EAST MED GAS SUPPLY PROJECTIONS UP TO 2050

Introduction

Gas discoveries during the last years, increased the importance of the Eastern Mediterranean (East Med) region from the sight of global policies. There are some huge discoveries in the Egyptian and Israeli maritime borders and smaller ones in the conflicted waters of Cyprus. Lebanon and Syria are (from the sight of reserves) other potentially important countries existing in the Levantine Basin.

Surely, there are developed and undeveloped gas reserves in the East Med. In addition, there may be additional huge potential for new possible discoveries. However, there are also big political, commercial and technical unknowns in the gas politics equation of the region and without solving and analyzing these perspectives broadly; it is not possible to make coherent analysis and advices for the future dynamics of the region.

Leastwise, energy, new discoveries and future production profiles are important for the region. However, does having some portion of reserves mean a great opportunity for the due countries? Off course not at all. Long term development scenarios, investment environments, political conflicts, annually expected production – consumption – export volumes, surface – subsurface structures, markets’ properties and the commerciality of the due projects are also important milestones to consider. Without studying these different parameters, it is not possible to make coherent analysis on the energy politics of the region.  By considering this fact, it is obvious that, East Med gas equations also has to be studied from a wide range of different factors.

In addition to these, within the current altering political dynamics, highly fluctuating gas prices and Russia – Ukraine war (which makes EU deeply focus on the alternative resources), the balances has to be updated attentively. In the last quarter of 2021, due to the reverberations of the pandemic era, mostly from coal to gas, energy prices of nearly all energy types resulted in massive increases. This situation continued by worsening through the Russia – Ukraine war and the higher levels of gas prices furtherly come to stay.

Undoubtedly, these extraordinary events effected the real dynamics in the East Med from the commercial and political sights.

In this study, East Med gas balances are going to be analyzed by focusing the important milestones existing in different parts of the courses from reservoir to the market. In this regard, annual gas export potentials of the due countries up to 2050, situations of the existing and proposed export infrastructures, market balances and commercial approaches will be explicated. As a result, the question of: “What to expect from the East Med gas potential up to 2050 and later?” will tried to be answered (mainly from the technical sight). In addition to these, possible results of the current political atmosphere (on the conflicts, energy prices, and diversification attempts) will also be taken into consideration.

Aims / Objectives

This study aims to analyze the East Med gas politics and export possibilities up to 2050’s, from a broader perspective including all the technical, commercial and political aspects.

Development / Methods

At the initial step, by neglecting the altering political conflicts in the region, East Med gas balances and technical export potentials of three different regions (Israel, Egypt and Southern Side of Cyprus Island (SSCI) will be evaluated. Undiscovered potential of the region in Lebanon, Syria and Turkey will not be taken into consideration.

While evaluating the export potentials, from reservoir to the market alternatives, all different aspects and milestones will be evaluated for each cases.

In this regard, annual gas production and demand volumes, resulting export potentials of the due countries up to 2050, situations of the existing and proposed export infrastructures, market balances and commercial approaches will be explicated.

After completing this technical step, secondly, the possible effects of the global and regional political alterations and dynamics will included in the analysis. In other words, possible results of the new US foreign policy, energy crisis, Russia – Ukraine War, EU’s pursuits for alternative gas supplies and Turkish – Israeli convergence policy will tried to commentated.

As a result, the question of: “What to expect from the East Med gas potential up to 2050 and later?” will tried to be answered.

Egypt Gas Export Potential

Egypt is the highest volume of proved gas reserves (around 2,3 tcm) bearing country in the East Med. Moreover, this amount is expected to increase after more tests and drillings to be completed in the new exploration fields.

The main milestone in Egypt’s gas market is to develop newly discovered fields. However, political instability, fluctuating oil prices, regional political disputes, financial / economic problems and high investment requirements for deep offshore fields complicate the situation. As a result, handling this milestone becomes the main energy strategy of the country.

Although having plenty of reserves, Egypt due to high increase in domestic demand, became a net gas importer instead of being an exporter in 2015. This situation continued up to the end on 2018 and within 2019, net gas balance again became slightly positive with the additional production in new fields.

Gas is the dominant energy resource in the country’s primary energy consumption with a rate of more than 50%. In addition, the strategies followed by the due authorities show that, this rate will continue to increase (Hence, gas being domestic and cheaper). This makes “being a gas exporter country targets” in a difficulty position. Even so, thanks to the new discoveries, country again has become a net gas exporter.

TESPAM’s 2017 long term projections[1] about the future of Egypt gas export potential can give a coherent approach for analysis (where the due estimations (between 2017 to 2022) are reasonable up to the current time).

Main results of the due projections are given below.

Total annual gas production projections up to 2050, including the potential volumes from new discoveries are given in the first graph.

Note: These analysis and projections were done through field base calculations. The details can be reached from the due references.

Graph 1: Egypt Total Gas Production Including New Discoveries & Current Fields.

As can be observed, Egypt seems to have more than 80 bmca gas production rates between 2023 and 2032.

After given the production projecti        ons, in order to be able to calculate the net gas balances, we have to add the consumption profiles. In the due study[1], different assumptions of consumption trends were studied and the below graph compares the base case consumption estimations with the above production projections.

Graph 2: Egypt Total Gas Production & Consumption.

As the next step, after extracting the consumption from the total production, gas balance graph of Egypt up to 2050 could be prepared as seen in the Graph 3.

Graph 3: Egypt’s gas balance.

Videlicet, Egypt has an around 20 bcma (and a little more) surplus between 2022’s and 2032’s and again a huge increasing deficit after 2035’s in its gas balance.

Then, the export potential of the country is given in the next graph.

Graph 4: Egypt gas export potential (for annual consumption incremental rate is 1.5%).

As can be observed from the Graph 4, in the most optimistic scenario, Egypt will totally have around 283 bcm gas to export and the average peak rate can be accepted over 25 bcma.

However, while taking the domestic gas consumption annual incremental rate as 2%, total gas to export volume will be around 260 bcma and the average peak rate can be accepted below 25 bcma. Moreover, while taking the domestic gas consumption annual incremental rate as 3% (which seems a better choice while considering the ongoing trends of Egypt between 2017 to 2022), then total gas to export volume will be around 224 bcma and the average peak rate can be accepted below 20 bcma.

Now, next step will have to be the analysis of possible export routes. Hence, for a gas field to be invested and developed, a commercial market reach has to be accomplished.

In this regard, for Egypt, in order to export its surplus gas to the global markets, initially we have to mention that, the country already has 2 domestic LNG facilities and 2 export pipelines.

LNG export plants are IKDU ELNG Plant with a capacity of around 10 bcma and Damietta LNG Plant with a capacity of 6.8 bcma. In addition, the export pipelines are Arish–Ashkelon pipeline to Israel with a capacity of 9 bcma and the Arab Gas Pipeline with a capacity of 10.3 bcma to Jordan. However, the export pipelines may require maintenance works to be utilized with the due capacities. Moreover, for the pipeline exports, due markets’ demands also have to be considered. Now, Israel is a net gas exporter and is feeding (meeting the due demand in) the Jordan market. Which takes the pipeline routes out of the game.

On the other hand, the current infrastructures seem as nearly enough within the current conditions. In other words, Egypt will be a self-sufficient country regarding with the gas export volumes and existing domestic gas export infrastructures comparison. Egypt will not look for new investments and use its unused volumes of existing LNG facilities for gas exports. This strategy will be also the cheapest one by considering the cost profiles.

Note: After due offshore discoveries (such as Leviathan’s new phases) being developed, some portion of surplus gas of Israel (for a shorter period) also may be considered to be transported to Egypt’s LNG facilities (via Arish–Ashkelon pipeline) and then to be exported. However, because of the main obstacles placed by the unknowns about the free LNG capacity of the existing terminals and political instability, this option stands with big question marks to be realized.

Israel Gas Export Potential

Israel is the second important proved gas reserves (with around 1 tcm) bearing country in the region.

Again as in the Egypt side, TESPAM’s 2016 long term projections[2] about the future of Israel gas export potential can give a coherent approach for analysis (where the due estimations (between 2016 to 2022) are reasonable up to the current time).

Main results of the due projections are given below.

Total annual gas production projections (on field base) up to 2050, including the due important discoveries are given in the graph below.

Graph 5: Israeli gas production forecast up to 2050.

As shown from the graph, Israel will have such a gas production potential of 30 bcma after 2030’s.

After evaluating the production projections of the important fields in Israel, by considering the demand profile, export potential have to be analyzed.

For future gas demand profile of Israel, a study of Israel’s Ministry of Energy and Water Resources, named “Israel’s Natural Gas Demand Forecast 2011-2040” is used. Between the years 2041 to 2050, average incremental rate of the existing forecast (0,6 bcma) is added to the previous year’s value.

As shown in the graph below, production values in Graph 5 and the 2050 demand profiles are combined.

Graph 6: Israel’s production vs. demand profile.

As a result, the gas balance graph (graph 7) was prepared.

Graph 7: Israel Gas Balance and Export Potential up to 2050.

According to the Graph 7:

-Israel will only have a chance of 20 years to be a gas exporter in the region (by not considering the new possible discoveries).

-Export volume potential, in comparison, is not as high as Egypt

-By putting a downside limit for long term gas sales agreements; as shown with the orange line in Graph 7, around 5 bcma is available for Israel to make (such long term) contracts.

-The extra volume of gas (which can be accepted as the upside potential after extracting the 5 bcma long term part) can be sold in spot markets or with short term agreements.

-After 2040 Israel will have to check for solutions to fill the gap of its gas demand.

 

Gas Export Potential in the Southern Side of Cyprus Island

In the southern side of Cyprus Island, there exist some new discoveries that could not be taken into development phase. According to TESPAM’s calculations, these discoveries approximately bears around:

-118 bcm reserves in Afrodit,

-116 bcm reserves in Calypso,

-89 bcm reserves in Glaucus.

At the current situation, due to the conflicts on the Cyprus Island, none of these structures can find change to be invested and taken into production. On the other hand, hence, all these reserves are dry gas, which makes LNG costs too high to handle, the only way is to reach a possible market through a new pipeline project. However, it was globally accepted that doability of the popular proposed East Med Pipeline Project is impossible (from the economic, commercial, technical, legislative and political aspects). This results in Turkey to be the unique market and the possible transit route for the Cyprus Island (including the Northern Side) possible gas sales.

After noting this fact, by assuming the conflicts in Cyprus solved and Turkey agreed on to transport and buy the Israeli plus Cyrus Island gas, then the due reserves can be developed and taken into production in such a projection below.

Graph 8: SSCI Gas Export Potential up to 2050.

Note: First production for all these three fields are assumed to be started in 2028.

As can be shown from the graph above, the total supply volume from the SSCI may reach in a tantalizing levels for EU markets. However, without reaching an acceptable solution with Turkey and Northern Cyprus, all these discoveries will have to be locked in the underground levels.

Total Gas Export Potential in the Region

As mentioned above, technically by analyzing the possible gas export projections in the East Med we encounter with the reality of:

-Hence being in a position to have the ability to export its gas from the existing LNG infrastructures, Egypt is out of the equation.

-Israel has additional around 5 bcma export potential. However, to make such exports, needs to find a reliable and economic market reach. (There are huge question marks in Egypt free LNG capacity utilization options.)

-In addition to this, Israel also have possible new structures (interpreted in the seismic studies) waiting to be invested and tested, which can be accepted as new reserves. That’s why again for Israel to find investors for these new projects, the country needs a possible export route.

-There is an important volume of export potential in SSCI. However, due to the existing conflicts, there will not be any real investments for the further development projects.

-By understanding that Israel additional export potential and the SSCI discoveries can be exported together, then the total volume to discuss in the view will be around a peak of 25 bcma.

Graph 9: Israel + SSCI Gas Export Potential up to 2050.

This is the technical reality, for the future analysis. However, the policy side directly affects the decisions in the region. In this regard, in the next part, altering political balances and their possible effects will be discussed.

 

Altering Political Balances

From the beginning of 2021 (after 20 years from the 11 September attacks), it can be easily seen that the new Cold War between the USA and China continues with all its violence. Especially in this context, the terrorism-centered US foreign policy vision, which has been going on since the early 2000s, has evolved into a brand new model in 2021.

The USA, which has intervened in many countries on the pretext of terrorism since 2001, and was negatively affected both economically and perceptually in these processes, has now shifted to a new foreign policy ground where it will focus entirely on its moves against China in the new period.

From an economic point of view, according to the assumed annual growth rates of 2% for the USA and 6% for China in the current projections, only 8 years later (in 2029), the Chinese economy will catch up with the USA. In addition, of course, as long as such a trend continues, China will continue to grow by catching up.

While these trends are observed in the economic sense, the success achieved by Chinese and Chinese origin companies on a global scale draws attention in the field of technology. In this context, Chinese companies have surpassed US companies in many areas from healthcare to telecommunications, from military equipment to smart systems.

If this process cannot be stopped,

– growing and getting stronger,

– able to direct his society and institutions in line with his oppressive regime (by this means gaining a great advantage in competitive markets),

– able to shape all his foreign moves with the aim of gaining intelligence and greater control,

– China, which put forward a controlled and closed line management model against the world, ignoring concepts such as human rights and democracy in the geographies under its control; could become a much greater threat to the existing international system.

Although the current system has many unfair, selfish and problematic aspects, (in other words, popular discourses and processes such as democracy, human rights, justice and transparency are operated in favor of the powerful) a model that is completely free of these concepts will involve much larger risks. In order to understand these risks, it is sufficient to compare the internal dynamics of the hegemonic powers within the relevant models.

Well, in this context, what kind of counter-strategy does the USA, which is the biggest architect and (hegemon) power of the current system, follow in the face of such a picture?

Especially after China started to close the gap much faster during the pandemic period, the USA made significant changes in its foreign policy in this context in 2021.

This can be understood in all major developments, from the NATO summit in 2021 to the G7 meeting, from the withdrawal from Afghanistan to the AUKUS Pact, from the Quad Summit to the G20, COP26 and Democracy Summit meetings.

Even the war process, in which Russia was pushed into a bloody loneliness, by creating the infrastructure of the Russian intervention, which turned into a great destruction for Ukraine in 2022, can be evaluated in this context.

Now, as can be seen, the main goals of the USA (and its apparent moves in this context) are as follows:

1) Interrupt China’s growth targets and production with rising energy costs! (Energy Crisis)

2) Create obstacles on energy and trade routes! (AUKUS Pact, withdrawal from Afghanistan)

3) Blockade China militarily! (Military structure, AUKUS and QUAD Summits)

4) Let there be big crises in East Turkestan! (Withdrawal from Afghanistan)

5) Make China unable to export with moves like the Green Trade Agreement! (NATO, G7, G20, COP26)

6) In this context, attract all the other major markets you can access around it already! (AUKUS and QUAD Pacts)

7) Claim Taiwan!

8) Recruit India and Australia more effectively in the region and strengthen these two countries! (AUKUS and QUAD Pacts)

9) Create a perception against China that includes the image of “anti-democratic, disregarding human rights, polluting the environment” before the international public opinion! (Democracy Summit, G20, COP26)

10) While managing this process, do not engage in any other business that will cause economic and political wear! (Negotiations with Iran, withdrawal from Afghanistan)

11) By preparing an environment for Russia to intervene militarily in Ukraine, deprive Russia of the means and capabilities that can turn into an opportunity, before the higher-level tensions between China and the USA exists!

12) By isolating Russia, bind your allies more firmly in the tense international system!

13) By deepening the energy crisis, both strengthen its own hydrocarbon production capabilities, strengthen the perception of energy transformation due to increasing prices, and force China in a more controlled manner!

As can be seen here, the USA has started to implement a dynamic, multi-faceted and alternative struggle plan. In this process, it has actively included many of its allies in the dynamics.

Trying to keep the balance by staying out of this game in the next 10 years, even if not now; seems to be impossible for almost any active country.

On the other hand, initiatives and long-term policies of all countries, large and small, that are aware of this picture, especially China, that will affect the balance more or less within their own capabilities, can be seen.

The world is evolving towards a new order on such an axis, again under the shadow of ambitions, power struggles and competition.

This struggle naturally results in some alterations in the East Med policies such as:

-Iran is strengthening again and increased its oil supplies more than 1 million bpd from the beginning of 2021 to the April 2022 (although the sanctions have not resolved).

-Israel and its new Arabic allies want to normalize their relations with Turkey due to the increasing risk of Iran.

-Turkey also wants a better and peaceful environment in the region.

-US and EU want fewer conflicts in the region, while they have to deal with huge problems in the northern part of the sphere.

-Turkey and EU also want fewer conflicts at the south, while there is an ongoing war at the north.

-EU stand in such a real temperamental position for new gas supplies in the region (due to the results of Russia – Ukraine War).

-Chevron, which is the operator of Leviathan, is helping in a pragmatic way to get some political solutions in the region.

These new occurring political balances can be used as a leverage to solve the stereotyped conflicts in the region.

Now nearly all the important regional and global actors in the region (including Israel, Turkey, (most of the members of) EU and USA) want a stable solution in the region.

The main milestones are the Lebanon – Israel Maritime Conflicts and Cyprus Island Conflicts. Today’s extraordinary political environment may help the sides to be able to get some real acts for possible solutions. This is a political leverage point. Moreover, to be able to create a gas-trading environment in the region can also be used as an advantage for the further solutions of the conflicts (and vice versa).

 

Results

-Egypt, hence being in a position to have the ability to export its gas from the existing LNG infrastructures, is out of the equation of all political discourses.

-Israel has additional around 5 bcma export potential by analyzing the long term sales possibilities. However, again to make such exports, needs to find a reliable and economic market reach.

-In addition to this, Israel also have possible new structures (interpreted in the seismic studies) waiting to be invested and tested, which can be accepted as new reserves. This means; again for Israel to find investors for these new projects, the country needs a possible export route.

-There is an important volume of export potential in SSCI (around 18 bcma plateau rate). However, due to the existing conflicts, there will not be any real investments for the further development of the due projects.

-Israel’s additional export potential and the SSCI discoveries can be exported together, which means the total volume to discuss will be around a peak of 25 bcma.

-This is a good volume by comparing the gas supply security concerns of EU.

-This volume politically and economically can be transported to EU only through a route on Turkey.

-Turkey is also the biggest, reliable, sustainable and commercial gas market in the region (which is a more profitable option for the gas suppliers in the East Med).

-Turkey’s contributions may realize the solutions not only in Cyprus conflicts but also in Israel-Lebanon Maritime unrests.

-Energy and water problem of the whole Cyprus Island may be resolved by the help of Turkey.

-Current political climate can be used as a leverage to solve all these blocked issues in the region.

-In this concept gas trade opportunities can be used as a leverage point.

 

Summary / Conclusions

Importance of East Med increased with the huge gas discoveries in the region. Moreover, while the world is going through a war climate, resulting energy price fluctuations, EU’s diversification policies and gas crises doubled the attention on the region. Therefore, the demand for export of these resources to the world (mostly EU) markets become stronger.

By analyzing from the technical perspective, for long term gas sales considerations,

-there is around 20 bcma plateau export level for Egypt,

-there is around 20 bcma plateau export level for SSCI,

-there is around 5 bcma plateau export level for Israel.

Egypt is out of the equation and political arguments hence, it has a self sufficiency to produce and export its gas through existing LNG facilities. Which means, Egypt does not have any conflicts or problems in for the critical exports.

However, for Israel’s additional volumes and the SSCI’s possible exports, a new commercial and secure route and infrastructure has to be realized. In addition, the only route for such an attempt can be achievable through Turkey (and with the permission of Turkey).

Other routes are commercially and politically inapplicable.

On the other hand, there are big and difficult (conflicted) milestones for a possible Turkey route. However, current political climate may offer some unexpected opportunities into the intertwined dynamics in the region.

 

References

[1]       O. Akyener and M. Ali, “EGYPT GAS EXPORT POTENTIAL UP TO 2050 & REGIONAL GAS POLICIES,” Energy Policy Turkey, vol. 3, no. 3, p. 17, 2017, [Online]. Available: www.energypolicyturkey.com.

[2]       O. Akyener, “FUTURE OF ISRAEL GAS EXPORT UP TO 2050 & TURKEY,” Energy Policy Turkey, vol. 2, no. 2, p. 15, 2016, [Online]. Available: www.energypolicyturkey.com.

 

 

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