[box] In this three-part series, Necdet Pamir looks at the changing dynamics of the relationship between the energy sector and geopolitics in and around Cyprus and Eastern Mediterranean[/box]

The State of Natural Gas in the World’s and Turkey’s Energy Consumption

The share of natural gas in worldwide energy consumption is on the rise due to its relatively high efficiency and environmental cleanliness (less GHG emissions compared to oil and coal). Currently natural gas occupies 23.4% of worldwide energy use. According to International Energy Agency, oil and coal use is expected to decline, whereas natural gas is expected to increase its market share in the coming years.

Turkey produces 28.2% of its energy and between 38 to 48% of its electricity (depending on the yearly availability of other sources like hydro and market conditions) from natural gas 99.7% of which is imported. And such a dominance in the energy and electricity mix together with a total import dependency makes the developments in the Eastern Mediterranean and Cyprus vital for Turkey.

Obviously, natural gas is a critical and strategic energy resource for Turkey. To put it more plainly, Turkey is wholly dependent on natural gas which has a very high share in its energy and electricity production. This dependency is creating many risks, including Turkey’s economic security and its energy supply security -especially when we consider the countries that we import the gas from. This is in face of our idle renewable resources (solar, wind, geothermal, biofuel) which have a very significant potential.

Turkey imports almost 52% of its natural gas demand from Russia and a further 17% from Iran. This distinction is important, because when we compare the countries that Turkey imports the gas from and its current foreign relation policies as well as diverging interests with them, such a stream of supply is clearly risky. And that’s why natural gas exploration in Eastern Mediterranean is something Turkey should watch closely, as it may be a region that can help it diversify the supply choices.

Unfortunately, Eastern Mediterranean geopolitics is not exactly sympathetic to Turkey under current conditions.  Turkey have strained relations with almost every riparian state in the Eastern Mediterranean. Starting with the conflicts regarding Exclusive Economic Zones in the region, and culminating in the perceived risks and current adverse interests, it is unfortunately obvious that Eastern Mediterranean gas is not the answer to Turkey’s problems, either. The high production and transportation costs from the Eastern Med sources are also discouraging and not competitive when compared with the existing supply sources.

Recent Noteworthy Natural Gas Explorations in Eastern Mediterranean

According to BP Statistical Review of World Energy report, issued in June of 2018, worldwide proven natural gas reserves stand at 193.5 trillion cubic meters. The most recent Eastern Med reserves added amount to approximately 2 trillion cubic meters, and they are primarily in the Israeli and Egyptian nautical jurisdictions. United States Geological Survey (USGS) predicts another 10 trillion cubic meters of (potential) natural gas that have been estimated by seismic and geological data, but not have been explored yet. 6.3 trillion cubic meters of this potential reserves are in Egypt’s marine space and in the Nile Basin.

Therefore, most of recent noteworthy natural gas explorations in the region are in Israel’s and Egypt’s marine space. Lebanon and Syria have similar speculative basins that show potential, too. As for Turkey, there is speculative potential in Iskenderun Bay and the offshore outside Alanya.

We should also take a look and objectively evaluate the Aphrodite field discovery to the south of Cyprus. As much as this discovery carries a vital weight for the two nations of the island, the reserves are too small for the Greek Cypriots to use it as part of a carrot-and-stick tactic. Furthermore, Northern Cyprus Turkish Republic has unalienable rights for not only the sharing of these reserves, but also for further explorations and developments, as mandated by the UN. The Greek Cypriots initially claimed a recoverable reserve as high as 198 bcm while the most recent reserve estimates are only around 129 bcm. Such a volume is meaningful for the island while economically far from being adequate for a pipeline construction to Europe as frequently inflated by the Greek Cypriot media.

Israel currently has about 1 trillion cubic meters of proven natural gas in her exclusive economic zone (EEZ), most of it around Leviathan and Tamar regions. Israel plans to use 60% of these reserves for its domestic demand, and to export the rest. Current economic conditions point out that the most suitable market for Israel and the partner companies in the field seems to be Turkey. So, accordingly, it is Israel who has to humor and find any appetite to for Turkey rather than the other way around. Unfortunately, this is not what seems to be happening thanks to the economic interests of the involved corporations.

In order to strengthen its hand, Israel also talks about other potential markets for its excess gas, such as Palestine, Jordan and Egypt. Palestine and Jordan markets are too small to even talk about, and even if they weren’t, it would be very hard to go ahead with such a plan considering the hostility their public feels against Israel. Egypt, with its own and recently discovered explored gas reserves like Zohr and Noor[1] on the other hand, does not really need Israeli gas exports. Therefore, it is not very likely for any of these scenarios to get the go ahead.

Israel has been working to influence the Turkish companies who are enthusiastic about transporting Israeli gas over to Turkey. In fact, these efforts were not even disrupted by the Mavi Marmara incident. Israel believes the best way to utilize its excess natural gas reserves is to move it to Europe through the Mediterranean via an underwater pipe and over to Turkish soil. According to Israel, this project does not need approvals from either the Greek Cypriot Administration of Southern Cyprus (GCASC) or the other littoral states in the Eastern Med region while crossing their claimed EEZs. This claim puts GCASC in a tough spot as they may find themselves in a position to not have a say in the reach of their EEZs.

On final analysis, it seems as though the most appropriate market for the Israeli offshore natural gas, considering the selling price and the cost of production, is Israel’s domestic market. In theory, Israeli gas entering Turkey from the south (either via a pipeline or as liquified gas) may make sense, however when we add the cost of gas produced in Leviathan to transportation infrastructure and operational costs, the tally will be much higher than the cost of gas from Russia, Iran or Azerbaijan. So, it is not only the frail relations between Turkey and Israel that is putting a damper in the process, it is also simple economics and math.

Egypt may now be considered an unlikely gas importing country now that significant explorations have been made within the country’s jurisdiction -with Zohr field in particular as well as the most recent discovery, namely Noor. One of the main problems in Israel exporting gas is that, the operating companies will not be able to convince the countries they hope to sell to pay the same price as Israel’s own domestic market.

GCASC is using the explorations done in Aphrodite field as a bargaining tool when negotiating with the Turkish side. Their attitude is basically one that says: “if you play nice and accept our terms, we may be tempted to share the riches with you.” This is not only unlawful, it is also audacious. Of course, GCASC has the full backing of EU, and partial support from the US. Even Russia, with whom Turkey seems to have entered into a congenial relations phase, seems to support GCASC with their policies. The gas production in the Aphrodite region however, is not feasible enough to build a pipeline directly to Greece or an LNG terminal. And Turkish Republic of Northern Cyprus (TRNC) shares equal rights to this gas. Aphrodite NG will be a hard sell to Egypt as well since they have their own proven recent explorations in Zohr as week as Noor, Nooros and Baltim. It looks like the best way to utilize the Aphrodite field is to produce, develop and distribute the gas to the two nations residing on Cyprus in a way that the two sides can work together, starting from development of the field to the ultimate point, that is the consumers in both parties.

There is a possibility that other explorations next to Aphrodite are undertaken, which will strengthen GCASC’s hand and grab more European support for them. Italian ENI which holds a hydrocarbon exploration license from GCASC has already announced significant natural gas findings in GCASC’s 6th block after they drilled the Calypso 1 well where Italian company ENI expects a reserve not less than that of Aphrodite field. ENI’s Saipem 12000 drilling platform has then recently moved on from GCASC’s Block 6 to their Block 3 in order to continue their explorations there. However, the platform had to suspend its move when Turkey warned them to move away from their area citing the NAVTEX naval drill that took place between February 9 and 22. But interceptions such as this can only Turkey so far; what we need to do restructure TPAO as a formidable company and pursue a sounder foreign policy.

On Part 3, we will be talking about the problems with Exclusive Economic Zones and the way forward.

[1] Initial estimates are as high as 2,5 tcm as released by Egypt’s Ministry of Oil while Zohr field is estimated to have a 850 bcm

→ Read Part I  Or Continue to Read Part III