Over the past decade, Israel, Egypt, and Cyprus have all announced discoveries of large offshore deposits of natural gas. These recent discoveries in the eastern Mediterranean have set off a regional race to exploit the newly discovered energy sources and, perhaps just as importantly, the lucrative business of connecting them to the European energy market.

Europe also stands to benefit from this competition over its market. European policy makers have a strong incentive to encourage the development of these natural gas fields in order to alleviate Europe’s dependence upon Russian natural gas. While many countries are attempting to cash in on the discoveries, two states in particular, due to their proximity to the gas fields and natural gas infrastructure, are well positioned to take advantage of recent discoveries and harness them for the revitalization of their regional energy ambitions. These states are Turkey and Egypt. While both face significant obstacles to their ambitions to become regional energy hubs, they both possess significant advantages, which, if developed, could allow them to play a central role in the development of the regional gas reserves.

Their ability to develop a regional role depends upon a number of factors, such as their domestic market and resources, location and natural gas infrastructure, and diplomatic assets and liabilities. The ability of the governments in Cairo and Ankara to develop their strengths and alleviate their weakness could significantly impact investment patterns and the flow of natural gas from the eastern Mediterranean for decades.

Turkish and Egyptian Domestic Markets and Natural Gas Reserves

Both Turkey and Egypt, over the past few years, have been heavily dependent upon energy imports to meet their domestic demand. This energy dependence has highlighted for their policymakers the importance of developing the necessary natural gas infrastructure to meet growing energy needs.

At the end of 2016, Turkey’s natural gas reserves stood at 18.8 billion cubic meters (bcm), according to the website of Turkey’s Ministry of Energy and Natural Resources. These reserves are insufficient to meet Turkey’s growing energy needs. The nation is only able to meet 26% of its energy needs from domestic sources, the website of Turkey’s Ministry of Foreign Affairs states.

As the Turkish economy has grown, the country has increased its consumption of natural gas from 36.1 billion cubic meters (bcm) in 2007 to 42.1 bcm in 2016, an increase of 13.9%, according to the data released in the BP Statistical Review of World Energy June 2017.

Lacking a sufficient domestic supply of natural gas to meet this growing demand, Turkey has turned to imports to meet its needs. In 2016, it imported a total of 45.1 bcm of natural gas and liquefied natural gas (LNG), according to the BP report. Out of this total, it re-exported 0.6 bcm.

Egypt has also seen its energy consumption skyrocket and has turned to imports to meet domestic energy demand.

The country has increasingly utilized natural gas to meet its energy needs. Natural gas supplied the majority of Egypt’s energy demand in 2016, comprising 50.7% of the country’s energy mix.

Unlike Turkey, Egypt has substantial natural gas reserves. BP estimates that Egypt’s reserves in 2016 stood at 1.8 trillion cubic meters (tcm), or at about 1% of proven world reserves. Years of underinvestment, however, led to falling production rates, according to Jean-Francoise Seznec and Samer Mosis in a piece published by the Middle East Institute.

In addition to falling production, consumption has been increasing. In 2016, Egypt consumed 51.3 bcm of natural gas, up 33.6% from the 38.4 bcm it consumed in 2007, according to BP’s figures. Production for the same year stood at 41.8 bcm, demonstrating a considerable supply-demand gap. A previous natural gas exporter, Egypt became a net importer in 2015, according to Salma El Wardany, writing for Bloomberg in February 2017.

To make up for this shortfall in production, Egypt imported 118 cargoes of natural gas in fiscal year (FY) 2016/2017, the Egyptian Minister of Petroleum and Mineral Resources, Tarek El Molla, told Reuters in August 2017. To counteract the trend toward lower production, the Egyptian government embarked on an ambitious program to increase the production of natural gas to the level of domestic demand, according to the Bloomberg article. As a result of the government’s efforts, production has been increasing. El Molla predicts that daily production will rise to 6.2 bcf by the end of FY 2017/2018. Responding to higher production figures, imports have already started to fall. El Molla predicted that imports will drop to 80 cargoes during the current fiscal year, according to the August 2017 Reuters article. The government is aiming to achieve parity between production and consumption in 2018 and to begin exporting natural gas by 2020, Reuters reported in February 2017.

Even as both countries struggle to meet their domestic demands, Egypt is nearer to meeting its natural gas needs through domestic sources. Sensing an opportunity to meet its own needs, even resume exports, Egypt has embarked on an ambitious program to increase investment in its energy sector and increase natural gas production. Turkey, on the other hand, lacking significant natural gas reserves has instead relied upon its strategic location as a land bridge between the energy-rich countries of the Middle East and Asia and energy-dependent states of Europe to foster its ambition to become a major player in the regional energy market.

Location and Infrastructure

While Cairo is closer to satisfying, perhaps even surpassing its domestic demand for natural gas than Ankara, Turkey’s location and pipeline infrastructure give it a significant advantage in its bid to become a regional energy hub.

Turkey possesses a large and expanding network of natural gas pipelines that it uses primarily for importing natural gas for its domestic needs. Its oldest international pipeline is the West Line, connecting Turkey to Russia through Bulgaria, Romania, and Ukraine. In addition to the West Line, the Blue Stream Gas Pipeline cuts through the Black Sea to carry natural gas from Russia to Turkey. The pipeline began operations in 2003 and has the capacity of supplying Turkey with 16 bcm of natural gas per year, according to the Turkish Ministry of Energy and Natural Resources.

With the instability plaguing Ukraine over the past couple years threatening transmissions through the West Line, Russia and Turkey have moved to develop alternate routes. In 2016, Russia and Turkey signed an agreement for the TurkStream Gas Pipeline. The project, if completed as planned, will include two pipelines through the Black Sea from Russia to Turkey with a combined capacity of 31.5 bcm of natural gas a year, according to the Turkish Ministry. Half of this amount, according to the plan, will be re-exported to European markets. The other half will replace the gas currently imported via the West Line. Transmissions through the pipeline are expected to begin in 2019.

Besides its natural gas links to Russia, the Eastern Anatolian Natural Gas Main Transmission Line connects Turkey to Iran’s abundant natural gas market. The pipeline, according to the Turkish Ministry, has a capacity of 10 bcm per year and became operational in 2001.

To further tap the abundant natural gas supplies in the Caucuses, Turkey and Azerbaijan agreed to build the Baku-Tbilisi-Erzurum (BTE) Pipeline, running from the Shah Deniz field in Azerbaijan through Georgia and into Turkey, to transport 6.6 bcm of natural gas from Azerbaijan to Turkey. According to the Turkish Ministry, the capacity of this pipeline is being increased to feed into the Trans Anatolian Natural Gas Pipeline (TANAP). TANAP is supposed to connect Europe with the natural gas fields of Azerbaijan. The pipeline, upon completion, is supposed to carry 32 bcm of natural gas per year and to stretch from the Turkish border with Georgia to the Greek border. The Turkish Ministry, according to its website, anticipates gas reaching Europe via the new pipeline in 2020. To facilitate the flow of natural gas through Asia Minor to Europe, an interconnection pipeline between Greece and Turkey was inaugurated in 2007—though plans to extend the pipeline on to Italy have languished uncompleted.

Despite its extensive pipeline network, Turkey lacks pipelines to the south to capitalize on Mediterranean gas resources. If such a pipeline was built, Turkey, straddling multiple energy markets, could draw upon the natural gas resources of Russia, the eastern Mediterranean, and Russia for re-export to Europe.

Egypt has a less extensive pipeline network. Prior to 2012, Egypt exported natural gas to Israel through a pipeline across the Sinai Peninsula. These exports came to a close in 2012 due to changing market conditions and a number of acts of sabotage against the pipeline, according to Egypt Daily News. Egypt also constructed the Arab Gas Pipeline, linking Egypt’s gas fields to Jordan and Syria, according to the Egyptian Ministry of Petroleum and Mineral Resources.

In addition to its pipelines, Egypt has two LNG plants on its Mediterranean coast, one in Idku and one in Damietta. The two facilities, largely idle since Egypt cut off its exports in the face of urgent domestic needs, could resume the conversion of natural gas into LNG in 2020 if domestic production once again rises to surpasses consumption, according to an article by The Economist in September 2015. The two LNG facilities, according a Reuters’ article in February 2013, have a combined export capacity of 12.2 million tons.

In addition the infrastructure previously noted, Egypt and Turkey have invested in floating storage regasification units (FSRUs) to insure an adequate supply of natural gas to their domestic energy markets. Due to the costs associated with the importation and regasification of LNG, these FSRUs will have little bearing upon either country’s quest to become a regional gas hub.

Diplomatic Assets and Liabilities

To fully utilize the opportunities provided by their natural gas infrastructures and strategic locations, both countries will need to draw on the resources of their gas-rich neighbors in order to become regional gas hubs.

Turkey, with its central location and network of pipelines, is ideally situation to take advantage of the natural gas boom in the eastern Mediterranean. Despite its clear advantages, Turkey’s troubled-plagued relationships with Israel and Cyprus have the potential of offsetting its strengths.

The biggest obstacle in the way of Turkey’s ambitions is Cyprus. Cyprus’ central location in the eastern Mediterranean makes its territorial waters the natural pathway for natural gas pipelines from the region. Yet its relationship with Turkey has been hostile since Turkey occupied northern, or Turkish, Cyprus in 1974. Turkey still has 30,000 soldiers stationed on the island and continues to contest the maritime rights of the Cypriot government. After the breakdown of talks between the rival parties this summer, the Turkish government warned international oil companies against operating in Cypriot waters, according to a July 2017 Reuters article by David Dolan and Ece Toksabay. These disputes not only hamper the possibility of gas exports from Cyprus to Turkey, but, because of Cyprus’ central location, block potential pipeline routes from Israel [and Egypt] as well, according to a Financial Times article in September 2017 by Andrew Ward.

While Turkey’s relations with Israel are better than its relations with Cyprus, diplomatic relations between the two countries were only restored in 2016. In 2010, after the deaths of several Turkish activists in a maritime incident off the Israeli coast, Turkey broke off relations with Israel. When the two countries resumed diplomatic ties in 2016, many assumed the reconciliation was driven by Israel’s recent natural gas discoveries and Turkey’s need for natural gas, according to a CNN article by Oren Liebermann and Elise Labott in June 2016. Yet the two nations have yet to reach a natural gas agreement and relations have remained rocky.

Egypt, for its part, instead of seeking Turkish outlets for its natural gas, has drifted toward greater cooperation with Turkey’s regional nemeses, Greece and Cyprus. In August 2016, Egypt and Cyprus signed a pipeline agreement for the transfer of Cypriot gas to Egypt, according to an August 2016 Reuters article. Cyprus’ natural gas deposits, however, pale in comparison with Israel’s. The commercial viability of Cyprus’ gas fields has even been questioned by some, such as Tareq Baconi, who wrote “Pipelines and Pipedreams: How the EU can support a regional gas hub in the Eastern Mediterranean” for the European Council on Foreign Relations.

While enjoying warm ties with Cyprus, Egypt’s relationship with Israel is more complicated. Unlike Cyprus, Israel’s reserves are large enough to ensure their development. At first glance, Egypt and Israel would appear to be natural partners. Israel has excess natural gas reserves that it struggles to export while Egypt has dormant LNG processing and export facilities. Yet obstacles to a natural gas cooperation agreement exist. Despite the benefits that both countries could realize by using Egyptian infrastructure to export Israeli gas, domestic opposition and an ongoing debt dispute over the termination the previous Egypt-Israel natural gas agreement could derail future cooperation, according to Barconi.

The Reality of the Race

Egypt and Turkey both have market advantages that could help them realize their common aspiration of becoming the regional gas hub of the eastern Mediterranean. Yet to turn their dreams into reality, they both face serious challenges that they must overcome. Heavy demand in both countries threatens to engulf both domestic and imported supplies of natural gas. Egypt, by many accounts, is about to break free from its dependence upon natural gas imports due to rising production, but the country’s heavy reliance upon and its ever-increasing consumption of natural gas could limit its future export capability. As neither country possesses a large natural gas surplus, they both must draw upon the resources of their gas-rich neighbors to become regional gas hubs. In order to achieve their aims, both Turkey and Egypt must bridge past historic apathies and partner with former adversaries. The fate of the eastern Mediterranean natural gas market depends, at least in part, on their relative diplomatic dexterity.