The role of East Med gas in the european energy security and the best Cyprus gas monetization option

The role of East Med gas in the european energy security and the best Cyprus gas monetization option


 

By Panayiotis Tilliros,

B.Sc. degree in Economics (Govern.), London School of Economics, UK., M.Sc. degree in Comparative Government, LSE, UK., Postgraduate Diploma in Economics (distinction), UCL, UK., M.Sc. degree in Monetary and Financial Economics, University of Cyprus., MA degree in International Relations and European Studies with a concentration on energy security (oil and gas issues), University of Nicosia., Research Associate at the Cyprus Center for European and International Affairs which is affiliated with the University of Nicosia., Doctoral candidate. E-mail: @gmail.com

 

  1. East Med energy resource estimates and their significance for Europe’s Energy Security

The Eastern Mediterranean (East Med) energy resources constitute a credible alternative source that can help Europe diversify and reinforce its energy supply and transit security, given that indigenous gas production in Europe is on trend decline and demand on trend rise.

Besides its traditional gas supply routes from Russia, Norway (indigenous production) and N. Africa, Europe seeks new gas supplies via the Southern Gas Corridor comprising the “Fourth Corridor” in the Caspian sea (Azerbaijan and probably Turkmenistan) and the “Fifth Corridor” in  the East Med. According to an official EU website the EU aims to import initially 10 BCM of gas per year when the new corridor opens in 2019-2020, which is predicted to rise to 80 to 100 BCM of gas per annum in the future.

The Caspian gas resources will not be sufficient in diversifying European gas supply. Moreover, gas transportation via TANAP, across precarious Turkish territory, where the pipeline network has been subject to repeated attacks causing serious outages, entails grave transit security risks. If the East Med gas was also transported via Turkey transit security would be detrimentally compromised as the Ukraine 2006 and 2009 gas transit crises have proved. Another issue is whether the EU would allow Turkey to snatch East Med gas resources and gain leverage over Russia or whether it wants this advantage for itself.

LNG imports to Europe are accepted by EU as increasing energy diversification and security, lowering the heavy dependence on Russia. Towards this end, the EU targets the improvement of its energy security and competitiveness by tapping into the global LNG market. In fact, competitively-priced LNG is forecast to claim a much larger share of the European gas market. Additional gas supplies are necessary for long-term economic development especially of the less developed SE Europe.

  1. Cyprus Gas Monetization: LNG Plant and Energy Sector benefits for the economy

Given the East Med energy potential, Cyprus can play a pivotal role in reinforcing the energy supply and transit security of the EU. First, as analyzed above, it would be wise for the EU to have separate routes for the Fourth and Fifth corridors. Second, pipeline dependence should be avoided. Pipelines render the exporter hostage to the importer and give intermediary states inordinate power at the expense of both. Geopolitical developments can be as fluid as gas and such long-term commitment may be regretted.

This is why an LNG Plant at Vassilikos in Cyprus would serve the best interests of both the EU and the Republic itself. Moreover, a Cyprus-based LNG Plant is the principal if not the only way of achieving targeted and specified results concerning the country’s energy future. This has become even more imperative following the illegal bank bail-in/haircut  imposed by Eurogroup on 25.3.2013 that destroyed the country’s economic model.

The development of the energy sector around an LNG Plant and the multiplier effects from the implementation of the required infrastructure are indeed key components for the country’s economic future for many reasons. A dynamic energy sector can lead to job creation across the entire industry value chain and help develop technical expertise, applied research and innovation. It can create inter-sectoral synergies and economies of scale. The fastest possible introduction of gas into the electricity transformation sector is a most important priority bound to exert a great microeconomic and macroeconomic impact. The electricity production cost will decline substantially with evident benefits for both households and industrial users. This will exert downward pressure on inflation and render the enterprises and the economy more competitive. In addition, the substitution of oil by gas and LNG exports will correct chronic macroeconomic imbalances like the trade and current account deficits. Moreover, if the Republic becomes an energy centre, she will gain substantial strategic advantages and geopolitical leverage, thus rendering possible a fairer solution of the Cyprus problem.

In the light of the foregoing, a two-train LNG Plant is fully justified provided at least 10 TCF of proven reserves become available, including the existing 4.5 TCF / 127 BCM reserves of Aphrodite (Block 12 in Cyprus’ Exclusive Economic Zone / EEZ). LNG offers maximal flexibility and Zero transit risk, while reinforcing the possibility of market selection and price negotiation. Several exploratory drills are planned in 2017 and 2018 by the International Oil Companies (Exxon Mobil, ENI and Total) and independents operating in the EEZ of Cyprus. The probability of success according to the revised exploration model based on the game-changing discovery of the zohr carbonate reservoir is rated to be considerable. Future liquefaction capacity can be expanded according to gas field discoveries, cooperation among the companies involved, the East Med countries joining in, such as probable future producers like Lebanon and Syria and currently-producing Israel, other potential investors, and of course European and world demand.

  1. East Med regional cooperation

The East Med gas constitutes a viable, secure and independent alternative corridor for European demand and diversification needs. In fact, the Cyprus objectives are in line with the main dimensions of EU’s Energy Union strategy. Cyprus can serve as the axis and trading junction that boosts the energy partnership between the Southern European and Eastern Mediterranean countries so as to contribute to the achievement of Energy Union goals. The development of a Mediterranean gas hub with regional supplies from a Cyprus-based LNG Plant will reduce EU dependence on specific energy suppliers, routes and fuels and contribute significantly to Europe’s energy requirements and energy security goals. Furthermore, the exploration and development of East Med gas reserves present an excellent opportunity for regional co-operation and contribution to regional political stability, peace and economic growth.

 

([1] For a detailed analysis of this subject see the Author’s Paper / Study  with the same title at: https://www.greekenergyforum.com/publications/studies/2017/the-role-of-east-med-gas-in-the-european-energy-security-and-the-best-cyprus-gas-monetization-option)

(2 For detailed analysis of this issue see the Author’s Policy Paper entitled «Causes and impact of the MOUs on the economies of  Cyprus, Greece and Portugal» at: http://www.cceia.unic.ac.cy/images/policypapers/policy%20paper_7-2015.pdf and at: https://www.researchgate.net/publication/292154943)


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