What is the Future of European Gas Supplies (part 5 of the energy series)

When I wrote this piece  in December 2020, I did not exactly foresee the Ukraine situation. The situation was so well known that one thought that NATO and the west would back off. Well, one learns new things every day.

In Part 4 - The Russian Angle  it was evident that Ukraine was a chokepoint for the West to exploit and the opposition to Nordstream 2 had much to do with it. 

“The Russian pipeline system ran through Ukraine, a legacy of the cold war, and it was a weak spot for Russia particularly as relationships soured with Ukraine and NATO became more interested in Ukraine. It may be noted that Ukraine's location was strategically very strong, although it has no Natural Gas of its own”.

“The dramatic change in the equation between Russia and China has largely come about because of Natural Gas requirements of China and Russia’s ability to service it. In very significant ways it challenges the existing geopolitics of the world. China has the strength to do a Yuan-Ruble deal with Russia and overcome any US sanctions. In time the economic logic of Russian gas may be irresistible for Japan and Korea, too”.

So, what exactly is the big motivation for the West? It cannot be a military threat from Russia, because it is simply too far-fetched. Let’s look at Europe. 

Europe is a large consumer of energy and it is looking to get out of coal. In Germany, they are also shutting down nuclear plants. We know that renewals cannot possibly replace coal in any meaningful way, and hence the one alternative left is natural gas which is the cleanest of fossil fuels. Currently, 35% of it all comes from Russia. A big chunk comes from Azeri pipelines (another despotic regime that the West loves to hate) and Algeria (no western style democracy here either). All other sources are LNG which end up costing 70-80% more when compared to pipelines.

But Europe and the west have a favourite, and its Israel. Let’s look at the developments in the Mediterranean gas fields during the last 15 years. A Turkey-Israel gas pipeline is being discussed behind the scenes as one of Europe's alternatives to Russian energy supplies, but it will take complicated manoeuvrings to reach any deal.

The discovery of natural gas fields in Israel’s Eastern Mediterranean offshore areas has moderated the country’s total dependence on energy imports. It has found so much gas that it can convert all its vehicles to CNG, all its power plants to gas and still consume only 3% of what it can produce. Israel is poised to be a big player in the gas market and the big prize is Europe via undersea pipelines.

In 2019, Israel consumed 11.25 billion cubic meter (bcm), nearly all met by domestic production. Apart from providing vital energy security, Israel hopes that its offshore gas resources can serve as a diplomatic tool to improve relations with its Arab neighbors. Shared economic benefits through gas trade, Israeli leaders believe, will promote cooperation with regional countries and mitigate conflicts.

Since its first natural gas field went online, natural gas consumption in the Israeli economy has steadily increased tenfold over a fifteen-year period—from 1.19 bcm in 2004 to 11.25 bcm in 2019. Tamar and Leviathan, two large and prolific fields discovered in 2009 and 2010, respectively, boosted Israel’s energy supply. Further energy exploration in the country’s offshore areas in the following years uncovered a host of smaller fields that together added up to significant reserves. Israel held about 413 bcm (14.6 tcf) of proven gas reserves at the end of 2018, equivalent to 36.7 times its current annual consumption. It implies that Israel has about thirty-seven years of gas left at current consumption levels, excluding unproven reserves.

Until its depletion in 2013, the Mari-B reservoir supplied a total of 25 bcm of natural gas to Israel’s markets. Since then, the Tamar field has largely met the country’s natural gas requirements. In 2019, the Tamar reservoir provided about 10.48 bcm, close to 93 percent of the total supply. With an annual production capacity of 12 bcm, the on-streaming of Leviathan reservoir in late December 2019 provided additional security to Israel’s energy sector and created the opportunity for more natural gas exports.

Gas discoveries have been a turning point in Israel’s energy status, creating greater energy independence for a state that is an “energy island,” isolated from the region’s energy system or electricity grids and dependent on far-flung foreign suppliers for fossil fuels. Besides an assurance of supply for several decades, Israel has acquired the potential to export natural gas, a radical change from being an importer only a few years ago.

However, Europe is not done. The gas reserves stretch further and Lebanon has its own programs. Further Turkey (via its occupation of a slice Cyprus) has claims in the area and so has Greece. However, all of these countries fit into “good players” definition of the West (compared to Central Asia, Algeria and Russia). So, there is a strong logic in play for the West and it appears that it is moving in that direction.

The proposed East-Med Pipeline is self-explanatory. South Europe can potentially be flooded with Mediterranean gas and reduce the influences of all the supply sources that the West doesn’t like. It won’t eliminate them, though.

In early 2020, Greece, Cyprus and Israel signed a deal for a pipeline designed to move gas from the eastern Mediterranean to Europe. The EastMed line is intended to provide an alternative gas source for energy-hungry Europe. The 2,000-kilometre pipeline will transfer up to 12 billion cubic metres a year from offshore gas reserves between Israel and Cyprus to Greece, and then onto other countries in southeast Europe. It's expected to provide around 10% of the EU's natural gas needs. 

There’s already this particular pipeline structure that is supplying to Europe.

It’s quite clear that the West is looking at making the Mediterranean supplies a leg up and is willing to try and stall Russia’s pipelines as much as it can.  

However, as often happens in life, things don’t go to plan. Recent developments have not been very good for this idea. In January 2022 - The US seems to have withdrawn support to an eastern Mediterranean pipeline that was to carry Israeli gas through Cyprus to Europe. Washington conveyed its reservations to Greece about the project being a “primary source of tension” between Turkey and regional countries. Greece and Israel were bypassing it. The US also flagged environmental concerns and the project’s lack of economic and commercial viability.

Conflicting claims over maritime boundaries in the Eastern Mediterranean between Turkey and Greece required tedious and difficult negotiations for construction even to start. Washington’s backing was crucial to wade through diplomatic and financial problems, and that seems to have cooled off. All of this could change with the situation in Ukraine.

“With the latest US contribution to the story, the Israeli authorities now have room for manoeuvring. They can tell their Greek counterparts that they cannot be part of the project because the US is no longer supporting it. It lets Israel save face and allows it to shift priority to Turkey from Greece.” As we have seen earlier, Turkey already has pipelines to Europe (both from Azerbaijan and Russia). In 2016, Ankara and Tel Aviv were in talks to build a pipeline to connect Israeli gas to Turkey’s pipeline system for onward delivery to Europe. 

Turkey is willing to step in but there are many issues to be sorted. At this point in time we can be reasonably sure that this is going to take a long time