10/24/2013
Geopolitical Implications of Gas Development
in the Eastern Mediterranean
Moving from a Plan to a Strategy
"Everyone has a plan 'till they get
punched in the mouth.”
Mike Tyson
“US shale to hit
European investment”
“U.S. Shale Boom
Threatens Australian Gas
Projects”
“Israel's Natural Gas Finds
Win the World's Notice”
2
Looking at the Bigger Picture
3
Who is throwing the punches?
• As a result of the discovery and technological
developments allowing the ability to drill for shale gas,
the United States is on its way from being a net
importer of gas to being a net exporter.
• With more drilling experience and technological
advantage, U.S. estimates are likely to rise
dramatically in the next few years.
• At current levels of demand, the U.S. has about 90
years of proven and potential supply—a number that
is bound to go up as more and more shale gas is found.
• The unconventional gas revolution is already
influencing geostrategic energy dynamics in
important ways.
4
Who is feeling the punch?
5
Global Effects of the ‘shale gas revolution’
Effect on gas prices across the globe
Shift in the way countries with their own
shale gas look at energy policy decisions
Reevaluation of commercial viability of
natural gas projects
Technological developments
6
Current gas prices
Examples of Natural Gas prices, US$
per million Btu
18
16
With current gas prices in Europe,
552.2 BcM exported from Cyprus and
Israel are worth approximately $200
billion.
14
12
10
The Mediterranean could not only
supply Europe but, because of its
proximity to the Suez Canal, top Asian
customers such as South Korean and
Japanese utilities, as well.
8
6
4
2
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
LNG (Japan)
Average German import price (LTCs)
UK (NBP spot prices)
US (Henry Hub spot prices)
This means that Asia will remain a
temptation for Cyprus and Israel as
selling prices there have been closer to
$15 per mmBtu in average in recent
years, and even reaching almost 17$,
against a break-even cost of about
$10.
7
Global Shift Towards Gas
8
Natural Gas Demand
Global Natural Gas Consumption Forecast (BcM)
OECD Europe
OECD America
OECD Asia
Non-OECD Eurasia
Non-OECD Asia
Middle East
Africa
Central and South America
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2010
2015
2020
2025
2030
9
TOP Producers and Proven Reserves Holders
Production (% of global total)
Malaysia
1.9
0.7
2.1
1.6
Indonesia
China
3.2
0.2
Norway
1.1
Canada
1.1
3.4
4.6
2.4
2.4
Algeria
1.3
Nigeria
Venezuela
UAE
1
1.5
3.3
3
US
Qatar
2.8
3
Saudi Arabia
Turkmenistan
4.4
20.4
4.5
1.9
9.3
4.7
13.4
17.6
17.6
Russia
Iran
Proven Reserves (% of global total)
4.8
18
10
TOP Producers and Consumers
Consumption (BcM)
Japan
116.7
0
European Union
149.6
Mexico
38.5
Malaysia
33.3
Indonesia
35.8
China
Iran
Russia
US
83.7
65.2
71.1
107.2
4.3
2.8
143.8
114.9
100.7
Canada
Qatar
443.9
102.8
102.8
Saudi Arabia
Norway
Production (BcM)
156.5
157
156.1
160.5
416.2
592.3
681.4
722.1
11
Potential Shale Gas Players
Country Ranking by technically recoverable shale gas resources (EIA
2013 estimate, TcM)
China
33,45
Argentina
24,06
Algeria
21,21
USA
19,95
Canada
17,19
Mexico
16,35
Australia
13,11
South Africa
11,7
Russia
8,55
Brazil
7,35
Natural Gas Trade Movements
13
Where can technology take us?
14
Why has US been successful?
15
Russia not out of the ring yet
Coming Back to the
Mediterranean
No one saw this coming
Israel has Gas – and a lot of it.
18
Not only Israel
Cyprus in the mix
• Greek Cyprus and its exploration partners, Texas-based Noble Energy, on
Oct. 3 announced an around 141,6 Billion cubic Meters (BcM) natural
gas find*
• Cyprus plans to become a regional hub in the Eastern Mediterranean
Sea for the export of liquefied natural.
• An LNG terminal in Cyprus already began pre-front-end engineering
design work and could begin construction in 2015.
• In August 2013, Greek Cyprus, Greece, and Israel signed a
comprehensive MoU for cooperation over electricity, water and the gas
issue. This cooperation of the three countries is presented as an ‘arc of
democracies’ in the unstable Levant region.
• As EU southernmost member, Cyprus is seen as an important player in the
EU effort to diversify its energy sources
• Russia has also a strong interest in the regional gas and might use its
leverage over Cyprus to increase its influence.
Lebanon to stake a claim
A Turkish 'powership' docked off Beirut burns heavy fuel to try to
meet Lebanon's heavy energy demand
21
Blessing or a Curse?
Gas discovered around Israel and Cyprus could potentially end
up supplying much of Europe’s energy demands.
• Cyprus has an estimated 141,6 BcM in its Aphrodite field, with other
explorations ongoing
• Israel’s Tamar field has some 280 BcM and Leviathan some 510 BcM.
But how to get it there?
• The most commercially logical option would be for Israel to build a pipeline to its
gas hungry neighbors, Jordan, Syria, Lebanon and Egypt.
• However, politically, this option is far from viable.
• Firms that invest the money must be able to get the gas out. Unless
supply channels are established, they will not invest.
Difficult regional relations and disputes over access and maritime
borders have cast a cloud over the enthusiasm that first erupted
when the gas was discovered.
• Cooperation remains the most rational way to prevent the chaotic situation that
is likely to emerge in the eastern Mediterranean.”
• All three players (Turkey, Israel, Cyprus) need to resolve their differences and
put years (sometimes decades) of animosity and distrust behind them and open
a new chapter in relations.
22
Where is it going to go?
• Natural gas export options include:
– A new pipeline from the eastern Mediterranean
to Crete (where the volumes could flow into the
European grid);
– A new pipeline from the eastern Mediterranean
to Turkey;
– Use of existing infrastructure to send volumes to
Egypt for export via its LNG facilities;
– New LNG facility in Cyprus.
23
Just a few of the deterring factors
Strained relations between Israel and Turkey
Israel’s troubled relations with neighbors Jordan, Syria,
Lebanon and Egypt
Israel’s sea borders with Lebanon are disputed
Turkish-controlled northern Cyprus’s claims overlap with
Greek Cypriot ones
Pipeline to Greece would be longer, costlier and riskier
Exporting LNG requires huge investments
Security concerns for LNG plants or vessels in Israel
24
Turkish-Israeli Relations on the Rocks
A Divided Island
26
INTERNATIONAL WATERS DISPUTES
Generally, a state's EEZ extends to a distance of 200 nautical miles (370 km) out from its
coastal baseline. The exception to this rule occurs when EEZs would overlap; that is, state
coastal baselines are less than 400 nautical miles (740 km) apart. When an overlap occurs,
it is up to the states to delineate the actual maritime boundary. Generally, any point within
an overlapping area defaults to the nearest state.
• Israel and Cyprus reached an agreement but Lebanon rejects so cannot come
to an EEZ agreement with Cyprus
• Turkey does not recognize the agreement because of North Cyprus
• Israel and Lebanon cannot negotiate as still in official state of war against
each other
• The International Tribunal for the Law of the Sea (ITLOS) could determine the
maritime boundary but only Lebanon is a member.
• Any EEZ with Syria is currently impossible as a result of the civil war in the
country.
Rolling with the punches
It is time to look past the tension and strategize
how natural gas can act as a political unifier.
How?
…
Region must come to terms with Turkey
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Taking some punches
Why?
– The most profitable route for Israel to export
its gas is through Turkey to European markets
– Provides stable market for Israeli gas
– Turkey will continue to undermine all efforts of
Greek Cyprus unless Turkish Cypriots have
equal stake
– Can serve as broker to normalize ties in the
region
– Playing its own game in the Caucasus
– Has US leverage
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Importance of TANAP
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Will the EU win or lose?
• The estimates of the EIA are showing, that
energy prices are likely to stay higher in Europe
than in the US and China.
• This has to be factored into decisions so that
policies and structures are adapted accordingly.
• EU Member States have chosen different ways
of dealing with the energy transition.
• An example is the UK and Poland are currently
the frontrunners in looking into the possibility of
developing a shale gas sector as part of their
energy mix.