Hydrocarbons

Natural Gas in the Eastern Mediterranean: The Regional Destabilizer and the Quest for a Security Provider

The relatively newly-found natural gas reserves in the Cypriot Exclusive Economic Zone (EEZ), coupled with the much more significant findings in Israel and Egypt generated over-excitement and disproportionate optimism regarding the economic future of the island, the prospects for a settlement to the Cyprus problem, and even regional stability in the Eastern Mediterranean. Alas, the findings created more challenges than opportunities. This piece deals with the developing regional instability due to the ongoing Turkish aggressive behavior in the Eastern Mediterranean and the European Union’s (EU) inability to act as a security provider.

Interestingly, but not surprisingly, neither the initial findings, nor the more recent (potential) findings in Block 6 of the Cypriot EEZ, actually contributed towards either the normalization of regional bilateral relations or the settlement of one of the most protracted conflicts in the world. On the contrary, the hydrocarbons in the Cypriot EEZ have become yet another excuse to highlight the complexities that dominate the Eastern Mediterranean regional inter-state relations, primarily among Turkey, the Republic of Cyprus (RoC), Israel, Egypt and to a lesser extend Greece. The regional complexities are defined by the deeply securitized status between Turkey and the RoC, the ‘cold’ relations between Egypt and Turkey, as well as the politically cold, but economically stable, relations between the former and Israel. The numerous trilateral agreements among Egypt, the RoC, Israel, and Greece, only exacerbated the challenges as Turkey was left out from the developments of a region in which it believes to have the primary role as an aspiring regional hegemon.

There is also a noteworthy exaggeration from almost all parties regarding the importance of the Cypriot findings for the periphery and Europe, which revolves primarily around two axes: (a) the degree of the natural gas supply diversification for Europe and (b) the potential positive impact on regional political relations. Leaving aside the current small confirmed quantities which cannot in any, for the time being at least, act as a natural gas alternative for the EU, the focus should be whether these or future findings, could actually change the regional negative political relations.

Could the hydrocarbons lead to regional peace and stability?

The existing evidence does not support the argument of “peace pipelines”. There is no concrete proof that energy relations lead to the alleviation of conflict; on the contrary, stable and cooperative political behavior is usually a prerequisite before the development of any energy-related investments. If anything, energy as a referent object of security has a multiplier effect on the states’ political securitization relations, meaning that in cases where states have deeply securitized political relations, energy is more likely to enhance the security concerns and enhance the securitized environment, and the reverse; desecuritized political relations ‘allow’ for energy collaborations, and the latter will most likely strengthen the former. The impact of energy on de/securitization relations lies on the fact that hydrocarbons and oil are very rarely treated solely as economic commodities. More often than not, they are also used as political tools to enhance states’ foreign policy influence and empower their political position vis-à- vis adversaries.

The Eastern Mediterranean and specifically Cyprus and Turkey that are at the heart of the developments act as witness to the aforementioned arguments. It is easily observable that in cases where political relationships are desecuritized – e.g. Cyprus with Israel and Egypt – there is room for collaboration and the discovery of hydrocarbons enhanced their bilateral relations on a political, economic and even military level (see for instance the numerous defense-related agreements between the RoC and Israel). The reverse is true for the RoC- Turkey relations, which are increasingly becoming more securitized because of the hydrocarbons, enhancing dramatically the tensions in the Eastern Mediterranean. Turkish warships have already prevented the Italian ENI from reaching its drilling target in Plot 3. Erdogan also warned that Turkey will prevent any future exploration efforts, while it promised to send its own drill ship in the contested RoC EEZ. There is little doubt that both ‘promises’ will significantly heighten the tensions between Turkey and all other actors (including the EU), reduce even further the prospects for settlement of the Cyprus conflict, and pose more challenges for the security providers of the region.

Can the EU become a regional security provider?

There is a relatively high risk of a Turkish confrontation with international drill ships, much like there is a risk of confrontation (or a mistake) in the Aegean Sea between Greek and Turkish forces, making the prospects for a full blown Eastern Mediterranean crisis a real possibility. The regional stability is anything but guaranteed, and the EU has to decide whether or not it wants and can take the responsibility of the security provider in the
southeastern part of its borders. Any attempt to act as a security provider will have to overcome Turkey’s own aspirations for the specific role. Indeed, Turkey’s hegemonic aspirations and more importantly the way it pursues them pose quite a big challenge. As an aspiring hegemon, Turkey believes that it cannot stand idle to the regional developments. In 2008 the then Turkish Minister of Foreign Affairs Ahmet Davutoğlu emphasized the position that ‘Turkey is not a state that follows the fact but guides them’. Similarly, he noted that Turkey ‘cannot define itself in a defensive manner’, further arguing that Turkey’s new regional active role is to ‘provide security and stability not only for itself, but also for its neighboring regions’.

To act as a security provider the EU must overcome one major challenge – in addition to the absence of real security mechanisms – namely the fact that it forgot how to think geopolitically. Its overreliance on NATO for decades and the sole focus on soft power since the end of the Cold War contributed to this problem, which means that it now has to re-learn how to develop a geopolitical culture. The events in Georgia in 2008 and Ukraine in 2014, as well as the developments in the Middle East, have demonstrated that the EU is essentially a toothless tiger when it comes to issues of hard security. The developments in the Eastern Mediterranean, coupled with the relative US withdrawal from the wider region of the Middle East, pose yet another challenge, but also an opportunity for the EU to demonstrate that it can have a much bigger role to play in its region and beyond.

The Opportunity: It is of utmost importance for the EU to maintain the stability in the sub-Regional Security Complex (RSC) of the Eastern Mediterranean, and this is a great opportunity to project some form of power, and more importantly, its willingness to act. Clearly it is irrational to expect that the EU will become a military power overnight, but some form of harder soft power is necessary in cases where different actors play by different rules, some of which include the presence of warships in an EU member state’s EEZ. If successful, it can use its actions as a stepping stone to extend its influence and global reach beyond the EU borders. It will also enhance its credibility as a security provider within the EU and more importantly in the periphery, while it will further justify the need for more mainstream security initiatives along the lines of PESCO.

The Challenge: The aforementioned opportunity is also a major risk if not utilized. Specifically, if the EU fails to act as a security provider, it will send a very clear message, namely that the Union cannot even protect a Member State’s interests from a candidate state! If the EU is incapable of protecting its own backyard, it is highly unlikely that it will be able to build a reputation and the associated credibility that would allow the Union to act as a security and peace provider in the eastern and southern periphery; a notion that is adopted by essentially everyone, including many EU officials. EU tolerance towards Turkey’s aggressive behavior only weakens the EU position and vision for more global influence, as outlined in the most recent Global Strategy.

We should make no mistake; the Eastern Mediterranean is in need for a security provider. There is a huge power gap in the specific sub-RSC, and in the absence of a strong EU and US presence, the region is “up for grabs” with Turkey being the prime candidate to win the competition. The problem is that Turkey does not behave in a way that facilitates regional stability; on the contrary through, literally, gunboat diplomacy it enhances both the regional security dilemmas as well as the need for a regional security provider. In the absence of one, the hydrocarbon findings are likely to politically split the region in two antagonistic parts with zero-sum interests. Political – and potentially military – relationships are likely to become further securitized, leading to a region, partly within the EU outer borders, of constant uneasiness and potential instability. Security gaps rarely remain vacant for long; if the EU is unwilling to fill this gap, then some other actor will, be it a regional one, such as Turkey, or an external one such as Russia or the US, or perhaps a combination. Perhaps this is also an opportunity for specific EU states to further detach their geopolitical role and goals from the EU’s. Countries like France could take on this opportunity, which would most likely be welcomed by countries like Cyprus, not least because the Turkish alternative is unacceptable, but this is not necessarily a positive development of the long-term EU strategic and geopolitical goals.

Constantinos Adamides
Assistant Professor of International Relations at the Department of Politics and Governance
Director of the Diplomatic Academy
University of Nicosia

Can East Med Gas Resources Help Resolve the Cyprus Issue?

The discovery over a period of seven years, (2008-2015) of approximately 2,56 trillion cubic meters (tcm) of natural gas beneath the waters of the Exclusive Economic Zones of Cyprus appears to have revolutionized the regional geopolitics of the Eastern Mediterranean. Some of the conventional thinking which resulted from their evaluation is that the region will have a major impact on Europe’s gas diversification strategy assisting it to significantly diminish its dependence on Russia by exporting to the EU anywhere between 20-50 bcm/year, while at the same time help to solve the Cyprus problem.

These projections also failed to take notice of the extensive history of the global oil & gas industry over the last 110 years that essentially reconfirmed the hypothesis that oil & gas reserves by themselves do not alter but usually consolidate the pre-existing geopolitical power trajectories in the region where they are discovered. If the trajectory of regional geopolitics is cooperative, cooperation is enhanced.

If it is contentious, conflict (or the possibility of conflict) in enhanced. In other words, there is not (and never has been in the geopolitical history of the oil industry) such as thing as a “peace pipeline”. There is little chance that these discoveries could provide a critical positive incentive to change the cost/benefit analysis of the parties involved in the region’s entrenched conflicts, such as the Arab-Israeli dispute, the maritime disputes between Israel and Lebanon or for that matter the Cyprus conflict.

The discovery of the Gaza Marine field in the EEZ of the future Palestinian state in 1999 did not move Israel or the Palestinians closer to peace. The discovery and monetization of Leviathan in Israel as well as the contested claims between Lebanon and Israel over an 854km 2 portion in their respective EEZ did not seriously worsen their bilateral relationship nor did it stop Lebanon from moving forward with its own exploration round that was completed after a four years delay in late 2017.

The proposed linkage of the Cyprus Question with the monetization of Cypriot Gas reserves boils down to the erroneous understanding that the potential revenues generated by the export of these gas reserves can act as a “peace incentive” for Turkey and the Turkish Cypriots since (a) it would limit Turkey’s own dependence on Russian gas and further diversify EU gas imports from Moscow via Turkey, (b) give a positive incentive to the Turkish-Cypriots to share the ROC’s prospective wealth and (c) provide a major means of financing the cost of reunification thereby facilitating an overall settlement.

Let’s Talk Turkey: Facts Vs Perceptions

The volume of the potential gas exports Turkey could realistically import, not only from Cyprus, but from Cyprus and Israel as a whole, are too limited to generate a major shift on Turkey’s policy of continued military occupation and colonization. If Cyprus was to sign a standard 15 years contract in order to sell 7,5 bcm/y from its single commercially exploitable discovery, the Aphrodite field, this would amount to around 11% of Turkish demand that is expected, according to the projection of the Turkish Energy Ministry to reach around 65 bcm/y by 2023-2025 although this estimate may is likely to be overoptimistic regarding the pace of the projected demand increase for Turkey’s gas markets.

Moreover, even in cases when the bargaining power relationship is reversed, as it is partly the case between Russia and Turkey, Ankara is highly unlikely to make key foreign policy concessions in order to get cheaper and/or more diversified gas imports.

If Turkey, which is dependent on Russia for almost 53% of its gas demand, would shoot down Russian military jets for allegedly violating its airspace for 17 seconds in December 2015; what kind of concessions the Israelis and much more so the Greek Cypriots could expect to get before selling Ankara respectively 60% and 100% of their net export capacity?

It would also represent 100% of Cypriot exports tied to one market, exported via one route and liked to one price not a very promising option given the mercurial diplomacy of Mr. Erdogan. Under this scenario Cypriot exports to the EU are not an option. All the gas remains in Turkey and is consumed for Turkey’s domestic needs, an unwelcoming prospect for most Cypriot political forces which want to see Cypriot gas contributing in the EU’s gas import diversification.

No Easy Wealth: Can Cypriot Gas Exports Pay for the Costs of Re-unification?

Unfortunately Turkish Cypriot political parties appear to be more focused on securing an equal right with the RoC in granting the licenses to the International Oil Companies (IOC) and in sharing the gas profits -even in the absence of a solution- than constructively engaging the Greek Cypriots on issues of critical importance to Nicosia and Athens, such as Turkey’s rights of military intervention and the presence of Turkish troops in Cyprus even after a settlement is reached.

Turkish Cypriot political forces would essentially prefer for Nicosia to stop all hydrocarbon related activities which they deem as illegal and unilateral. Their demand to share licensing authority is nothing short of demanding the recognition of their self-proclaimed “TRNC” by the internationally recognized government of the country and that is something that no Cypriot President or Greek-Cypriot political party can accept.

Finally, the potential net profits generated by Aphrodite’s monetization will be -although significant- too limited to allow the RoC to self-finance the majority of its reunification costs that could reach anywhere between €20-25 billion. The current basic scenario Cyprus is working on is based on price of $6,5 MMbtu (million British thermal units) projecting an average net annual inflow of revenues estimated to be between EUR 370-420 million over a 15 years period.

This projected wealth is not something that will be immediately available. Even if the export contract was signed today it would take until 2021-2022 for the exports to start and for 2025-2026 for any serious revenue to begin flowing into the coffers of Cyprus, reunited or not. This is hardly enough to cover a substantial cost of reunification expenses, including compensation of the refugees that must be available during the first post-settlement years, in order for any settlement plan to have a realistic chance of being accepted by the majority of Greek Cypriots in a referendum.

Dr. Theodoros Tsakiris
Assistant Professor of Geopolitics and Energy Policy, University of Nicosia
Member of the Board, Hellenic Association for Energy Economics (HAEE)

Jordan, Palestine at the Crossroads of the East Mediterranean’s Energy Roadmap and the Importance of Cyprus

In the East Mediterranean energy setting, Cyprus is at critical stage en route to natural gas production providing promising prospects for Jordan and Palestine.

Jordan’s core objective lies in security of energy supply and the restructuring of its oil and gas market. The interruption of natural gas supplies via the Arab Gas Pipeline from Egypt and the influx of Syrian refugees present major burdens on the Kingdom’s budget, having prompted Jordan to look into various gas supply options. These include a supply of gas from Qatar and the United Arab Emirates through the existing floating storage and re-gasification unit (FSRU) at the port of Aqaba; oil and gas pipelines from Iraq; and, gas from Israeli offshore fields.

Acknowledging that at a time of regional instability, natural gas from the Israeli Leviathan and Tamar gas fields practically fall within Amman’s broad strategy for transformational change in energy supply, including a diversification of natural gas imports from alternative sources, a transition from a non-binding letter of Intent to an actual agreement between Leviathan’s American partner Noble and Jordan’s National Power Electric (NEPCO) happened in October 2016 for the supply of 1.6tn cubic feet over a fifteen-year period.

The agreement has notably given rise to a number of protests and demonstrations across the kingdom demanding its revocation. The government of Jordan has realized that there is need to strategically assess its public tactics toward Israel and balance domestic projection of its energy policies including the restructuring of its oil and gas market. It is in this framework that the government granted licenses in 2016 to three companies to distribute petroleum products, namely Total Jordan Co., Manaseer Oil and Gas Co. and the Jordanian Co., and schedules to have the energy market open for additional international competitions in the foresseable future.

As a pioneer in supporting a regional dialogue on energy developments,
Amman works with scientists, NGOs and think tanks to strategize regional energy cooperation and long-term planning. Emphasis is placed on addressing environmental impacts of oil and gas exploration, the establishment of national monitoring systems and improvement of legal frameworks. Equally important, the kingdom also looks into other energy options primarily for electricity generation. For example, the development of renewable energy resources is at the forefront of Jordan’s strategy to reduce dependence on hydrocarbons, namely projects like the Green Corridor that is designed to support the national electricity network in the south of the Kingdom.

Though even if successful in developing renewable energy resources, they could not substitute reliance on gas. Thus additional options that Jordan examines for the supply of gas from the East Mediterranean include Cyprus on the presumption that certain political and commercial obstacles are overcome; and, the import of Palestinian gas from Gaza Marine field via a pipeline across Israel. The Kingdom already signed an agreement seeking to purchase 150 million cubic feet of natural gas per day from Cyprus either by gas shipments to the LNG terminal in Aqaba or by pipeline to Egypt.

Out of all gas supply options, Jordan prioritizes the import of gas from the Palestinian Gaza Marine field. The Kingdom has signed a Letter of Intent with the field’s former operator British Gas Group for the supply of 150- 180 million cubic feet per day of natural gas. But, the Palestinian Gaza Marine gas field, one of the first regional discoveries in 2000, remains untapped despite its close proximity to the shore.

The field’s new operator, Royal Dutch Shell, has assessed that the delayed development is the result of low oil and gas prices. To reach a breakthrough in the field’s $500 million development, the project could garner financial support from donor countries and organisations such as the World Bank’s Partnership for Infrastructure Development Multi-Donor Trust Fund or even from U.S. financial institutions like the Overseas Investment Private Corporation (OPIC). The value of U.S. financial support in the field’s development may prove to be two-fold, as it can both address Palestinian development challenges and advance U.S. foreign policy priorities.

The exploitation of the Gaza marine gas field would help Palestinians generate revenues, offer a domestic source for electricity and water desalination, and prioritize exports to neighboring counties like Jordan.

In this regional energy calculus, Cyprus is assessed to gain significant economic benefits from its commercially viable levels of hydrocarbon resources. These benefits come in the form of job creation, foreign direct investment, royalties, and taxes paid to the state treasury by energy suppliers. The island’s third licensing round for the blocks 6, 8 and 10 within its Exclusive Economic Zone (EEZ) has attracted major international energy players on the basis of closeness to the Egyptian Zohr and the Israeli Leviathan gas fields.

The awarding of exploration Cypriot blocks to the ENI Cyprus Ltd and Total E&P consortium; and, to the ExxonMobil Exploration & Production Cyprus Ltd and Qatar Petroleum International consortium necessitates synergies among local and international players, users, and producers eager to export gas to a broader market. The connection of gas discoveries in Cyprus with Egypt’s by pipeline and re-export reserves as liquefied natural gas by utilizing the Egyptian Idku and Damietta LNG facilities is an option currently examined by energy companies on the basis that economies of scale reinforce profitability.

On grounds of developing East Mediterranean gas fields and the infrastructure for the transportation and marketing of gas, a new philosophy of cooperation in which everyone wins has to prevail so that countries like Jordan, Palestine and Cyprus enjoy a prosperous future.

Antonia Dimou
Head of the Middle East Unit at the Institute for Security and Defense Analyses
Associate at the Center for Middle East Development

University of California, Los Angeles

First Published at “In Depth Volume 14, Issue 3, June 2017″

The Clash of the Titans on the Energy Field

The Energy Sector reemerged as a theater of intense political antagonisms in the early 2000s. Since then, Putin’s Russia has revived its economy and regained national self-confidence by using energy resources as a cornerstone of its national power.[1] For many scholars, after the demise of the USSR, Russia’s energy sector has become the catalyst for the country to inaugurate a new era of kingpin global actorness.[2]

In strict economic terms, “hydrocarbons play a large role in the Russian economy, as revenue from oil and natural gas production and exports accounts for more than half of Russia’s federal budget revenue”.[3] This dependence seems to be analogous to Putin’s domestic strength as well.[4] Being in power for almost two decades, Putin’s leadership and his personal views about Russia’s place in world politics, has determined nation’s course.[5]

Scarcely surprising, the energy sector turns out to have become Russia’s “muscles” in the 21st century. It is because of these muscles that today’s Russia feels more confident to take action in the international field. Oil and gas pipelines, potential new resource fields, uninterrupted and seamless access to markets, profitability, production control are no longer just part of national infrastructure or mere factors of economic policy and management. They have been evolved into indispensable elements of Russia’s national interest and power.

Putin has built the Russian national power on three basic pillars: a strong and compelling leadership, availability of natural resources and energy exports. This pattern is, the same time, the main lens through which Russia gauges developments in international system. By this assumption should anyone, or any element of the international system, attempt to meditate on Putin’s Russia.

The aforementioned composition of Russia’s national power, was logically projected to the International System, affecting relations, actions and decisions. And this was a conscious choice by the country’s side, trying not only to reestablish itself as a strong actor in the system, but also to claim and regain a high place in it, in terms of power, influence and respect from the others.

A series of conflicts like the Russo-Georgian War in 2008,[6] the 2006 and 2009 Russia–Ukraine gas dispute,[7] the annexation of Crimea in 2014,[8] are undoubtedly connected to the larger view of Putin’s Russia aspiration to emerge as an “energy superpower”,[9] resuscitating by this way its status as a great (or super) power in the international system in political terms.

After many decades of efforts to keep this reality under diplomatic and political realm, the strongest pole of the system, USA, seem to change course.[10] The late Obama’s Administration with the ending of the 40-year ban on U.S. crude oil exports,[11] and the new President Trump’s declaration about “energy dominance”,[12] signify this change. The technology of hydraulic fracturing led USA to the shale oil and gas revolution,[13] topping the country as an oil producer in April 2014.[14] The technological achievement denotes many more implications than a simple economic, scientific or market fact. It becomes a decisive component of US national power.

If we consider that Energy is a factor that can operate in its absence too and provoke events, in terms of large importing countries like China, then we can see China’s recent efforts to support solar energy and its plans to invest $367 billion in renewable energy, as an also clear actorness move in the Energy Field.[15] It is more than obvious that the “big guys”, the Titans are taking positions on the international chessboard, balancing and/or competing on the Energy Field. This issue is not dryly economic, industrial or technological. It is deeply political and happening under terms of power in the International System. Political theory should address this subject as a transformation of the global power politics agenda in its entirety.


References

[1] H Balzer, ‘The Putin Thesis and Russian Energy Policy’, in Post-Soviet Affairs, vol. 21, 2005, 210–225.
[2] D Trenin, ‘Russia Redefines Itself and Its Relations with the West’, in The Washington Quarterly, vol. 30, 2007, 95–105.
[3] EIA, ‘Russia is world’s largest producer of crude oil and lease condensate – Today in Energy – U.S. Energy Information Administration (EIA)’, 2015.
https://www.eia.gov/todayinenergy/detail.php?id=22392
Accessed 28 November 2017.
[4] JED Kissi Dawn, ‘Russia’s economic reform remains elusive as oil stays weak’, 2017.
https://www.cnbc.com/2017/06/23/russias-economic-reform-remains-elusive-as-oilstays-weak.html
Accessed 28 November 2017.
[5] P Engel, ‘How Vladimir Putin became one of the most feared leaders in the world’, in businessinsider.com, 2017.
https://www.businessinsider.com/how-vladimir-putin-rose-to-power-2017-2/
Accessed 28 November 2017.
[6] SE Cornell, ‘Pipeline Power: The War in Georgia and the Future of the Caucasian Energy Corridor’, in Georgetown Journal of International Affairs, vol. 10, 2009, 131–139.
[7] M Bilgin, ‘Geopolitics of European natural gas demand: Supplies from Russia, Caspian and the Middle East’, in Energy Policy, vol. 37, 2009, 4482–4492.
[8] J Biersack & S O’Lear, ‘The geopolitics of Russia’s annexation of Crimea: narratives, identity, silences, and energy’, in Eurasian Geography and Economics, vol. 55, 2014, 247–269.
[9] P Rutland, ‘Russia as an Energy Superpower’, in New Political Economy, vol. 13, 2008, 203–210.
[10] CJ Cleveland & RK Kaufmann, ‘Oil supply and oil politics: Déjà Vu all over again’, in Energy Policy, vol. 31, 2003, 485–489.
[11] E Humiston, ‘Obama’s Surprise Economic Legacy: Energy Exports > IPI Issues > Institute for Policy Innovation’, in ipi.org, 2016.
https://www.ipi.org/ipi_issues/detail/obamas-surprise-economic-legacy-energy-exports/
Accessed 29 November 2017.
[12] T DiChristopher, ‘Trump wants America to be “energy dominant.” Here’s what that means’, in cnbc.com, 2017.
https://www.cnbc.com/2017/06/28/trump-america-energy-dominant-policy.html
Accessed 29 November 2017.
[13] J Mauldin, ‘Shale Oil: Another Layer of US Power’, in MauldinEconomics.com, 2017.
https://www.mauldineconomics.com/outsidethebox/shale-oil-another-layer-of-us-power/
Accessed 29 November 2017.
[14] EIA, ‘U.S. oil production growth in 2014 was largest in more than 100 years – Today in Energy – U.S. Energy Information Administration (EIA)’, in eia.gov, 2015.
https://www.eia.gov/todayinenergy/detail.php?id=20572
Accessed 29 November 2017.
[15] SP and M Rivers, ‘China is crushing the U.S. in renewable energy’, in CNNMoney, 2017.
https://money.cnn.com/2017/07/18/technology/china-us-clean-energy-solarfarm/index.html
Accessed 29 November 2017.


Vasileios Balafas

PhD Canidate
Department of Political Science and International Relations
University of Peloponnese Assistant Research Fellow

Centre of International and European Political Economy & Governance – CIEPEG UoP

First Published at “In Depth Volume 14, Issue 6, December 2017″