02/2018 | Reading time: 12 minutes
For the relatively hydrocarbon-poor Western and Central European countries, it is essential to guarantee energy security in the long run. One of the most evident way to do it is to diversify their energy imports. If there is a political will and the funds to match the scope of the endeavour and make strategic investments, access to these huge sources in the Caspian and East Mediterranean, until recently underexploited by the EU, is relatively easy to secure.
As the of the International Energy Agency’s definition of “energy security” suggests, “the uninterrupted availability of energy sources at an affordable price” means that access—or rather the impossibility of denying access—to vital energy resources is of prime interest of any international actor. Applying this definition to Europe, we see that, alongside the supply via maritime shipping routes (LNG) secured by the vital principle of customary international law, the freedom of navigation, the region which should be at the top of our list for go-to places for natural gas is the borderland between our continent and the Middle East and Central Asia. This region, a two-thousand-kilometre-wide strip of land between the Caspian Sea and the Red Sea, is unfortunately most commonly known for its current instability, which nonetheless does not—or at least should not—negate its position as a vital source of hydrocarbon imports to Europe. While certain areas such as Syria and North-Western Iraq are indeed in a great turmoil, it would be a mistake to take a general negative view regarding this region. Home to key states with significant hydrocarbon reserves such as Azerbaijan, Turkmenistan, Israel, and Egypt—not to mention the second tier to the Southeast, Iran, and the Gulf States—European access to these sources is relatively easy to guarantee if there is a political will and the funds to match the scope of the endeavour. As Europe aims to diversify its sources for hydrocarbon imports to guarantee the maximum degree of energy security, it is crucial to include this region in the European “sphere of energy influence,” as we shall argue.
Gasified Fruits of the Eastern Mediterranean
If there ever was a territory known for zero-sum games, it is the lands surrounding the Eastern basin of the Mediterranean Sea. The region, which connects three continents—Europe, Asia and Africa—has been home to a number of regional great powers which were struggling to expand their influence and become pan-continental empires, such as the Ottoman Empire. Currently, three powerful states define this region in a tug-of-war competition: the Republic of Turkey, the State of Israel and the Arab Republic of Egypt. Between these countries, the Eastern Mediterranean basin acts as a liquid highway with the divided island of the Republic of Cyprus, depending on political will, blocking or enabling increased interaction between the regional great powers.
Israel is a relative newcomer in the club of energy exporting countries, with gas in the Israeli Exclusive Economic Zone (EEZ) only being discovered after the turn of the millennium. In recent years, estimates of Israeli natural gas reserves have rapidly expanded towards the figure of one trillion cubic metres, of which the Leviathan gas field alone constitutes 500 billion cubic metres, with promising opportunities for further findings according to the country’s Minister of Energy Yuval Steinitz. While Israel plans to restructure its economy to rely on energy from natural gas in order to reduce the possibility of outside interference, the current consumption of roughly 10 bcm (billion cubic metres) of natural gas, expanding at an annual rate of 10%, would still potentially leave ample (more than a hundred bcm of) energy resources for export.
The second vital source of natural gas for Europe is Egypt, with the combined reserves of the Egyptian EEZ and the Nile basin. The country was a significant energy exporter until 2014, but the rapidly expanding energy needs of the populous nation could not be met due to a lack of investment in the energy production sector. This negative trend will be halted by the entry of the Zohr gas field, discovered in the summer of 2015 by the Italian Eni energy conglomerate. The Zohr supergiant gas field, which took the title of the largest gas field in the Mediterranean from the Israeli Leviathan, is estimated to hold 850 bcm, nearly doubling the total Egyptian reserves. Production is planned to begin in 2020, which could not come soon enough for the largest Arab state, currently under heavy budgetary pressure. On the other hand, beyond 2024, as LNG demand is expected to outgrow global supply, Egypt will be well positioned to reap the maximum benefits from its energy resources.
Our last case, Cyprus, is positioned (not only in the geographical sense) in the centre of the natural gas question of the Eastern Mediterranean. While previous findings were lacklustre, setting available reserves to somewhat above 100 bcm, with the discovery of Zohr adjoining the Cypriot EEZ, potential investors’ interest has picked up once again. With current reserves bordering on the minimal limit which would be economically warrant the construction of an independent LNG terminal, the three countries expressed interest to join forces and use underutilized existing LNG terminals to prepare energy resources for exports. Joint ventures are troubled by geopolitical factors, with Cyprus providing a prime case study for the issues at hand as the Republic of Turkey strongly protests against any moves that would exclude it and/or the Turkish Cypriot community. The partition of Cyprus must be solved to reap the most benefit from the already discovered natural gas reserves of the Eastern Mediterranean, although even without it, three possible methods are available to Europe to start importing and securing this vital source. The LNG infrastructure of Egypt presents the medium-term solution to the need for imports, and the country also plans to build an Israeli-Turkish pipeline and an Israeli-Hellenic-Italian pipeline, which would reach the shores of Europe in the Southern-Balkans and later the Italian peninsula. One must also note that, since natural gas is used not only based on economic interest, but diplomatic positioning, countries such as Israel also plan to use their reserves to cement their relations with their neighbours and partners in this unstable region. Therefore, the European Union, interested in creating a “sphere of energy influence” on its borderlands, would be advised to use its significant political clout to support peaceful relations in the Eastern Mediterranean, reducing the amount of natural gas needed for diplomatic manoeuvres and centralise the maximum amount of energy reserves for its own use. This European interest is in line with the Cypriot understanding of the “natural process” of broadening its existing trilateral frameworks of cooperation between Greece, Cyprus and Egypt, Israel, Jordan and the Palestinian Authority respectively, into a regional, Eastern Mediterranean body. Such an initiative, focusing on the hydrocarbon resources, could, as envisioned by Nicosia, become the region’s own “European Coal and Steel Community” leading to deepening regional peace and prosperity.
An Energy Belt through the Caspian
The hydrocarbon resource-rich Caspian Sea basin has long been a focus of geostrategic thinking and this interest has specifically been on the rise since the dissolution of the Soviet Union. The growing attention of the international community towards the region gave birth to a sort of “great game for energy.” The latter expression refers to the analogy of the great powers’ struggle for control of Central Asia during the 19th century. In the current discourse, the focus has been shifted slightly to the western edge of Central Asia, namely to the Caspian Sea, as a consequence of the enormous hydrocarbon discoveries. The access to Caspian-origin hydrocarbon resources has rapidly become a key interest of the European Union (among others), and these potential supplies were identified as tools for creating greater energy security for Europe and balancing the share of Russian hydrocarbon in European imports. If we narrow the analysis to natural gas, there are several important initiatives and projects around the Caspian Sea basin, which are not only to be assessed from the aspect of business, but also within a wider geopolitical framework. The EU’s determination to import natural gas from the Caspian Sea basin will give birth to pipeline projects and, at the same time, will endow transit countries with specific geopolitical advantages. Turkey is a typical example. Looking at the big picture, Azerbaijan, Turkmenistan, and Iran are the countries in the Caspian Sea basin that most frequently appear in the European discourse as potential sources of additional natural gas supplies. The likelihood of the utilization of these supplies varies greatly—or, at least, potential projects stretch over a longer timescale. In an era when energy security becomes an increasingly determining factor in international relations, it is vital to break down this overall analysis into case studies focusing on each country that plays a significant role in these regional natural gas dynamics.
Historically, Azerbaijan was considered a strategic territory due to its oil reserves. Recently, this image has become amended or even redrawn by the discourse on Azerbaijani natural gas. Nowadays, Azerbaijan is being widely considered one of the most probable alternative source countries in Europe’s energy diversification plans. The discovery of Azerbaijan’s largest natural gas field, Shah Deniz (situated approximately 70 kilometres from Baku), in 1999, was a milestone that made Azerbaijan a potential key player in the eyes of European countries. Azerbaijan’s geostrategic strength can be identified in its position as a point of departure for oil and gas exports; however, it should be noted that Azerbaijan’s natural gas reserves are highly exceeded by the ones of Iran, Turkmenistan or Qatar. The South Caucasus Pipeline, which has carried natural gas to Turkey since late 2006, is now undergoing capacity expansion. According to the plans, the second stage of the Shah Deniz project will allow Azerbaijan to add an additional 16 billion cubic metres of natural gas annually to its current export via the South Caucasus Pipeline and its connecting pipelines that are currently under construction. Compared to the natural gas fields in the Eastern-Mediterranean, LNG developments are hardly possible in case of Azerbaijan, due the landlocked nature of the Caspian Sea, and therefore the focus is on the pipeline deliveries.
Turkmenistan’s potential role in Europe’s natural gas supply has long been on the agenda. Statistics show that Turkmenistan sits on the world’s fourth largest natural gas reserves. The country’s export portfolio has undergone significant changes in the past few years: Its main export markets were Russia, Iran and China but its gas relations with Russia eventually went downhill, resulting in the total disruption of its gas trade. Previously, natural gas from Turkmenistan could reach European markets, since Russia imported and then re-exported it to European markets. Since the break-up of this gas tie, Turkmenistan’s primary option has been to sell its natural gas to China via its existing pipeline and to sell it to Iran. An undersea Trans-Caspian pipeline linking Turkmenistan to Azerbaijan would be a great opportunity for Turkmenistan and Europe to route Turkmen gas towards Europe. However, without settling the legal regime of the Caspian Sea, such an infrastructural development is hardly possible, as all littoral states’ consent would be needed for such an investment, which seems to be fairly problematic. Therefore, the establishment of Turkmenistan’s natural gas window to Europe is still questionable despite an active dialogue among the parties, the main basis of which is the Memorandum of Understanding and Cooperation in the field of energy between Turkmenistan and European Union, signed in 2008.
Iran, bordering the Caspian Sea from the south, not only possesses the second largest known natural gas reserves, but also shares the largest natural gas field in the world with Qatar. The lifting of international sanctions against Iran in early 2016 has definitely given a boost to the country’s reintegration into the world economy, and this can become especially relevant in the field of energy. Iran’s current natural gas production is mostly fed into its domestic gas grid and its real export capacities have remained unutilized until now. Although Iran is the second largest supplier of Turkey, it has not developed other extensive exports. Despite the enormous reserves of the country, so far its natural gas has been mostly used for meeting domestic demand. It is imperative to highlight that Iran’s energy infrastructure needs a significant upgrade, and thus there is a need for foreign investments to boost and modernize the country’s production capacities, such as to build its export channels inclusive of pipelines and LNG facilities. Apropos of the Iranian presidential elections in May 2017, it is important to point out that Hassan Rouhani’s re-election is seen from the EU as a sign of openness towards Europe, as well as the expectation that there will be further opening, which might play key role in the future in dealing with potential natural gas flows from Iran to the European Union, for instance via the TANAP pipeline, which might be able to carry Iranian gas once the necessary infrastructure is in place. Accordingly, Iran appears not only as a potential source of extra supplies to Europe in the long term, but also as a place for lucrative business for European energy giants that can invest in the development of the Iranian energy sector.
Although Turkey’s position is different from the aforementioned scenarios, it is worth having a look at. Turkey is poor in hydrocarbon resources and imports 99% of its natural gas consumption. Despite this vulnerable position, Turkey’s strength can be identified in its strategic location. As highlighted in the official Synopsis of the Turkish Foreign Policy, Turkey is an emerging energy terminal and transit state playing a vital role with respect to European and global energy security. Thus, Turkey has gained greater significance in energy security-related discourse, and the country’s territory has been chosen as a location to accommodate various pipeline projects. At the same time, Turkey’s transit role has to be assessed in a reflective way. A strategically important crude oil pipeline— namely the Baku–Tbilisi–Ceyhan pipeline—enables oil export from the Caspian Sea via Georgia to Turkey and further to the world market. The South Caucasus Pipeline already became operational a decade ago.
The latter is the infrastructure that carries Azerbaijani natural gas to the East of Turkey. However, the great breakthrough in the field of natural gas is still yet to come, as Caspian natural gas still lacks the infrastructure that would enable its flow to Europe. The nearly decade-long planning of the Nabucco pipeline was not crowned with success, and its failure compelled its signatories to look for alternative solutions. This situation may be changed by the Trans-Anatolian Pipeline (TANAP) and its continuation, the Trans-Adriatic Pipeline (TAP). The TANAP, running through Turkey with a length of 1850 km, is currently under construction, and promises to be a crucial export channel of Azerbaijani natural gas to Europe. Moreover, it will be considered Turkey’s strategic contribution to European energy security. This role might be further strengthened after the initial capacity of 16 bcm per annum is upgraded according to the plan in order to enable the pipeline to carry extra quantities towards Europe.
Opening pic source: Shutterstock
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