With the Eastern Mediterranean home to over 70 trillion cubic feet (tcf) of gas discovered since 2009, its commercial potential is undeniable. As large swathes of these reserves are located offshore, production costs are naturally higher. Thus, the challenge that faces Eastern Mediterranean gas producers is identifying markets where gas extraction can be commercially viable.
In general, gas value chains tend to originate around a large resource that can be commercially connected to a major market, making the large infrastructure investments feasible. However, with regards to the Eastern Mediterranean gas, due to the relatively inaccessible gas reserves, a way to attract the initial infrastructure investment is by means of enhanced regional cooperation.
However, energy cooperation amongst Arab states is still in its infancy. Despite the Middle East and North Africa (MENA) region being rich in gas reserves, according to a 2017 study by the World Bank, only 10% of the gas exported by the MENA countries is presently traded within the region.
In terms of energy cooperation in the MENA region, the Pan-Arab Regional Energy Trade Platform (PA-RETP). Launched by the World Bank in 2016 as a collaboration platform for implementing the building blocks to scale-up economic energy trade in the MENA Region.
However, fast forward to 2019, attitudes towards cooperation have changed further. Since the inauguration of the East Mediterranean Gas Forum (EMGF), there has been a gradual increase in the region’s gas trade. Thanks to the EMGF, many countries in the Eastern Mediterranean have progressed from merely satiating domestic demand to bilateral trade. The next step is now the creation of a regional gas hub.
The East Mediterranean Gas Forum
Set up in January 2019, the EMFG was created to act as a regional gas market, cut infrastructure costs, and to offer competitive prices. The EMGF is a group comprising Cyprus, Egypt, Greece, Israel, Italy, Jordan, and Palestine. Gamal Qalyoubi, professor of oil and energy at AUC, viewed the establishment of the EMGF in Cairo as “a new entity for natural gas similar to the Organization of the Petroleum Exporting Countries (OPEC)”.
It was established following a wave of sizable natural gas discoveries in the East Mediterranean region, which started a conversation as to how much economic development could be achieved through regional cooperation and harnessing the region’s potential resources. In the lead up to the forum’s inauguration, there was also a wave of bilateral trade deals including one in September 2018 when Companies operating in both Israel and Egypt bought a 39% stake in the EMG pipeline. Also in September 2018, there was a wave of talks between Cyprus and Egypt to construct a pipeline connecting Cyprus’ Aphrodite gas field to Egypt’s liquefied natural gas (LNG) facilities. Ultimately, the desire to facilitate cooperation in a region blighted by a lack of cooperation led to the formation of this forum.
With an emphasis on cooperation, the EMGF promotes inclusivity and assists consuming countries by “securing their needs and allowing their participation with the transitory countries in the development of gas policies in the region, thus enabling the establishment of a sustainable partnership between the actors at all stages of the gas industry,” according to a statement by Egypt’s petroleum ministry. This is in line with the deliberate choice of the word “forum”, which suggests a more flexible structure in terms of trading, marketing policy, and new memberships.
Despite facilitating cooperation, the core aims of the forum can be boiled down to accelerating economic exploitation of existing natural gas reserves, benefiting from pre-existing infrastructure, and encouraging private sector investment to facilitate the exploitation of future natural gas discoveries.
Cooperation is the Key to Success
The main form of collaboration is by means of forums. These allow other countries, regional or international organizations, observers, as well as the private sector to join and participate in their regulatory bodies as part of the permanent natural gas industry advisory group. The forums are held in Cairo, which re-affirms Egypt’s position as a leading center for natural gas trade and the region’s energy hub.
As of date, there have been three EMGF ministerial forums which have tackled a range of topics:
In July 2019, the EMGF ministers decided on the organization’s governing rules and procedures and committed to achieving the goal of enhancing regional cooperation in the energy sector to make the best out of the available resources. In doing so, this approval has paved the way for a more sustainable regional natural gas market.
In January 2020, Egypt’s oil and gas minister, Tarek El Molla, confirmed the fruitful cooperation between the EMGF and the US, the European Union, and the World Bank and welcomed their support. Due to the overwhelming success so far of the forum, France officially asked to join the East Mediterranean Natural Gas Forum. Furthermore, the US asked to join the forum as a permanent observer. This international recognition is testament to the forum heading in the right direction. As Greece’s energy minister, Yiorgos Lakkotrypis, said at the forum, “international success is proof for the mutual vision of the forum’s members to enhance prosperity in the East Mediterranean.”
Most significantly, on September 22 the founding countries of the EMGF signed a charter to become an established international organization. This is another major step in establishing the forum. The signing of the charter comes amid tensions in the Eastern Mediterranean region over Turkey’s hunt for gas in the region in violation of the territorial waters of Greece and Cyprus.
As per the charter, the EMGF will act as a platform that brings together natural gas producers and consumers to form a joint vision, as well as providing a regulated dialogue over natural gas policies to utilize the region’s resources.
Outside of the forums, and since the inauguration, the Eastern Mediterranean has witnessed a substantial rise in bilateral trade and cooperation. The organization has facilitated the development plans of Aphrodite Field and the steps taken for establishing a pipeline to transfer natural gas from Cyprus to Idku’s natural gas liquefaction plant.
Furthermore, through the EMGF the idea of the Israel–Europe gas pipeline has been facilitated. In July 2020 Israel’s cabinet approved a multinational accord to lay a pipeline that will facilitate the export to Europe of natural gas found in Israeli and Cypriot waters. The $6 billion plan is for a 1,900-kilometer corridor that will link known and yet-to-be-discovered gas fields in the Eastern Mediterranean basin. The project is expected to be completed by 2025.
A transition toward regional self-sufficiency will require more efficient use of existing infrastructure and spare capacity, such as gas pipelines and LNG export plants, and LNG import terminals. Luckily for the East Mediterranean, it is already blessed with a large amount of pre-existing LNG infrastructure.
However, most of the region’s infrastructure is built to accommodate LNG imports. Egypt is the only country in the region with exporting facilities and is home to two world-class LNG export terminals:
First and foremost, the LNG terminals are managed by the Spanish Egyptian Gas Company (SEGAS) and the Egyptian Liquefied Natural Gas Company (ELNG). The first terminal is located in Damietta. This plant functions as a tolling facility, with a current capacity of 264.8 billion cubic feet per year (bcf/y) of LNG. The plant’s natural gas supplies are provided by the Temsah fields, Ha’py Development Area, in addition to Scarab and Saffron fields in the West Delta. The terminal had been idle but Eni company signed in March 2020 several agreements with the Egyptian General Petroleum Corporation (EGPC), the Egyptian Natural Gas Holding Company (EGAS), and the Spanish company Naturgy to restart operations by June 2020. The current deadline has been postponed due to the coronavirus outbreak.
Secondly, the Idku terminal is located east of Alexandria and was established in 2001. This project came to fruition when the Egyptian General Petroleum Corporation (EGPC) and Edison signed an agreement with Shell to develop an integrated LNG export project in Egypt. The project is a two-train LNG terminal on the Mediterranean Coast with an LNG capacity of 353 bcf/y of LNG, aiming to export Egyptian LNG (ELNG) to Europe and the US. The ELNG also acts as a tolling facility with natural gas suppliers paying a tariff for the liquefaction service, according to EGAS’ website. The Idku facility resumed its operations as soon as Shell started to export natural gas from the offshore Burullus and Rosetta fields. In February 2019, LNG exports from the Idku facility increased to 800 mcf/d, according to an interview with Tarek El Molla.
In terms of existing import infrastructure, there is a plethora of potential that could be unified through the EMGF. However, if the East Mediterranean is to become an exporting hub, more exporting infrastructure will be needed. Egypt seems the obvious place to develop a gas hub, with a likely option on the north shore of Egypt due to its transportation, processing, and export infrastructure to handle supplies from neighboring countries.
Opportunities and Challenges for the EMGF
Whilst it is undeniable that the recent gas discoveries present a major opportunity for the EMGF to consolidate the resource base and provide sufficient scale to export gas to neighboring countries and to Europe, some difficulties are facing the EMGF.
According to Alexander Huurdeman, a senior gas specialist at the World Bank, the expansion of trade faces economic challenges from two directions: with regards to supply, there is the issue of low-cost pipeline imports from the east with a growing supply of liquefied natural gas (LNG). As for demand, Europe’s gas demand is softening as it pushes for a carbon-neutral energy system by 2050. According to a World Bank report 2020, break-even prices of eastern Mediterranean gas at the wellhead need to be in the range of $1.5–3 per million British thermal units to justify further investments.
Despite these obstacles, there are many indicators signaling the future success of the EMGF as an exporting entity. There is a desire for the European Union (EU) to wean itself off Russian gas. Accordingly, the EU is encouraging the formation of new delivery routes such as the East Med gas pipeline. The $6.7 billion project has been confirmed as the Project of Common Interest (PCI) by the European government and is expected to be completed in 2025-2026, to transform the region into a crucial energy hub.
Furthermore, the United States of America is an avid observer of the forum, asserting its enduring support to develop the natural gas discovery operations in the East Mediterranean region. Furthermore, this rhetoric has been backed up by action; America has committed to investing in the EMGF directly by pledging the latest technology at 17 Eastern Mediterranean refineries working under the umbrella of the US Energy Agency.
Also, one must not forget there remains huge undiscovered gas potential which offers an enticing prospect for private investment to turn the region into an exporting hub.
Despite there being a long way to go before the EMGF transforms into an energy hub, the expanded economic ties and the enhanced energy security of the region are seen to be fostering stability in a historically tumultuous region.