More pragmatism urged for developing Eastern Mediterranean gas

March 9, 2015
Eastern Mediterranean nations should abandon inflated expectations and adopt more realistic approaches to developing their natural gas resources, speakers recommended at a Feb. 19 Brookings Institution forum.

Eastern Mediterranean nations should abandon inflated expectations and adopt more realistic approaches to developing their natural gas resources, speakers recommended at a Feb. 19 Brookings Institution forum. This includes recognizing that their relatively smaller deposits are best suited to sales within the region, they said.

"The age of illusions is over," said David Koranyi, who directs the Atlantic Council's Eurasian Energy Futures Initiative. "What we've seen so far is the exacerbation of tensions in that region. I was not alone in believing there was a unique constellation of opportunities there built around natural resources."

Harry Tzimitras, who directs the PRIO Cyprus Centre in Nicosia, meanwhile said, "I would be hard-pressed to find a country in this region which does not have some kind of crisis. Many need to get beyond the idea that their situation is unique. Deconstructing unrealistic expectations may be helpful."

The discoveries of the Tamar and Leviathan fields in Israel led politicians and social activists there to call for an overhaul of its energy tax and royalties regime in what has become a heated debate, according to Natan M. Sachs, a fellow at Brookings's Center for Middle East Policy.

"The processes were so bad in Israel because they represented a huge change in long-standing policies," he said. "By and large, Israel has changed from a country generally more concerned with security to one increasingly interested in energy and economics. Voters know a surprising amount about energy, which elected officials are beginning to recognize."

When it comes to regional cooperation, Israel already has reached agreements with several of its neighbors, Sachs said. "We may have been able to make quiet deals in the past that we can't do now," he conceded. "But the good news is that the economics are there, and some new deals can be made."

Gaza Marine's potential

A fourth speaker, Tim Boersma, a fellow and acting director in Brookings's Energy Security and Climate Initiative, said the relatively small Gaza Marine gas field offers significant opportunities beyond its molecules.

"The US government has looked at it closely because it potentially could help Palestine economically," he said. "At 1 tcf, it's relatively small, but it's only 20 miles offshore in relatively shallow waters, which makes it relatively cheap to develop the gas and bring it ashore. Palestine's electricity demands are growing, and there are plans to expand generation capacity."

The timing may look bad for promoting Palestinian-Israeli energy cooperation with the April 2014 collapse of peace talks and hostilities in the Gaza Strip that summer taking lives and causing extensive damage, Boersma and Sachs said in a new policy paper that Brookings issued on Feb. 19.

"There are significant benefits for both the Israelis and Palestinians in developing Gaza Marine, including the capacity to produce more fresh water and reduce debt," Boersma said. "It also would benefit countries like Egypt and Jordan which-ridiculous as it sounds-would get better receptions at home buying Palestinian instead of Israeli molecules."

It goes beyond economics, he said. "Political leadership will need to be shown on both sides, although a lot of the final decisions will need to be made in Jerusalem and Tel Aviv."

Boersma noted that during a recent visit, he observed Israeli officials' interest in developing regional markets for their relatively modest gas resources. "It makes sense for producers in both Cyprus and Israel to look for regional opportunities," he said. "Unfortunately, politics seem to trump most of the economic potential."

Calls to restrain prices

Sachs said there have been calls for gas price controls in Israel to keep electricity costs in check. These only add to uncertainties that likely will keep more outside producers from entering the country, he said.

"There is a lot of populism involved, and a lot of nonsense being spoken on both sides," he said. "The people deciding this won't be in Houston or Washington, DC. It's the people who will vote in the upcoming election. Israel's government is extremely attuned to international markets. But it also has to deal with domestic price regulation, and show some largesse in dealing with the Palestinian economy, which is in a shambles."

Tzimatras said the situation in Cyprus has deteriorated since the PRIO Cyprus Centre issued its East Mediterranean Hydrocarbons study in March 2014. Negotiations have broken down and no gas has been found, he told the Brookings conference.

"We started from essentially problematic premises such as building an LNG terminal and excluding Turkey," he said. "Our energy minister is visiting Iran today, and is examining options with Egypt. But it might very well be there's nothing to talk about. We need to decide the next steps now, or Cyprus could become a situation where natural resources exacerbated a bad situation instead of offering a solution."

Koranyi said there has been a failure to build a common gas development vision in the Eastern Mediterranean, partly because support for doing so from outside the region has been woefully insufficient. "US energy diplomacy was hampered by the changing situation in Turkey, and European energy diplomacy wasn't even there," he said.

Developing a regional market for this new gas remains the best solution, he said. "In my mind, Eastern Mediterranean gas should be used there, with Europe as a secondary market since those countries have other alternatives to Russia they can pursue. This still needs to be considered."