets.15 By

2011,

the

total

amount of natural gas imported by EU member states via pipeline and

LNG

reached

333.1 bcm and 65.4 bcm respectively.16

14 North Stream AG Homepage – ‘The Pipeline’, http://www.nord-stream.com/ (Last accessed 25.08.12).

15 15 Natural and Bio Gas Vehicle Association, ‘North-South Natural Gas Corridor Approved’, http://www.ngvaeurope.eu/ (Last accessed 02.07.12).

16 16 The figures only include EU member states. BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’ http://www.bp.com/ (Last accessed 02.07.12).

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The primary sources of gas were from Russia, Norway, Algeria and Qatar.17 In 2011, the Commission published a report on the security of energy supply and international cooperation.18 The report stated that Europe is currently importing some 60% of its gas and 80% of its oil, and that it is estimated that these figures may increase by 40% by the year 2030. The report stressed the importance of the Mediterranean in EU energy supplies, and expressed the need for active engagement in promoting the energy infrastructure of this region.19 The EU called for consistent and well-coordinated energy policies by and among its members as vital to the further development of the internal market.20 Alternative non-Russian gas supplies, especially from the Caspian region via Turkey, have become increasingly important for Europe. Turkey itself is also a significant regional energy consumer, and is increasing its involvement in international projects not only as a transit country but also as a large end-user. There are several inter-governmental gas pipelines in operation, such as the Blue Stream gas pipeline between Russia and Turkey, the Baku-Tbilisi-Erzurum (“BTE”, also known as the South Caucasus Pipeline), the Tabriz-Ankara gas pipeline, and the Turkey-Greece Interconnector (“TGI”).21 Responsibility for infrastructure security weighs heavily on Turkey, and other states that host critical energy infrastructure assets. Global terror organizations have declared pipelines as legitimate targets. An example of this is the 2011 bombings the El Arish natural gas compressor station and the Egyptian sections to of the pipelines supplying Israel and Jordan. In the case of Turkey, the Turkish section of the Kirkuk-Ceyhan pipeline and the Iran-Turkey gas pipeline has also been attacked on numerous occasions. On 5 August 2008, a terrorist strike on the Baku-Tbilisi-Ceyhan (“BTC”) pipeline disrupted the flow of oil through the 17 17 BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’ http://www.bp. com/ (Last accessed 02.07.12).

18 18 COM (2011) 539 final, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions On Security of Energy Supply and International Cooperation – ‘The EU Energy Policy: Engaging with Partners Beyond Our Borders’, http://eur-lex.europa.eu/ (Last accessed 02.07.12).

19 19 COM (2011) 539 final, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions On Security of Energy Supply and International Cooperation – ‘The EU Energy Policy: Engaging with Partners Beyond Our Borders’, http://eur-lex.europa.eu/ (Last accessed 02.07.12).

20 20 COM (2011) 539 final, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions On Security of Energy Supply and International Cooperation – ‘The EU Energy Policy: Engaging with Partners Beyond Our Borders’, http://eur-lex.europa.eu/ (Last accessed 02.07.12).

21 21 Journal of Energy Security, ‘The Role of Turkey in Global Energy: Bolstering Energy Infrastructure Security’, Hasan Alsancak, May 2010 Issue, http://www.ensec.org/ (Last accessed 02.07.12).

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pipeline for two weeks.22 In May 2012, the BTE pipeline exploded in the Turkish section, suspending supplies until 11 June 2012. Speculations that the Kurdish Workers Party (“PKK”) was responsible have yet to be confirmed.23

The explosion cut off 16% of Turkey’s daily gas use, and forced the country to rely on stored supplies and expensive imports from Russia. BOTAS, the operator of the Turkish section of the pipeline, was reluctant to admit sabotage fearing loss of investor confidence. Nevertheless, such incidents have broad implications for the security of the Southern Corridor. Regular attacks would increase security costs along the Turkish route, which would largely be shouldered by BOTAS. It would also be a source of frustration among BOTAS,’s partners such as Azerbaijan’s SOCAR and the operating consortium of the Azerbaijani Shah Deniz field, headed by BP.24 While the planned Trans-Anatolian Pipeline (“TANAP”) is estimated to have a capacity of 16 bcm/year (10 bcm/year will be earmarked for Europe), with an increase to 24 bcm/year at a later stage, any disruption of the flow of gas would have an impact on Europe.25 With this degree of risk, Europe would be wise, therefore, to diversify and maintain a secure source of supply.

Turkey aspires to become a major transit hub for energy to Europe. Russia too, would clearly like to monopolize the European markets and transit routes, 22 Journal of Energy Security ‘The Role of Turkey in Global Energy: Bolstering Energy Infrastructure Security, Hasan Alsancak, May 2010 Issue, http://www.ensec.org/ (Last accessed 02.07.12).

23 Natural Gas Europe, “The BTE Pipeline Blast: The Implications of Sabotage”, 14.06.12 http://www.naturalgaseurope.com/ (Last accessed 02.07.12).

24 Natural Gas Europe, “The BTE Pipeline Blast: The Implications of Sabotage”, 14.06.12, http://www.naturalgaseurope.com/ (Last accessed 02.07.12).

25 BP Statistical Review of World Energy June 2012 – “Natural Gas Section” http://www.bp.com/ (Last accessed 02.07.12)

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certainly for economic and maybe for political reasons as well. Russia is antipathetic to Turkey having an independent presence in Central Asia and the Caucasus region. Both nations have competing ambitions in Eurasia, a fact that complicates their otherwise positive economic relations.26 After redirecting natural gas from its storage facilities in Europe during the winter of 2011, Gazprom now wants to build underground natural gas storage facilities in Turkey.2727 Russia would like to increase its influence over Turkey’s energy sector, and Ankara may find it difficult to withstand Russian pressure. Alternative natural gas supply options for Turkey, such as from Iran, or the expansion of the Shah Deniz II field in Azerbaijan or even the use of Liquefied Natural Gas (“LNG”) imports are years away.2828 Meanwhile, Russia is looking to establish itself in other parts of the Eastern Mediterranean. Russian International Oil Companies2929 (“IOCs”) are taking part in the second licensing round offshore Cyprus, and Gazprom, who exported 2.9 bcm of gas to Greece in 2011, has shown interest in acquiring a stake in Greece’s state-owned gas company (“DEPA”), scheduled for privatization due to the country’s financial difficulties.3030 Gazprom is also looking to become involved in the development of Israeli hydrocarbon projects.3131 Given Europe’s existing heavy reliance on gas from Russia, one wonders if allowing Russia to assume a dominant position in the Eastern Mediterranean is in Europe’s wider economic and security interests.

THE CONCEPT OF A NEW ENERGY CORRIDOR TO EUROPE Existing pipelines from Russia into northern Europe, and proposed pipelines from the Caspian throughout Turkey, form the main East-West natural gas cor26 The Heritage Foundation, “Countering Turkey’s Strategic Drift”, S. McNamara, A. Cohen and J. Phillips, No. 2442, (2010).

27 27 Stratfor, ‘Russia’s Energy Plans for Turkey’, 20.03.12, http://www.stratfor.com/ (Last accessed 02.07.12).

28 28 Stratfor, ‘Russia’s Energy Plans for Turkey’, 20.03.12, http://www.stratfor.com/ (Last accessed 02.07.12).

29 29 Russia’s Novatek Overseas Exploration and Production Gmbh and Gazprom Bank Global Resources are participating in a consortium together with Total E&P Activities Petroliers who serves as the consortium operator.

30 30 Gazprom Homepage – ‘Gazprom Group considers potential bidding for DEPA’, 16.03.12, http://www.gazprom.com/ (Last accessed 02.07.12).

31 31 Interfax Energy, ‘Gazprom’s Play for Israel’s Offshore Gas Bounty’, Volume 2 Issue 131, Friday 13 July 2012. www.interfaxenergy.com (Last accessed 13.07.12).

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ridors to Europe. A new energy corridor that would carry gas from current and future Eastern Mediterranean Gas Fields to Europe could be a significant contribution to European energy security.

The idea for the joint export of Israeli and Cyprus hydrocarbon resources first surfaced in the beginning of 2011 in an initiative by the Delek Energy Group and Noble Energy Inc., licensees of Cyprus’ Block 12, in which the Aphrodite field is located. The two companies called for the construction of a liquefaction facility on Cyprus that, in its initial stages, would process and export natural gas received from the Israeli Leviathan field (estimated at 17 tcf) and the Cyprus Aphrodite field. The facility would be planned with the intention of accommodating additional discoveries including those by third parties.32 Discussions of this and other ideas continued in the press and among stakeholders during 2011 and early 2012. Some of the competing suggestions included: transporting gas to Israel for the purposes of electricity production; the creation of LNG stations in Israel instead of Cyprus in order to supply world markets; the creation of floating facilities for the liquefaction of natural gas (“FLNG Facilities”) instead of a land based facility in Cyprus; the creation of a pipeline connecting Cyprus and Israeli fields to Greece and Italy; and the use of Israeli and Cyprus gas to produce electricity for export to Europe via high voltage undersea cables.33 In this context, it is also important to note that with regard to Israel, security concerns and satisfaction of domestic demands will be major considerations in any export plans. For Cyprus too, similar considerations will apply, but since its domestic market is small (less than 1 bcm/year) most of its gas will be earmarked for export.

Any project that would carry gas from the Eastern Mediterranean to Europe would have to take into account several important geopolitical facts. For the moment, only Israel and Cyprus have a prospect of commercializing their gas deposits. Regional cooperation in the Eastern Mediterranean will be difficult due to maritime disputes between Israel and Lebanon, between Cyprus and Turkey, as well as the long running maritime dispute between Greece and Turkey. Offshore exploration in Syria is unlikely to take place as long as the country’s political turmoil persists. Exploration offshore Gaza is not progressing, 32 Middle East Economic Survey, “Israel’s Delek Proposes Building LNG Facility in Cyprus”, Vol LV, No 3, January 2011, http://archives.mees.com/ (Last accessed 02.07.12).

33 Natural Gas Europe, “Five Ways for the Third Corridor by Cyprus”, 29.04.12, http://www.naturalgaseurope.com/ (Last accessed 02.07.12).

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and Lebanon has yet to announce its first licensing round. Egypt already possesses a well-developed natural gas export sector (with liquefaction facilities in Damietta and Idku), and could, therefore, link to any new energy corridor to Europe.

The level of Egypt’s participation would, however, depend on the country’s domestic stability, its relations with Israel and its own growing energy demands.

The natural gas discoveries in the Eastern Mediterranean have brought attention to a region that historically played a limited role in the European energy equation, but this could now change significantly. While the Southern Corridor through Turkey remains an energy priority for the EU, the development of an additional East-West energy corridor could establish a route by which the EU would be able to diversify its natural gas supply without being dependent on non-EU sources and transit routes. This could be of considerable strategic and economic importance to the EU as a whole.

At present, only Israel, and Egypt, has substantial quantities of natural gas. Despite estimated deposits in the Aphrodite field in Cyprus’ Block 12, the proven reserves remain to be confirmed.

While this is a positive development for the Republic of Cyprus, it is not yet enough to seek major financing to build an export industry.

The second licensing round in Cyprus, which closed in May 2012, attracted several major IOCs3434 that are willing to invest in the exploration of new areas within Cyprus’ EEZ. More deposits are thus expected to be discovered over the next 3-5 years. Meanwhile, Lebanon’s first offshore licensing round may be stalled as Lebanon suffers the political fallout from the escalating turmoil in Syria. Potentially, however, any Lebanese fields discovered could add significant additional reserves within the Eastern Mediterranean, thereby increasing the total amount of available gas at Europe’s doorstep.

34 Petra Petroleum (Canada); ATP East Med No 2 BV (US); Naphtha Israel Petroleum Corporation Limited (Israel); DOR Chemicals Limited (Israel); Modiin Energy Limited Partnership (Israel); Total E&P Activities Petroliers (France); Novatek Overseas Exploration and Production Gmbh (Russia); Gazprom Bank Global Resources (Russia); Premier Oil (UK); VITOL (UK); PETRONAS (Malaysia); Edison International S.p.A (Italy); Delek Drilling Ltd Partnership (Israel); Avner Oil Exploration Ltd Partnership (Israel); Enel Trade S.p.A (Italy); Woodside Energy Holdings PTY Ltd (Australia); ENI (Italy); KOGAS (Korea); C.O. Cyprus Opportunity Energy Public Company limited (Cyprus/Israel); AGR (Norway); OAK Delta NG Exploration Joint Venture (Israel/ US/Cyprus); Capricorn Oil (UK); Marathon Oil (US); Orange NASSAU Energie (Holland); CC Energy SAL (Lebanon); WINEVIA Holdings Limited (Cyprus); RX Drill Cyprus Limited (Cyprus); PT Energy Mega Persada Tbk & Frastico Holdings Limited (Canada/Indonesia/Cyprus); Emannuelle Geo Global Rosario (Israel) - Ministry of Commerce, Industry, and Tourism, Republic of Cyprus, www.mcit.gov.cy

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ECONOMIC CONSIDERATIONS AND POLICY DECISIONS Whether produced offshore or onshore, natural gas must be transported to the end-user in one or more target markets. Transportation costs of natural gas, whether produced onshore or offshore, form an important element in its commercialization. For pipeline projects, the cost are usually directly proportional to the length of the pipeline for any given flow rate or pipeline diameter. Offshore pipelines are more expensive than onshore pipelines, as are very large diameter pipelines, and pipelines with additional compression facilities. An alternative is to liquefy the gas and transport it by sea. This option, however, only becomes economically feasible in the case of long distances,3535 or when the construction of a pipeline becomes complicated due to geographical or geopolitical reasons.36 Economics aside, national interest and security considerations are important elements in the realization of any major energy project, especially a multinational one. The Cyprus government announced in April 2012, its decision to construct an underwater pipeline linking Block 12 to a 5 million tons per annum (“mtpa”) (approximately 7 bcm/year) onshore natural gas liquefaction facility to be constructed on the southern coast of Cyprus.37 Israel also has plans to construct its own liquefaction facility for export purposes.

Israel’s inter-Ministerial Committee, headed by the Director-General of the Ministry of Energy and Water, Saul Zemach, was set-up with the purpose of evaluating export alternatives. In August 2012, the Zemach Committee released its report, which recommended that fields with more than 200 billion cubic meters (bcm) will need to reserve 50% for the domestic market. Fields with 100200 bcm will need to reserve 40%, and fields with 25-100 bcm 25%. There is no export restriction recommended for fields containing less than 25 bcm. The export limit of any one field is recommended to be set at 75%.38 While the Committee’s interim report, released in April 2012, ruled out the possibility of Israeli gas being exported via non-Israeli facilities, the final report still recommends that exports 35 Expert’s opinions differ on the issue of the economic feasibility of long distance pipelines. As a rule of thumb, however, the cost effectiveness of pipelines vs. LNG shifts at distances that goes beyond 5,000 km onshore, and 2,000 km offshore 36 P. Roberts, Gas Sales and Gas Transportation Agreements: Principles and Practice (Sweet and Maxwell, 2011), p.16 37 Natural Gas Europe, “Cyprus Opts for LNG Terminal for Offshore Gas”, 11.06.12, http://www.naturalgaseurope.com/ (Last accessed 02.07.12).

38 Interfax Energy, “Tzemach Report Welcomed by Israel’s Explorers”, Volume 2 Issue 165, 31.08.12, www.interfaxenergy.com (Last accessed 01.09.12).

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should be conducted from Israel, but that this is not necessary a requirement.39 Prime Minister Netanyahu is facing strong opposition from Israeli environmentalists, and concerned citizens who object to an LNG facility in their community.

There are also concerns regarding the funding of such projects.40 In addition, the policies of the Israeli government do not always run parallel with the companies that are licensed to explore the gas. The seemingly changed position of the Zemach Committee’s position on this particular issue increases the possibility that Israel and Cyprus could agree on joint exports in the future.

Meanwhile, in early 2012, the National Gas Pipeline Company of Israel and the Eilat-Ashkelon Pipeline Company submitted a proposal to the Israeli Minister of Finance for a LNG Facility in Eilat. The cost of such a project is estimated at about $6 billion.41 Eilat would give Israel access to the Red Sea, and hence the Asian market without the political constraints likely from the Suez Canal. In addition, Israel has also been looking at the option of one or more FLNG facilities. The partnership of the Israeli Tamar field has already signed a memorandum of understanding to develop FLNG with a consortium of companies led by the South Korean company Daewoo.42 Floating liquefaction technology allows producers to bring liquefaction directly to the source of offshore natural gas. However, the cost of such projects is high and depends on relatively calm waters. From a financing perspective, lenders and buyers may also question the security of FLNG facilities in waters vulnerable to marine terrorism.43 Moreover, FLNG technology is quite complex, and must be fitted into limited vessel space.FLNG facilities are expected to yield 75% of the capacity of a conventional land based LNG liquefaction facility, with just 5% of the surface area.44 There are a number of major IOCs with advanced research projects on FLNG. There are also several projects under construction. Royal Dutch Shell’s “Prelude” 39 Interfax Energy, “Tzemach Report Welcomed by Israel’s Explorers’, Volume 2 Issue 165, 31.08.12, www.interfaxenergy.com (Last accessed 01.09.12).

40 Delek Group Homepage –”Investor Relations”, http://ir.delek-group.com/ (Last accessed 20.06.12).

41 Globes News, “Gov’t cos want to build $6b Eilat LNG facility”, 10.01.12, http://www.globes.co.il/ (Last accessed 10.07.2012).

42 Delek Group Homepage – ‘Investor Relations’, http://ir.delek-group.com/ (Last accessed 20.06.12).

43 King & Spalding, ‘The Top 10 Issues Facing the LNG Industry in 2012’, 01.03.12, Philip Weems, Matt Salo, http://www.kslaw.com/ (Last accessed 25.05.12).

44 LNG World News, ‘Malaysia Lloyd’s Register Launches FLNG Rules’, 06.06.12, http://www.lngworldnews.com/ (Last accessed 02.07.12).

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FLNG project off Western Australia is to be the first of such projects to be completed. Shell took the final investment decision in May 2011 and Japan’s INPEX Corporation joined the project in March 2012.45 Upon completion, Prelude will be the largest man-made floating object, measuring 488m long and displacing 600,000 tons of water.46 It will have a capacity of 3.6 mtpa (approximately 4.9 bcm).47 It is estimated that the Prelude will cost $3 billion to construct.48 Other major companies that are exploring this technology are Australia’s Woodside Petroleum, Malaysia’s PETRONAS, and Brazil’s PETROBRAS.49

REGIONAL DISPUTES Existing regional tensions and political instability in the Eastern Mediterranean, and especially continuing

maritime

border

disputes, add to the risk and complexity of hydrocarbon exploration and exploitation in the region. While regional Islamist groups have gained new ground since the Arab Spring, it is Turkey that has gained the most regional influence.

Turkey’s new regional profile has also been felt by Turkey’s non-Muslim neighbors.

45 International Gas Union, ‘World LNG Report 2011’ http://www.igu.org/ (Last accessed 02.07.12) 46 LNG World News, ‘Malaysia Lloyd’s Register Launches FLNG Rules’, 06.06.12, http://www.lngworldnews.com/ (Last accessed 02.07.12).

47 International Gas Union (IGU) ‘World LNG Report 2011’ http://www.igu.org/ (Last accessed 02.07.12).

48 Upstream Online, ‘Prelude FLNG to cost $3bn’, 01.06.11, http://www.upstreamonline.com/ (Last accessed 02.07.12).

49 Shell Homepage – News and Media Releases, ‘Shell floating LNG technology chosen by joint venture for Greater Sunrise project’, 29.04.10- http://www.shell.com/ (Last accessed 02.07.12); Penn Energy ‘Technip, Daewoo win FEED contract on PETRONAS’ FLNG vessel offshore Malaysia’, 01.02.12 http://www.pennenergy.com/ (Last accessed 02.07.12); Technip Homepage – Press Releases, ‘Technip awarded a key engineering contract for a FLNG in Malaysia’, http:// www.technip.com/ (Last accessed 02.07.12); Shell Australia Homepage – ‘Prelude’, http:// www.shell.com.au/ (Last accessed 02.07.12); Reuters, ‘Inpex delays Indonesia LNG output start by 2 years’, 21.12.10, http://uk.reuters.com/ (Last accessed 02.07.12).

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Following the Gaza flotilla incident in 2010, relations between Turkey and Israel have deteriorated considerably, as have Turkish and Greek relations despite U.S. and NATO efforts to mediate.

Turkish violations of Greek and Cypriot airspace have become daily occurrences.

Turkey has also escalated its claims in the Eastern Mediterranean in areas that form part of Cyprus’ EEZ or are claimed by Greece. In this highly confrontational atmosphere, Turkey objected to the second licensing round conducted by the Republic of Cyprus in Cyprus’ EEZ. Turkey, arrogating the perceived rights of the Turkish Cypriots, has granted licenses over large sections of Cyprus’ EEZ to TPAO, Turkey’s national energy Exploration and Production Company. While Turkey has not received any international support for its claims, Ankara has issued warnings of its intention to blacklist companies that engage in Cypriot exploration activities.50 In a similar vein, in April 2012, Turkey awarded eight new licenses to TPAO in the Eastern Aegean in an area where sovereignty is disputed with Greece. Turkey, in support of its claims, has also deployed warships in Cyprus’ territorial waters on several occasions.51 In 2007, Lebanon and Cyprus signed a delimitation agreement, and in 2010 Israel and Cyprus also agreed a maritime border. Lebanon then failed to ratify the 2007 agreement, arguing that it was the starting point for negotiations and claiming its maritime border extended further south than the agreed point. Lebanon and Israel have different ideas of where the maritime boundary between the two states lies. The difference is a pie-shaped area of 854 km² (330 mi²) in size where their declared EEZs overlap. In 2010, Lebanon submitted its proposed maritime boundary to the UN. Israel submitted its view to the UN in 2011. U.S. and UN diplomats have been trying to resolve the issue, and in June 2012 reports indicated that Lebanon’s rights to control 530 km² (204mi²) of the disputed area.52 between Israel and Lebanon settling the dispute.

Diplomats were willing to acknowledge however, there is no official agreement.

For Lebanon to move ahead with the establishment of a hydrocarbon industry, a functioning energy authority (tentatively named the Petroleum Administration) 50 Bloomberg, “Erdoğan Threatens to Blacklist Companies Working With Cyprus on Oil, Gas” – Emre Peker, 22.09.11, http://www.bloomberg.com/ (Last accessed 02.07.12).

51 International Crisis Group, “Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?”, 02.04.12, p.5., http://www.crisisgroup.org/ (Last accessed 02.07.12); Todays Zaman, “Turkish Warships head towards Cyprus in oil exploration dispute”, 21.09.11, http://www.todayszaman.com/ (Last accessed 02.07.12); Haaretz, “Turkey to deploy warships over gas dispute with Cyprus”, 25.09.11, http://www.haaretz.com/ (Last accessed 02.07.12).

52 Naharnet, ‘Lebanon Recovers 530 Square Kilometers of its EEZ’, 06.06.12, http://www.naharnet.com/ (Last accessed 29.06.12).

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must first be formed by the government. There are questions within Lebanon itself about whether such a body will be able to work without interference from the country’s political groups. Lebanon has commissioned offshore seismic surveys to be carried out in its offshore territory, and aims to hold its first licensing round in the end of 2012.53

In this context, the developments in Syria could have severe effects on Lebanon.

Syria maintained a strong military presence in Lebanon during the years 1976 - 2005. Syria has remained very influential in Lebanese affairs since its military withdrawal in 2005 through its local allies, notably the two main Shia movements, Hezbollah and Amal, and their network of Lebanese partners in different communities.54 Lebanese political life is divided over the issue of Syrian influence with the Sunni-based “March 14 Alliance”, headed by Rafik Hariri’s son Saad, opposing Syrian influence. Its rivals, the Shia-dominated “March 8 Coalition” headed by Hezbollah, are strong allies of Assad’s regime in Damascus. If the Syrian regime (based on the Shia-offshoot Alawite minority) collapses and the Sunni majority takes over, Hezbollah’s lifeline to its Iranian patrons may be severed, leaving the movement weakened both in Lebanon and vis-à-vis Israel.55 53 Interfax Energy, ‘Beirut prepares first offshore licensing round’ 19.06.12, Volume 2, Issue 113, p.

6, www.interfaxenergy.com (Last accessed 02.07.12), Interfax Energy, ‘Lebanon to issue RFP on floating LNG by the end of the year’ 11.09.12, Volume 2, Issue 172, p. 8, www.interfaxenergy. com (Last accessed 12.09.12) 54 BBC News, ‘Syria: The view from Next Door’, 29.11.11, http://www.bbc.co.uk/ (Last accessed 02.07.12).

55 BBC News, ‘Syria: The view from Next Door’, 29.11.11, http://www.bbc.co.uk/ (Last accessed 02.07.12).

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A NEW EAST-WESTENERGY CORRIDOR TO EUROPE Given the political instability, the concept of an energy corridor that would link Israel and Cyprus to Southern Europe, will face several difficulties for the immediate future. While Israel may currently be looking towards Asian energy markets, a firm linkage to the European market backed by European financing could still be very attractive as China is known for sitting on considerable shale gas reserves.

Exporting LNG to the EU via Cyprus would give Israel direct access to the European internal market, and make it part of European energy security. As such, the relationship between Israel and Cyprus is key. However, a bilateral relationship between Israel and Cyprus must be based on a common vision, not only on the exploration of natural resources. It is important that the two countries establish a relationship based on partnership rather than dependency. Positive moves have been made in this respect as Israel and Cyprus are progressing in their energy talks.56 Cyprus’ options for transporting its energy to Europe include: the construction of an underwater pipeline linking Israel, Cyprus and Greece; an electricity cable linking the three countries and, by extension Europe; and the construction of an LNG facility in Cyprus to serve Cyprus’, as well as Israeli natural gas exports to Europe.57 Cyprus’ decision to construct a liquefaction facility available to Israeli natural gas has important consequences. In view of the high cost and value of such major energy and infrastructure projects, national policy and security considerations figure prominently in what might otherwise be a private sector initiative. The energy resources on both sides of the Israeli-Cyprus maritime border are, and will be, under license to corporations with their own economic, even political agendas. Irrespective of who hold such licenses, and/or other major energy assets, however, Cyprus, as a host state will become responsible for the security of the energy exploration production and supply chain. Where energy and national security are concerned serious risk analyses will need to be part of the overall plan.58 In order to develop into a reliable LNG producer and supplier, Cyprus must be able to ensure the security of the huge investments that will be required. Being a small country with a small armed forces, Cyprus can do this 56 Cyprus Mail, ‘Details of Israel energy deal are being fleshed out’, 13.06.12, http://www.cyprus-mail.com/ (Last accessed 02.07.12).

57 Cyprus Mail, ‘Details of Israel energy deal are being fleshed out’, 13.06.12, http://www.cyprus-mail.com/ (Last accessed 02.07.12).

58 Energy Security Journal, ‘Closing the Gap Between Energy and National Security’- Kevin Rosner, December 2011 Issue, http://www.ensec.org/ (Last accessed 02.07.12).

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more cost effectively with Israeli cooperation and assistance.

Given the obvious advantages of having a secure source of energy, it would be in Europe’s interest to be fully involved in the development of the natural gas resources of the Eastern Mediterranean. It is, therefore, strongly suggested that a new energy route from the Eastern Mediterranean to Europe should become a European sponsored project. Of course, each option would have to be costed in detail, examined for risk and economic returns.

The idea of an underwater pipeline from Cyprus to Greece, the “Eastern Mediterranean Pipeline”, has received much publicity in Greece as a way to salvage the non-Turkish section of the Italy-Turkey-Greece Interconnector (“ITGI”).59 In February 2012, the Shah Deniz consortium announced that it would favor the Trans Adriatic Pipeline (“TAP”) over the ITGI as the preferred leg of the route to Europe.60 Greece maintains that the Eastern Mediterranean Pipeline is feasible both economically and technically despite requiring to be laid at depths over 2,000 meters. In addition, the project has to run through waters disputed by Turkey, and that without extensive infrastructure investments into the Greek transmission system, the gas would not be able to be transported to other markets. The last point is related to the fact that Greece’s ability to access the rest of Europe will, to a large extent, depend on pipeline projects which essentially lie outside Greece’s control.

Alternatively, it has also been suggested that gas from Cyprus could be exported to Turkey via a pipeline that would form part of the Southern Corridor.6161 However, this option is a non-starter without the prior full normalization of Cyprus-Turkey relations.

LNG projects are not only more costly than pipeline projects, they also take longer to implement. It has been suggested that a 5 mtpa liquefaction plant would take approximately 10 years to construct once the final decision has been made.6262 However, this option would give Cyprus more flexibility for exporting its own reserves, as well as provide an export option to its neighbors. There are several 59 Natural Gas Europe, ‘Cyprus Opts for LNG Terminal for Offshore Gas’, 11.06.12-http://www. naturalgaseurope.com/ (Last accessed 02.07.12) 60 Natural Gas Europe, ‘Analysis: TAP’s Victory Attributed to Wider Geo-economic Considerations’, 21.02.12, http://www.naturalgaseurope.com/ (Last accessed 02.07.12).

61 International Crisis Group, ‘Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?’, 02.04.12 http://www.crisisgroup.org/ (Last accessed 02.07.12).

62 ERPIC Video Presentations, ‘Constructing the Vassilikos LNG Plant: Questions of Feasibility, a Reality Check, 11.09.11, Peter Wallace, www.erpic.org; ‘Cyprus Gas: A View on the Short and Long-Term Alternatives and Options’, 11.01.12, Peter Wallace, www.erpic.org (Last accessed 20.08.12).

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LNG regasification terminals in the Mediterranean that could serve as entry points into Europe. Although most of these terminals are currently contracted to work at close to capacity, by the time Eastern Mediterranean gas comes online, circumstances may be different, and sufficient receiving capacity may be available.

The relations between Cyprus and Greece are historically good, and Greece has one LNG regasification terminal located on the island of Revithoussa with a capacity of approximately 5.2 bcm/year.63 In 2011, Greece imported close to 1 million tons (“mt”) of LNG (approximately 1.38 bcm).64 While these figures are unlikely to remain the same over the next 10 years, Greece will still have to invest in its national transmission system if the gas is going to be transported beyond its borders. In this context, any future expansion of Cyprus’ liquefaction facility and export capacity to 10, or even 15 mtpa, would also require Greece to either extend the Revithoussa terminal and/or construct a new terminal, like the one planned in the south of Primos (near Kavala).65 In the current economic crisis, it is doubtful that Greece will be able to undertake the commitments, or attract the investors needed for the expansion of its national pipeline grid and the Revithoussa Terminal in the near future. To make matters worse DEPA may soon be forced to take loans in order to cover the cost of gas imports. DEPA, which is currently in the process of being privatized, reportedly owes approximately €120 million to various gas suppliers, including Gazprom, BOTAS and ENI.66 In order to establish itself as a reliable energy supplier to Europe, Cyprus needs to adopt a broader EU oriented LNG export policy. Such a policy should include export to the existing LNG import terminals across Southern Europe as well as to Greece. Italy, one of the largest consumers of natural gas in the EU67, has two LNG regasification terminals in operation, with several import terminals planned over the coming years.68 63 DESFA Hellenic Gas Transmission System Operator Homepage - http://www.desfa.gr (Last accessed 02.07.12).

64 International Gas Union ‘World LNG Report 2011’ http://www.igu.org (Last accessed 02.07.12).

65 Interfax Energy, ‘Europe breathes a sigh of relief after Greek elections’, Volume 2 Issue 113, 19.06.12, www.interfaxenergy.com (Last accessed 02.07.12).

66 Natural Gas Europe, ‘DEPA May Take Loan to Pay for Gas’, 11.06.12, http://www.naturalgaseurope.com/ (Last accessed 02.07.12).

67 Italy imported 69.5 bcm of natural gas in 2011 making it second to Germany with a total import of 84 bcm. BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’ http:// www.bp.com/ (Last accessed 02.07.12).

68 BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’ http://www.bp.com/ (Last accessed 02.07.12).

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There are also plans for expansions of existing terminals. The terminal closest to Cyprus is the Adriatic (Rovigo) LNG Terminal located in the northern part of the Adriatic Sea with a current capacity of 8 bcm/year69, and the Panigaglia LNG Terminal, located on the North Western coast of Ligurian Sea with a current capacity of 3.5 bcm/year.70 Italy imported 8.7 bcm of LNG in 2011, making it the fourth largest LNG importer in Europe.71 While it is unlikely that all the planned projects will materialize, Italy will undoubtedly remain a dominant force on the European natural gas import market. The Fos-Tonkin and Fos Cavaou Terminals in southern France with receiving capacities of 5.5 bcm/year72 and 8.25 bcm/ year73 respectively are also options to consider. France imported a total of 14.6 bcm of LNG in 2011 making it the third largest LNG importer in Europe. With an LNG import of 24.2 bcm, Spain was the second largest LNG importer in 2011.

Spain has three import terminals on its eastern coast, the Cartagena Terminal

69 Adriatic LNG Homepage – ‘The Adriatic LNG Terminal: Fact Sheet’, http://www.adriaticlng. com/ (Last accessed 02.07.12).

70 Eni Homepage – ‘Gas Transmissions’, http://www.eni.com/ (Last accessed 20.08.12).

71 BP Statistical Review of World Energy June 2012 – ‘Natural Gas Section’ http://www.bp.com/ (Last accessed 02.07.12).

72 Gaz Suez Homepage – ‘LNG Terminals’, http://www.gdfsuez.com/ (Last accessed 20.08.12).

73 Gaz Suez Homepage – ‘LNG Terminals’, http://www.gdfsuez.com/ (Last accessed 20.08.12).

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(11.8 bcm/year74), Sagunto Terminal (8.7 bcm/year75) and the Barcelona Terminal (17.1 bcm/year76).

Cyprus’ geographical position grants it access to the largest natural gas consumers and LNG importers in Europe. As such, The Eastern Mediterranean Energy Corridor should be able to reach all EU entry points in the Mediterranean in order to facilitate multiple end-users across Europe. In this context, it should be noted that several major EU energy companies have participated in Cyprus’ second licensing round, therefore, creating the possibility that they will become stakeholders in Eastern Mediterranean gas.77 In conclusion, their influence over EU policy makers could prove important.

Eastern Mediterranean LNG could, of course, reach broader global markets as well. With regard to global LNG transportation, and regasification capacity, it is important to note that by the end of 2011 global LNG fleets stood at 360 vessels, which is an increase of 150% since 2006. Global regasification capacity has increased by 64% since 2006 and in 2011 it stood at 608 mtpa.78 In the same year the global LNG trade grew by 8 % (17.7 mt) to a total of 241.5 mt. This was mainly due to an increased demand from Japan (8.2 mt). There was also an increase in demands from the UK (4.4mt), India (3.4 mt) and China (3.3 mt).79

74 Enagás, S.A. Homepage – ‘Regasification Terminals’, http://www.enagas.es/ (Last accessed 20.08.12).

75 Saggas Homepage – ‘Technical file’, http://www.saggas.com/ (Last accessed 20.08.12).

76 Saggas Homepage – ‘Technical file’, http://www.saggas.com/ (Last accessed 20.08.12).

77 For a list of these companies see footnote 34 above.

78 International Gas Union, ‘World LNG Report 2011’ http://www.igu.org/ (Last accessed 02.07.12).

79 International Gas Union, ‘World LNG Report 2011’ http://www.igu.org/ (Last accessed 02.07.12).

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CONCLUSIONS The success of an Eastern Mediterranean Energy Corridor to Europe would depend upon a strong bilateral relationship between the State of Israel and the Republic of Cyprus. Support from Greece, Italy, as well as other Southern European countries will be important in securing a commitment from the European community to help develop, and ultimately purchase Eastern Mediterranean natural gas. Initially, Italy, rather than Greece, would likely be the optimum target entry point into Europe, followed by France and Spain. Greece should, however, not be excluded from the equation, nor should other entry points into Europe.

As an initial step, Cyprus and Israel should explore the economic, political and security aspects of jointly accessing the European energy market within the broader context of an Israel-Cyprus-Greece-Italy energy nexus. At the same time, Cyprus should seek EU Commission support for this project and submit a proposal before the European Council.

By helping develop the Eastern Mediterranean energy resources, and particularly the Cyprus fields, the EU would secure a substantial new supply of natural gas within its own borders. Israeli resources also, to the extent that they would be earmarked for Europe, would represent a secure and dependable source of energy for Europe.

An Eastern Mediterranean Energy Corridor would also decrease EU dependency upon non-member transit states. The Eastern Mediterranean Energy Corridor should, therefore, not be seen as a competitor of existing energy supply routes to Europe. On the contrary it should be viewed as complimentary to Europe’s overall efforts to diversify and secure its energy supplies. This is very much in Europe’s best interests, and will secure a considerable percentage of Europe’s energy supplies for years to come.

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EXPLOITATION OF GAS RESOURCES AND STRATEGIC OPTIONS FOR ISRAEL Yiannos CHARALAMBIDES* Introduction The main purpose of this article is to examine the options that Israel has in order to exploit its gas resources. The Israeli options should not be regarded only by the economic point of view but also through the geopolitical and geostrategic angles, which are both significant for the service of the Israeli national interests, particularly in the context of the bitter relations existing between Ankara and Tel Aviv. Cyprus is in the middle of this rival while Turkey intends to fully control the island through a political system, which might result from a federal solution1.

This could be a step further for Turkey to become a dominant regional power and thus leaving a secondary role to Israel. The crucial point is to find out if there is a compromising policy on the basis of convergent interests.

Israel is a key player and the most powerful state in the region. Thus, its decisions are of eminent importance affecting the economic and political developments of the region and the balance of powers. In this regard, we must examine the options of gas exploitation through the perspective of geopolitics. This is a process which might lead to coalitions, cooperation or to tensions and conflicts.

Under these conditions, we examine the strategic options of Israel in order to exploit its gas resources in conjunction with the following topics (Sofaer, 2011): 1.

The relations between Israel and Turkey, Israel and Cyprus and Turkey and Cyprus in terms of the power game existing between Israel and Turkey.

2.

The strategic significant that Cyprus plays regarding the Israeli strategic and security interests

3.

The variables upon which an Israeli strategic decision on the exploitation of gas resources could be based.

*

Doctor of International Relations and European Studies, Head of the Department of M.A. in International Relations, Global Economy and Strategic Analysis, Ledra College - Vuzf University

1

The establishment of a Federal Political System constitutes a Turkish and British strategic goal since 1956. Pursuant to the British and Turkish documents, a Federation is a concept synonymous to the partition of the island (Charalambides, 2011, pp. 42-52 and 357-386)

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1. The strategic dogma Maps are like mirrors and always tell the truth. They never lie. Regarding geopolitics and geo-strategy, geography plays fundamental role. However, it is not the only factor that we should take into consideration in order to analyse political and strategic developments. The strategic goals of nation-states and the means that they have and use to achieve their aims are important to be examined. All these factors and means are inherent in the level of national strength and preconditions either a nation-state defends its national interests or it intends to put forward an expansionist policy. Looking carefully at the Middle East map, one may realise that Israel is surrounded by a number of enemy states or potential ones and that it has no way out than shaping a geopolitical axis along with Cyprus and Greece towards Europe. Israel has not adequate strategic depth.

The only strategic way out is Cyprus, which is, in fact, a geopolitical gate for Israel to the EU through Greece. The current political and diplomatic disputes between Israel and Turkey make this view much more important to be analysed.

The political landscape in the Middle East is always explosive and this estimate has been portrayed by the civil war in Syria and Iraq and other bloody incidents which occurred from time to time in the region. Such a bloody incident erupted between the 18th and 20th of August 2011(CNN, 2011). At that period, the Israeli army retaliated to terrorist actions against innocent tourists, very close to Sinai borders. Seven tourists were killed and Tel Aviv accused Egypt of not taking control over its borders. As a result of subsequent Israeli military raids, mainly launched against “Hamas’” targets, five Egyptians lost their lives. Under these circumstances, Egypt recalled its ambassador in Tel Aviv and further escalation of the crisis was averted by intensive American diplomatic efforts as the US want to keep stability in the region (Al Jazeera, 2011).

History and geostrategic reality doom Israel to live, act and react under permanent threats and thus putting in practice the following strategic dogma: “The first defeat will be the last one”, which means the end of the dominant role that Israel holds in the regional and global system. Yet, for Israel, it is a struggle for survival. The US regards Israel as a stabilising factor although it always gets involved in crises, conflicts and wars. Israel is considered like the bodyguard of the US national interests in the region. If Israel falls, then a huge strategic and security vacuum is to result and the risk of a chaotic situation is obvious. Thus, the US has no reason to abandon its classical strategic practice through which

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Israel use the American support and presents itself as a regional power, which plays a dominant role in the international affairs. Therefore, Israel should encounter the challenges stemming from the Palestinian unresolved problem, its turbulent relations with Egypt and its rivalry relations with Turkey, while at the same time Israel must prevent the terrorist attacks launched by “Hamas” and “Hezbollah” (Sharp, 2006, pp. 6,7,10, 11). These complicated and conflicting relations are also reflected in the issue of energy as problems exist regarding the delineation of the EEZ of the actors involved in a regional power game. Israel and Lebanon have not signed a relevant agreement yet and the EEZ between Israel and the Autonomous Palestinian Authority constitutes another outstanding issue – another source of friction - while Turkey questions the EEZ of the Republic of Cyprus, which has been delineated after separate bilateral agreements with Israel and Egypt (Agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone, 2003; Agreement between the Government of the State of Israel and the Government of the Republic of Cyprus on the delimitation of the exclusive economic zone, 2011).

Similarly, the dispute between Israel and Lebanon caused problems to the finalization and ratification of the agreement between Cyprus and Lebanon regarding the delineation of their EEZ. It is obvious that the political stability or instability which may exist or not, among the states involved in the energy issues and their strategic ambitions, affect their interstate relations. These relations are shaped by conflicting and convergent interests in the context of their EEZ and the energy economic Israeli Plots. Sourse: Noble Energy. This is a map showing the plots of Israel as well as the Cyprus Block 12. The exploitation of gas recourses and the security system creates favourite ground based on common interests and therefore both countries, Israel and Cyprus, established close diplomatic relations in an effort to find ways in order to cooperate and exploit their gas deposits safely.

and political games.

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2. The options of the gas routes Whilst Israel encounters severe problems with its Arab neighboring countries, Cyprus is experiencing the Turkish occupation and a continuous military threat2 (Cyprus Republic, 2008). The deposits of gas and probably oil as well as conflicting and convergent national interests, shape a new geopolitical environment and favorite ground for the establishment of a Cypriot–Israeli coalition, based on the service of common interests. Upon analysing the existing geopolitical situation and the options that Israel has on exploring and exploiting its natural gas resources, we underscore the following: First option is to install a pipeline from Israel to Egypt, where natural gas is to be liquefied and, from there, to be shipped to Europe and elsewhere. The construction of a terminal in Eilat, at the coasts of the Red Sea, constitutes a project which has the disadvantage of an overland pipeline through Sinai. This pipeline is vulnerable to terrorist attacks, while there is an issue of high economic cost. The advantage of such a project is the easier access to Asian markets, where gas prices are higher compared to Europe (Stoke and Spinks, 2015).

Source: Timera Energy 2

Turkish Military Forces are illegally stationed in Cyprus since 1974. The Resolutions 541 and 550 of the UN Security Council flatly state that the UN considers that the so called “Turkish Republic of Northern Cyprus” is not valid. It is not recognized by the International Community.

The only sate recognizes the so called “Turkish Republic of Northern Cyprus” is Turkey. Furthermore, a statement circulated by the EU on September 21 2005 makes clear that the only state that the EU recognizes in the island is the Republic of Cyprus.

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Second option, to install a pipeline from Israel, probably from Haifa to Ceyhan, and thus the gas to be transferred from Israel to Europe and elsewhere with vessels. Behind the scene, a bargain game is underway between Turkish and Israeli companies. Turkish companies one of which is “Zorlu Group” (Peixe, 2015) have come into contact with relevant Israeli interests on the basis of installing a pipeline from Israel to the Turkish coasts and particularly in Ceyhan. In order to avoid additional cost, natural gas from Israel will be channeled for internal Turkish consumption. If Israel intends to sell a certain quantity of gas to European markets then Ankara will buy the proportional quantity from other sources and particularly from the pipelines that cross its territory to Europe. As Sinak Ak, the Zorlu Energy General Director Sinan, stated: “We do not have a project with Azerbaijan, rather we are interested in the transmission of Israeli natural gas. However, we are doing this not as Zorlu Energy but as Zorlu Holding. The cost of the pipeline for conveyance of the gas in Leviathan field to Turkey is $2.5 billion to $3 billion, everything included,” Ak noted. “Apart from that, the company which will develop the field has to make yet another investment of nearly $6 billion. Thus, a total investment of $8 billion is envisaged. This has to be financed. We will not finance all of the investment of $8 billion. However, a part of the $3 billion will be undertaken by the exporters. When we supply the financing, it will provide a basis for the party who invests in the field. The owner of the project should show the possible financers where it will sell the gas. With regard to our gas purchasing agreement, they will also create their own financing packages”. Apart from this, he added: ““The line will be built under the sea. It will pass through Cypriot exclusive economic zone and reach Turkey at the point of Ceyhan region in the coast of the Mediterranean. According to surveys, the life of the project may be up to 15-20 years. As long as gas is found in the area, it will be possible to convey it on this line” (Daily Sabah, 2014).

Pertinent to this plan is the following option: the transportation of gas from Haifa to Ceyhan through a pipeline, which will be connected to the Trans Anatolian Pipeline and the detouring new pipeline which is scheduled to be realized from Samsun to Ceyhan. The latter will be also linked with the Trans Anatolian Pipeline (TAP) (Azerbaijan - Turkey - Greece) (Trans Anatolian Natural Gas Pipeline Project, 2015) In order to construct the project from Haifa to Ceyhan, a Turkish company

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or companies must cross the pipeline either through the Cypriot or the Lebanese EEZ. However, the option through the Lebanese EEZ is too difficult to be carried out due to the fact that no agreement has been signed yet between Israel and Lebanon (Ayat, 2014). Thus, if the alternative option is through the Cypriot EEZ, then it will be complicated for the project to be materialised. From a legal and political point of view, even if one alleges that it would be difficult for the Cypriot Government to veto the project, there are processes through which the Republic of Cyprus could have the upper hand. Therefore, it may request to be informed and get involved in negotiations with Turkey seeking to resolve a number of issues related to safety and/or ecological matters. This is what occurred in the case of the ÂŤNord Stream PipelineÂť when the Swedish government raised, among others, ecological issues and achieved as the pairing and laying phase of fishes to be included in the agreement and respected (Nord Stream, 2009, pp 29-30). This is a compelling and imperative dialogue and if Turkey refuses to engage in, the project of this pipeline will not be realized. In this concept, the entire project is obviously connected with the recognition of the Republic of Cyprus from Turkey. Even if the pipeline does not pass through the Cypriot EEZ, it is necessary to cross the Lebanese EEZ and therefore it would be too difficult for this project to get the green light from Lebanon. In this regard, another issue is raised as Eliat is not a secure place. The advantage of this project is the low cost, which is estimated to 2 billion dollars (Ayat, 2014). However, economy and the cost or the profit of a pipeline is only one of the variables that a state should take into consideration before making a relevant decision. Strategic and geostrategic dependencies might be proved much more importance than economic benefits.

Source: Geopolitical Analysis And Monitoring (http://geopoliticsrst. blogspot.com/2012/04/complexity-ofeastern-med-energy-games.html) This is a map showing how a pipeline can be constructed in order to transfer gas from Egypt and Israel to Turkey. At the same time, it illustrates that the economic parameter is not the only one we should take into consideration when a decision is taken. The map depicts the location where terrorist attacks had been launched causing damages on pipelines and to oil and gas supply, as well as economic cost. Thus, security constitutes one of the main factors that we should examine before taking any decision. Why? Because security is a parameter, pertinent to economic cost or profit.

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Third option, to install a pipeline connecting Israel and Cyprus where liquefied natural gas will be shipped (LNG tankers) to Greece, Europe and elsewhere.

(Charalambides 2011a, cited in Simerini, 2011, p. 10) This option is inherent in the installation of an LNG in Vasiliko. The dilemma which is raised at this stage is whether an LNG should be constructed in Vasiliko or whether a pipeline must be established in order to connect Vasiliko with Revithoussa where a pipeline is planned to come from Azerbaijan to Greece via Turkey (Trans Anatolian Pipeline). Due to the high cost that is needed for the construction of an LNG, the companies involved in the exploitation of Cyprus natural gas should financially contribute to the project, as well as the Republic of Cyprus and other third parties such as institutional funds and companies. After the second appraising drilling in plot 12, a problem had been raised about the viability of the LNG (Noble Energy, 2013). The view provided by the Cyprus government was that there is not adequate quantity of gas in plot 12 so that the LNG can be economically viable. The results of a drilling in Plot 9 (Onasagoras 19 December 20014) was not positive and therefore the Cyprus government provides the allegation that it could not put forward a plan about the establishment of an LNG (Kanli, 2015). Certainly, the question is not whether the LNG could be viable only with the exploitation of gas pumping from plots 12 and 9, but also from other plots and gas resources steaming from other countries such as Israel, Egypt and Lebanon. Therefore, the main issue is not only the quantity of gas existing in plot 12 and 9 but whether the Cyprus government intends to take a strategic decision to turn the island into a regional energy hub. In this regard, the Cyprus government should find investments and the way to put forward the presale of its natural gas resources.

However, it cannot take any steps to presale gas recourses unless accurate quantities existing in the plots under exploitation to be confirmed by TOTAL and ENI/KOGAS. News was not so encouraging for the government of Cyprus.

On January 2014 TOTAL quite its research in plots 10 and 11 “as no evidence indicating the existence of natural gas reserves was discovered in blocks 10 and 11“(Skordas, 2015). However, the efforts never stopped. On March 18, 2015 the Cypriot Energy, Commerce, Industry and Tourism Minister Giorgos Lakkotrypis and the General Manager of “Total” in Cyprus Jean-Luc Porcheron signed an agreement on further exploration works on the island’s Exclusive Economic Zone (EEZ). According to the agreement, “the colossal French oil company will further assess the prospective of exploration in block 11” (Skordas, 2015a). The exploitation’s cost was high and in conjunction with the fall of the oil prices, this plot 9 was not a lucrative investment. This development was not unsuspiciously 86

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regarded. The Turkish pressure on the oil companies to stop their drills in the Cypriot EEZ was more than obvious. On May 18, 2012 the Turkish Ministry of Foreign Affairs circulated the following statement: “Any activity of international oil companies [in the Turkish Cypriot concession blocks] in future would bring them into confrontation with [the] TRNC and TPAO and cause undesired tension. Turkey, as was already declared before, acting upon its responsibilities as a motherland and a guarantor power, will give every support to [the] RNC” (Gurel and Le Cornu, 2013 p 17; Republic of Turkey, 2012).

Did TOTAL and the Cyprus government tell the truth or they were trying to reach a formula through which tension could be de-escalated and thus the resume of the negotiations to be facilitated? On November 3, 2015 the UN Secretary-general’s Special Adviser on Cyprus Espen Barth Eide stated that the Cyprus gas recourses is to be exploited after the solution of the Cyprus issue (Poullados, 2015, p. 4). In any case, a process regarding the presale of Cyprus gas could take approximately eighteenth months. Within this period the Final Investment Decision (FID) should be announced, whilst other eighteenth months will be needed for a decision regarding the designing and the construction of the project for a LNG. The construction and completion of the project will last three to four years. The entire period until the selling of gas in the markets will take approximately six to seven years, which means between 2021 and 2022. If there is no decision on the construction of an LNG, then, no presale procedure can be put forward. In case that one LNC was to be constructed, both Cyprus and Greece could have the opportunity to establish “a sea line” from Vasisliko to Revithousa in order to transport the liquefied natural gas to Greece and the rest of Europe (Levoyiannis and Gkanoutas, 2015). The other option is to ship the natural gas from Vasiliko, via Suez, to other destinations such as Asia.

3. The Cypriot LNG It is clear how important is the decision on whether Cyprus will opt to construct an LNG. This is an option which reduces the possibilities and/or prevents the installation of a pipeline from Israel to Turkey, or a pipeline from Cyprus to Turkey. Such a decision depends on the following factors: The A-2 appraisal drilling and whether the deposits of Plot 12 would be adequate so that the LNG was to be economically workable and profitable. The results

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of the A-2 appraisal drilling showed that the quantity of Plot 12 is not enough and therefore the gas resources of Israel and other investors must contribute to the realisation of the project (Reed 2013). Otherwise, the LNG seems to be not profitable. 2. The intention of Israel and of other International Funds to invest to the LNG regardless of the deposits of Plot 12 will put the foundations for the construction of the LNG. This means that Israel and Cyprus could establish a pipeline coming from “Leviathan” to Vasiliko which is about 180 kmr. 3.

The intention of other companies and International Funds – beyond Cyprus and Israel – to invest on the construction of the LNG. Such companies are Total and ENI; the latter is a partner with Korean KOGAS. Both of them (Total and ENI/ KOGAS) had won the bid at concerning the researches Plots 10, 11 and 2, 3 and 9 respectively (Cyprus Profile, 2014). As mentioned above, drillings in Plot 9 showed that neither adequate quantities of gas exist nor the geological character of this certain underwater region allow a beneficial exploitation. An appraisal drilling as well as the drillings in Plot 2 and 3 may change the situation. The Cyprus government announced that TOTAL expressed its will to reschedule its geological methods. The result was not as encouraging as TOTAL expected to be.

Therefore it frizzed the procedure and the plan of exploitation.

However, the Cyprus government provided the argument that there is no time to lose regarding the exploitation of the resources existing in plot 12. Therefore, the project to transfer the Cyprus gas to Egypt should be initiated as soon as possible.

In this regard, one may allege that such a decision seems to put the project of an LNG on the shelf. The question is whether, the Cyprus government has the political intention of establishing an LNG or not. Besides, the Egyptian option faces the following main problems: a) there is no adequate internal political stability. If Muslim Brotherhood comes again in power no guarantee exists that any previous agreement will be in valid. b) Egypt and its refineries are always vulnerable to terrorist attacks. During the bloody incidents occurred in the summer of 2014, the Egyptian refineries had closed for security reasons. The source of terrorists attacks are not only “Hamas” and “Hezbollah” but also ISIS and Al Qaeda as well as other terrorist organizations. Besides, one of the main reasons that Israel does not plan to construct its own LNG is not only the high economic cost but also security issues directly related to terrorist attacks.

The construction of an LNG station is an issue based on a strategic decision which is also relevant to the quantity of the gas and oil recourses existing in the neighboring countries. Therefore, it is not only a matter concerning the Israeli

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government but also the Cypriot one on whether it has the political intention of becoming an energy regional center.

Solon Kassinis, who is an expert in oil and gas issues and former major consultant of the Greek government, supports that the construction of an LNG in Vasiliko is of utmost strategic importance. In accordance with a study regarding the LNG Plants and economics, S. Kassinis underlines the following approximations: •

Total Capex for a single train LNG Plant à 6 billion USD

•

Total Capex for a two-train LNG Plant à 9 billion USD

•

Total Opex for a single train LNG Plant (15 years production) à 1.5 billion USD

•

•

Typical shipping costs •

To Asia à 1.0-2.0 $/MMBTU

•

To Europe à 0.5-1.0 $/MMBTU

Gas Price and Tolling fee •

Gas netback pricing (for an IRR of 15%) à 5-6 $/MMBTU

•

Typical tolling fee price (for an IRR of 7%) à 3.5 $/MMBTU

•

Tolling fee price inflation rate à 1% annually

• LNG Pricing (5 mtpa of LNG ≈ 259,000,000 MMBTU) •

Europe à $9/MMBTU

•

China, Korea à $12/MMBTU

•

Hong Kong, Japan à $15/MMBTU »

As Kassinis maintains: “The LNG Plant expected to be competitive for Asian markets due to lower upstream and LNG construction costs (access to moderately priced skilled labour), as well as reasonable shipping costs”. The estimates of S. Kassinis about the price that an LNG in Vasiliko will cost put in question the amount of 14 or 15 billion of euros proposed by other researches.

3.1 Fourth and fifth option and a “letter of Intent” There is a forth option which is related to the one mention above. It is the construction of a pipeline connecting Cyprus with Greece and also channeling the Israeli gas from “Leviathan” to Cyprus and from there to Greece and the rest of Europe. The geophysical barriers related among others to huge sea abysses constitute the main burdens in realising such a project. In parallel, the

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Israelis companies, involved in the exploitation of the resources existing within “Leviathan”, examined and took a step further regarding the option of channeling gas from the Israeli plots to Egypt. The Israeli partners of “Leviathan” have already signed a “non-binding letter of intent” for a $30bn deal to supply gas to Britain’s BG in Egypt. The natural gas will be channeled through a new undersea pipeline. The deal provides for the Israeli gas to be pumped directly from the “Leviathan” to BG’s liquefied natural gas plant in Idku, very close to Alexandria.

It seems to be an opportunity worth to be discussed so that Israel and companies sell gas from “Leviathan” field in good price. The price is not the only variable that one should take into consideration in case of selling gas and oil. Security issue is of utmost importance and Israel has bad experiences from dealings with Egypt due to the political instability which is inherent in terrorist attacks. When Mohamet Morsi came to power in 2012, he voided an agreement for providing Israel with natural gas since a period of twenty years. In April 23, 2012 Harriet Sherwood reported from Jerusalem that, “the deal is unpopular in Egypt because of claims that Israel buys the gas at below-market rates. A pipeline that carries the gas to Israel across the Sinai desert has been sabotaged at least 14 times since the start of the Egyptian uprising last year, seriously disrupting supplies” (Sherwood, 2012).

One should allege that the “letter of intent” mentioned above, could be a negative development for the interests of Cyprus and Turkey. Certainly, it is a strategic decision and the last say about the sale of gas probably belongs to the government of Israel. Such a decision will be filtered through the wider Israel national interests and strategic goals. Certainly, there is another view supporting that the Cyprus LNG is not the only option and therefore a combination of pipelines can be constructed by the states involved. Such a combination of pipelines should be in line with economic, geostrategic and other interests. In this regard, the pipeline connecting the Israeli-Egyptian interests can be combined with a similar one from Cypriot plot 12 to the Egyptian coasts. Cyprus and Egypt intend to examine the option of constructing such a pipeline. A relevant scenario is that of a pipeline from the Cypriot and Israeli plots to Greece and from there to Europe. To this end, on December 8, 2014, the Ministers of Energy of Greece, Cyprus and Israel visited Brussels to discuss about this project and the possibilities of being partially financed by the EU. The EU budget – 5,35 billion euro is not so big to be relied on this (EurActiv.com, 2014; Cyprus Mail, 2014; European

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Commission, 2015). This certain project is estimated to cost at least 3 billion euro.

What the EU should examine in order to include it in the program of “common interest” is about the feasibility of such a project. Therefore, technical and economic feasibility studies need to be drawn up.

Figure 4. The future LNG and the Eastern Mediterranean Sea.

Source: Gas Infrastructure Europe LNG MAP May 2013 In accordance with the map draw up by the European Commission, a pipeline might be established by Israel and Turkey connecting Haifa and Ceyhan. This is a project which seems difficult to be carried out, as there is no agreement between Israel and Lebanon regarding the delineation of their EEZ. Therefore, if such a pipeline or another one from Leviathan to Turkish coasts is to cross the Cyprus EEZ, the cost of the project will be high and political and legal issues would be raised between Turkey and the Republic of Cyprus, including the recognition of the Republic of Cyprus and its EEZ from Turkey. This evolution is in contrast to the Turkish revisionist strategy. In parallel, the question is whether Israel intents to take the risk of putting itself under the Turkish dependence, in an era that both countries are rivalries and strive to dominate the regional system.

3.2 The sixth option: floating terminal and national interests Beyond, the options mentioned above there is another one: it is that of a floating terminal. This is an option which is examined and can be used to solve many of the problems that Israel faces.

It is also a matter of economic cost and profit.

The floating terminal might be the best economic option, ruling out the one of contracting a pipeline towards the Turkish coasts. This is an option raised by Gazprom in the view of exploiting the gas deposits existing in the Israel’s “Tamar” field (Rabinovitch, 2013). As Kathleen Eisbrenner, chief executive of Pangea LNG, said:

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“Each floating LNG vessel costs $3 to $4 billion to be constructed” and he added: “Tamar‘s FLNG vessel would be the third to become operational. Pangea LNG is partly owned

by Daewoo. Most of Tamar‘s gas is earmarked for domestic use, and in the deal being discussed, Gazprom would export roughly a third of its reserves over a 20-year period, starting in 2017. The price for the LNG would be linked to the price of Brent” (Rabinovitch, 2013).

4. Strategic decision and conclusion All these options about the LNG and the pipelines are also related to the quantity of the natural gas existing in “Leviathan” and to another parameter: on whether the quantity of the natural gas existing in “Leviathan” was adequate for the Israeli internal needs. If the Israeli gas resources adequately cover the internal needs then Israel can get into the international markets. On June 24, 2013, the Israeli government announced that it took a decision about consuming 40% of the gas production for export purposes (ISRAEL’S OIL & GAS INDUSTRY NEWSLETTER, 2013, p. 9). The criteria regarding the exploitation of gas that should be taken into consideration are among others: •

Economic profit.

•

Security issues which are relevant to the prevention of external threats and particularly terrorist strikes. Thus, Israel must regard the regional system through the lens of the Arab and Muslim world and their national interests.

The “Arab Spring” did not lead the regional system in stability but in a volatile and unstable situation which seems to be like dangerous moving sand.

The civil wars in Syria and Iraq illustrate that the regional system is at a high risk because of the ISIS terrorist action and its main goal to establish an Islamic State in terms of a Regional and/or Global Caliphate (Charalambides, 2013, pp 71-77).

•

Geostrategic and geopolitical benefits in respect to the leading role that Israel plays and wishes to play in the future. Therefore, Israel should make its decisions after examining its relations with Turkey, Cyprus, Greece, the Arab countries, Iran and the EU.

•

Internal political and economic stability as well as security that should exist in the states involved in an energy plan. Internal political stability affects regional and global geopolitical developments. Indicative example is the threats that the government of Egypt is faced by Muslim Brotherhood (Fishere E Z, 2012).

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Accordingly, in case that the Cyprus issue will be solved, by definition, internal political and geopolitical consequences will result. These consequences may affect either negatively or positively the energy plans which are pertinent to conflicting and convergent national interests. In particular, the establishment of a new federal or confederal political system in Cyprus may induce internal political stability or instability and might affect the relations between Turkey and Israel. If the new state of affairs which might be established in Cyprus in the context of a federation or a confederation allows Turkey to geopolitically control the region and thereby blocking the geostrategic way out of Israel via Cyprus, the Israeli national interests and its energy plans will be at stake.

From the strategic point of view, it seems to be difficult for Israel to advance its national interests through the first, second and fifth option, which means that pipelines will pass through Egypt and/or Turkeyâ&#x20AC;&#x2122;s territories. There exists the option of the Egyptian LNG which is also of a high risk. Traditionally, both Egypt and Turkey present themselves as regional powers and constitute the main Israelâ&#x20AC;&#x2122;s rivalries. In reality, if Israel goes for the first, second and finally fifth and sixth options, a geopolitical status quo is to be shaped with Israel depending on Egypt and Turkey. Thus, one may argue that this is a strategically fallacious decision as the Israelis have no intention and compelling reasons to increase the Turkish and Egyptian geopolitical and geostrategic importance, particularly during a period in which the relations with Turkey are on the edge. Certainly, the relations between the two countries may alter in the future. However, Israel should take its decisions regarding the way that it will exploit its gas resources now, bearing in mind the future and that there is no sign that Turkey is ready to give up its major strategic goal to consolidate itself as an indisputable regional power. An undersea pipeline to the Egyptian LNG might be a better option for Israel compared to a pipeline towards Turkey. The question is whether Cyprus could be considered as the best option for Israel or not. This is an option which does not depend only on Israel but on a Cypriot strategic decision too. It should be included in the context of strategic decisions concerning the future and the establishment of a Tripartite Coalition consisting of Israel, Cyprus and Greece with the aim of preventing external threats and advancing common interests.

Egypt and other countries cannot be excluded. Their participation is pertinent to regional geopolitical and geostrategic developments and power games which dominate the Eastern Mediterranean Sea and the Middle East.

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