Page 6 - MEOG Week 02

MEOG Commentary MEOG
Deal signed to allow EastMed pipeline to proceed
east med
AFTER a year of conflicting announcements, Greece, Cyprus and Israel signed the inter-gov- ernmental agreement for the EastMed gas pipe- line on January 2 in Athens.
The agreement was signed after a meeting in Athens of Israel’s caretaker prime minister ben- jamin Netanyahu, Greek Prime Minister Kyri- akos Mitsotakis and Cypriot President Nicos Anastasiades. All three countries have greeted the agreement with enthusiasm, but what does the deal actually entail, and what is the future of this pipeline?
Pushing this through now is primarily a political response by Greece, Cyprus and Israel to Turkey’s challenge, posed through its recent agreement with Libya to demarcate their mar- itime boundaries – which is incompatible with the internationally recognised law of the seas, UNCLOS.
The EastMed pipeline agreement constitutes a milestone in terms of Eastern Mediterranean politics, and it certainly strengthens relations between the three countries at a critical time for the Eastern Mediterranean, promoting closer co-operation. It also has the support of the EU and the US. Italy, where the pipeline will end up, did not participate in the signing cere- mony owing to active resistance from commu- nities near potential pipeline landing sites and increased resistance from environmental activ- ists – as was the case with the TAP pipeline. but Italy has confirmed its support for the project.
The agreement sets the legal framework for the possible construction and operation of the EastMed gas pipeline, if implemented, but by itself it will not lead to its construction. This requires securing buyers of its gas in Europe and companies to invest in the pipeline.
The signature of a letter of intent (LoI) between Greece’s public gas supply company dEPA and Energean, earlier on 2 January, to supply 2bn cubic metres (bcm) per year of gas to the pipeline from Energean’s gas fields in Israel, is a good start in terms of securing the required gas supplies. It is very likely that others such as Noble Energy, the operator of the Leviathan gas- field, and possibly ExxonMobil, the operator of the Glafkos gas field in Cyprus, may follow suit at
some stage. Such deals could secure enough gas for the first stage of the project, which requires 10 bcm per year.
If built, by 2025 the pipeline would take gas from Israel and Cyprus to Crete and from there to the Peloponnese and then to western Greece. An additional leg would take the gas to Italy. EastMed is not due to be completed until the mid-2020s. Its developer, IGI Poseidon, a joint venture consisting of dEPA and Italian gas utility Edison, said in december that it would make a final investment decision (FId) within two years.
A study by dEPA and Edison, with part Euro- pean Commission (EC) funding, estimates the cost of the 1,900-km pipeline to Greece could be between $6-$7bn, giving a unit cost of $3.50/ mmbtu (per about one thousand cubic feet). Including the cost of taking the pipeline to Italy, experts consider this to be optimistic, with the total cost likely to be $8-$10bn. The pipeline is technically challenging but feasible. It will con- nect recently discovered gas fields beneath the sea floor of the south-eastern Mediterranean to Greece, and from Greece via an additional leg to Italy and then on to Europe. The line would supply around 4%, or an initial 10 bcm, of the EU’s annual natural gas imports. EU countries currently meet around 40% of their natural gas import needs with gas from Russia.
diplomacy
The project would ease the EU’s energy depend- ence on Russia, and has also angered Turkey, which is a key transit nation for supplies of Rus- sian natural gas on their way to Europe, giving Turkey a source of leverage over the latter. New sources of European energy supply will under- mine that influence.
Europe’s dependence on Russia for energy has already been curbed slightly in recent years by rapidly growing exports of natural gas from the US. but that still leaves Europe, which lacks significant gas resources of its own, heavily dependent on imports from Russia and other countries, including Norway and Qatar. The EU considers EastMed vital to energy security and has fast-tracked its permitting process.
The project also seems to be fuelling further
P6
w w w. N E W S B A S E . c o m Week 02 15•January•2020