Dr. Ali Oğuz Diriöz, Dr. Roee Kibrik – Forget the East-Med Pipeline: Advantages of Alternative Options to Transport the Easter Mediterranean Gas

Dr. Ali Oğuz Diriöz, Dr. Roee Kibrik – Forget the East-Med Pipeline: Advantages of Alternative Options to Transport the Easter Mediterranean Gas

In recent years, Israel, Greek Cypriot Administration of Southern Cyprus, Greece and Italy promoted the idea of constructing a long pipeline to transfer gas from Israel and Cyprus to Europe. It was argued that it would contribute to the European efforts to diversify energy sources. Discussing the project strengthened relations between the project partner countries, which are in the midst of creating a complex alliance.

Leaving aside technical challenges of constructing such a long and deep pipeline, we argue that this pipeline has more disadvantages then it seems at first glance. Hence, alternatives should be considered – mainly, LNG facilities. Let us explain why.

To begin with, the East-Med pipeline is politically inflexible, locking-in countries developing it, while alienating countries excluded from the project (such as Turkey). Turkey’s alienation adds to existing regional tensions. Turkey’s exclusion is provoking Ankara to seek alternative arrangements, such as signing an Exclusive Economic Zones (EEZ) delimitation agreement with UN recognized government in Libya. This EEZ cuts across the planned East-Med pipeline. Turkey also introduced a project to build natural gas pipeline between Turkey and Turkish Republic of Northern Cyprus. Israel and its allies reacted and promoted the signing of another MoU regarding East-Med pipeline. We can see how the East-Med pipeline contributes to escalation tensions.

In contrast, smaller-scale Liquefied Natural Gas (LNG) facilities and their characteristics offer opportunities to reduce tensions. Smaller size facilities that liquefy natural gas, enabling gas to be stored and shipped near the facility, directly to different markets. Smaller scale LNG plants cost less and can be distributed in several locations, thus offer flexibility. Offshore re-gasification facilities such as Floating Storage and Regasification Unit (FSRU) are becoming more widespread as costs are becoming lower. LNG options can create opportunities for regional and global trade by private companies that can also trade across the region. Unlike the East-Med Pipeline, shipping LNG through different variety of courses, can postpone troubles of delimiting East-Med EEZ. Greece and Turkey, despite East-Med, are collaborating in other gas projects (TANAP+TAP). Gas trade could be regulated by a regional institution (similar to the idea of regulating coal and steel in Europe after WWII).

Economic reasons also favor the LNG option. Construction of the East-Med pipeline could be a huge waste of resources because its cost (estimated to cost around 7 Billion USD). East-Med pipeline’s uncertain return of investment makes it economically questionable. The current fall in price illustrates the risk of the project’s unprofitability. By contrast, LNG options are also easier to halt production due to their smaller size. Thus, it is not surprising that economic advantages and global trends favor LNG; which is becoming competitive. In 2018, of 943,4 bcm (Billion Cubic Meters) gas traded globally, 431 bcm (45,7%) was LNG. According to International Energy Agency (IEA), LNG share in global gas trade doubled from 2000 to 2018, suggesting that LNG will continue growing.

In addition to geopolitical tensions, and economical disadvantages, East-Med pipeline is associated with environmental risks. For instance, Israel relies heavily on desalination; any accident risks causing water pollution. Smaller scale LNG facilities also have certain risks, but in a smaller scale. Developing LNG instead of East-Med pipeline will not subordinate investors to a sizeable economically unviable project. By contrast, distributed and smaller scale LNG and FSRU can be eventually reduced as Renewables become more dominant or in the event of a change of price.

Thus, considering the pipeline versus the LNG option, global trends are important enough to consider LNG seriously. Smaller scale LNG allows deals to proceed between Turkish, Israeli, Greek, Norther Cypriot, Southern Cypriot, and Egyptian companies. Efforts to positively re-engage all parties may better be led if governments set a framework in which private businesses can actively make deals. Turkey, Israel and Greece continue to enjoy growing economic relations, in spite of intergovernmental tense relations. Such is the Turkish Union of Chambers and Commodities-TOBB ongoing “Industry for Peace” initiative, to create an industrial zone in Jenin.

Israel’s relations with Turkey, should not be irreversibly sacrificed at the expense of good relations with others. Nowadays there are differences, but tomorrow things can change. There are more immediate challenges such as escalation of conflict in Idlib, or the Coronavirus that require cooperation of regional governments, and other consequences of the climate crisis. If countries in the region aim to promote a non-exclusive strategy in the East-Med, it is desirable to keep flexible options. Distributed and smaller-scale LNG/FSRU can help “commoditize” gas as opposed to “geo-politicizing” resources, and better serve the region politically, economically, and environmentally.

Governments have the option to set a more market friendly framework through developing LNG or other similar flexible options. Societies should not be bound by paths (of pipes) set by governments who chose to escalate problems rather than engaging a more positive alternative options such as developing LNG and Renewables. We would like to invite all governments to consider alternative options of positive engagement as a New Year Resolution in 2020.

20 April 2020 WTI/NYMEX oil price reached -37$ ( NYMEX Petrol fiyatları – $37 dolar seviyesini gordu).