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Energy Resources in the Eastern Mediterranean: Source for Cooperation or Fuel for Tension

Energy Resources in the Eastern Mediterranean: Source for Cooperation or Fuel for Tension

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This Brussels Forum paper examines the implications of natural gas and oil discoveries in the Mediterranean.
This Brussels Forum paper examines the implications of natural gas and oil discoveries in the Mediterranean.

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Published by: German Marshall Fund of the United States on Mar 21, 2012
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03/21/2012

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Summary:
The discovery of 
large gas elds off the shores
of Israel and Cyprus could bring 
great benets in terms of energysecurity and economic gainsbut also geopolitical dilemmas.A number of factors complicatethe situation, including thestate of war between Lebanonand Israel, the conict betweenIsrael and the Palestinians, theCyprus question, and the factthat Turkey contests existing maritime boundary demarcationagreements. The exploration anddevelopment of gas reservesposes challenges in termsof infrastructure, nancing,security, environmentalprotection, revenue sharing, andpolitical relations among theparties concerned. The Republicof Cyprus, Turkey, Israel, andLebanon have staked claims,some of which conict. The EUand the United States have aninterest in preventing escalationand in ensuring that new energyresources are developed for thebenet of the region as a whole.
Energy Resources in the EasternMediterranean:Source for Cooperation or Fuel for Tension
by Michael Leigh and Charlotte Brandsma
1744 R Street NWWashington, DC 20009T 1 202 683 2650F 1 202 265 1662E ino@gmus.org
March 2012
Paper Series
Te discovery o large gas elds o the shores o Israel and Cyprus hasdrawn attention to new opportuni-ties and risks in the eastern Medi-terranean region. For the countriesin the region — historically heavily dependent on energy imports — thedevelopment o these elds oersgreat benets in terms o energy security and economic gain. It alsoraises a number o geopoliticaldilemmas, which are examined inthis paper.When the resources come onstream, Israel will no longer dependon vulnerable lines o supply acrossSinai rom Egypt, now subject torequent terrorist attacks, and willbe independent in its overall energy balance. Lebanon, too, could haveimproved access to energy supplies,reducing its economic dependenceon Syria. Te Palestinians couldpotentially benet rom resourceso Gaza, which are huge in propor-tion to their economy. Te discovery o signicant reserves in “Block 12”o the coast o Cyprus, close to Isra-el’s very large Leviathan eld, couldtransorm the island’s economy and greatly improve its precariouscapacity to generate electricity.Te countries concerned will aimor export markets i the amount o gas available exceeds their growingdomestic needs. At a time o increased demand or oil and gas,the eastern Mediterranean couldbecome an important new source o hydrocarbons or potential partnersin the Middle East, Europe, andAsia.Under the 1982 United NationsConvention on the Law o the Sea(UNCLOS), coastal states havethe right to explore and exploitnatural resources in their exclusiveeconomic zone (EEZ), extending200 nautical miles rom their coastalbaselines. When states have coaststhat generate overlapping zones,they must delimit their EEZ bilater-ally by applying the principle o themedian line and drawing the lineat the midpoint between the twostates.However, in the eastern Mediterra-nean a number o actors complicatethe situation, including the state o war between Lebanon and Israel,the conict between Israel and thePalestinians, the Cyprus question,and the act that urkey (not asignatory o UNCLOS) rejects theprinciple o the median line, preer-ring the principle o equity.Te exploration and developmento gas reserves raises questions interms o inrastructure, nancing,security, and political relations
 
2
among the parties concerned. Te Republic o Cyprus,urkey, Israel, and Lebanon have staked claims, some o which conict.Te situation is urther complicated by the division o Cyprus. Recent energy discoveries have added anothercontentious issue to eorts to nd a comprehensivesolution to the Cyprus question. Any escalation o conict over resources would cast a shadow over urkey’saltering EU accession process. Troughout the region,the question o ownership o resources and the demarca-tion o maritime boundaries has become an additionalsource o tension, shaping new alliances and ueling oldconicts.
Resources
Egypt was the rst country in the region to begin todevelop its gas reserves early in the 20
th
century. It is nowan important source o gas or Israel and Jordan, thoughsupplies are requently interrupted. A gas eld wasdiscovered o the coast o Gaza over a decade ago. Butit has not been developed because neither Israel nor thePalestinian Authority is ready to give its approval undercurrent political circumstances.Te stakes are high: according to the 2010 U.S. GeologicalSurvey (USGS), the Levant Basin Province (stretchingrom the Jordan River out to sea rom Israel, the WestBank, Gaza, Lebanon, and Syria) may contain 122 trillioncubic eet (tc) o recoverable gas, equivalent to a year’sannual global consumption, and 1.7 billion barrels o recoverable oil (worldwide consumption o petroleumwas about 31 billion barrels in 2008). Te amounts o gaslikely to become available will not change Europe’s overallenergy balance signicantly but could raise importantstrategic and energy issues or the United States, the EU,and certain o its member states.A new phase o exploration in the Mediterranean Seastarted in 1998 o the coast o Israel. Since then, therehave been considerable discoveries, notably by the U.S.company Noble Energy.In 2004, production started at the small Mari-B eld, therst oshore natural gas production acility in Israel. Teamar eld was discovered in 2009, the world’s largestdeep water natural gas discovery o the year, with anestimated 9 tc o reserves. A very large gas eld, Levia-than, was discovered at the end o 2010, with estimatedresources o 17 tc. Israel’s latest discovery at anin (1.2tc) was announced on February 4, 2012. In 2011, NobleEnergy announced a discovery o the coast o Cyprus(‘Block 12’), located 34 kilometers west o Leviathan, withestimated resources o 7 tc.Mari-B is the only eld under production at present,providing gas or the Israeli market. Recently, suppliesrom this eld have begun to dwindle. Noa, a nearby eld, is being developed and expected to be ready orproduction by September 2012. Development drilling atamar is underway, but the ow rom this eld will notbegin until key investment decisions have been taken.Te Cypriot government has announced a second roundo tenders or 12 oshore blocks, which could hold a total100 tc o natural gas as well as considerable quantities o oil. It is expected that signicant reserves will be oundo the coast o Lebanon and, perhaps, Syria. Lebanon,however, has been slow to begin the process leading tothe granting o licenses or exploration and production.
Israel-Lebanon
Lebanon contests the maritime boundary agreementconcluded by Cyprus and Israel in 2010, delimitatingthe two countries’ EEZs. Lebanon considers that thezone attributed to Israel absorbs part o its own EEZ. Adisputed area covering 850 square kilometers may wellcontain considerable resources. In September 2010,Lebanon submitted an outline o its southern maritimeboundary with Israel and its southwestern boundary withCyprus to the UN Secretary-General. Israel responded by proposing its own line, 17 kilometers north o Lebanonsclaim. Israel has demanded that any eorts by the UN toresolve the issue should also include the Lebanon-Israelland border, a demand that Lebanon rejects.In present circumstances, it appears unlikely that the twoparties, who are in a state o war with each other, wouldaccept mediation under UN auspices. It would requiremuch diplomatic ingenuity and political will to nd away to resolve this dispute through third party media-tion. Current drilling in the Israeli EEZ does not involveblocks that overlap the disputed area, and Lebanon hasyet to issue licenses or exploration. Nonetheless, thisdispute has the potential to provide another source o tension between the two neighbors.
Turkey-Cyprus-Israel
urkey also challenges the maritime boundary agreementbetween Israel and Cyprus. In response to the signing o the agreement in 2010, urkey declared that the govern-ment o the Republic o Cyprus should not sign interna-tional agreements or start exploratory drilling without a
 
3
solution to the division o the island. urkey considersthat any oshore resources should benet both islandcommunities. Te government o the Republic o Cyprusshares this view but is unwilling to suspend explorationand development until a solution to the Cyprus question,that has long proved elusive, is ound.When the Republic o Cyprus started exploratory drillingin September 2011, urkey protested and concluded anagreement with northern Cyprus authorizing urkey toexplore or gas in sea areas adjacent to Cyprus. urkey sent its own research vessel to conduct explorations inthe area, threatening to deploy naval vessels to protectit. urkey does not recognize the EEZ established by theRepublic o Cyprus and itsel lays claim to economicrights in sea areas both north and south o the island.In November 2011, urkey announced an agreementbetween PAO, the national oil company, and RoyalDutch Shell, to start exploration o urkey’s Mediterra-nean coast, very close to the Levant basin.Cyprus’s publication o a new international tender inFebruary 2012 led to a strong reaction rom Ankara.Te oreign ministry issued a statement challenging theentire basis or Cyprus’ establishment o an EEZ and thelegality o the tender. It gave severe warnings to compa-nies responding to the tender that they could be broughtinto conrontation with the northern Cyprus authoritiesand with the urkish Petroleum Company. urkey alsowarned about an escalation o tensions in the region.Tere is a risk o incidents at sea and o other escalations.Tere has been a rapprochement between Israel and theRepublic o Cyprus, and, indeed, Greece, ollowing thedeterioration o each country’s relations with urkey,especially aer the Gaza otilla incident.Cooperation in the energy eld could be benecial orboth countries: Israel oers the military capacity toprotect oshore acilities and a capital market or invest-ments. Cyprus, as a member state o the European Unioncould establish a link between Israel and EU energy networks; it has land, which could be used or onshoreliqueed natural gas (LNG) acilities, and an attrac-tive tax regime. Both countries have a strong interest indesalinization, which is highly energy intensive, and is aeld in which Israel has considerable experience.During a visit to Cyprus by the Israeli Prime MinisterBenjamin Netanyahu in February 2012, cooperation onthe development o their respective resources was highon the agenda. An agreement was signed on deensecooperation, giving Israeli aircra and ships access toCypriot airspace and territorial waters. Israel is ready toprovide military support, i necessary, to protect Cypriotgas installations. urkey reacted sharply stating that itwould not allow oreign oil and gas companies to drillin the area and that it would take all necessary action toprotect its rights and interests.Tere has been considerable speculation about theurther development o energy-related cooperationbetween Israel and Cyprus. Gas rom the two countries’elds could be processed or export at LNG acilities tobe built on-shore either in Israel or in Cyprus. Tis wouldrequire a pipeline to be built rom the gas elds to eithercountry. Alternative suggestions have included electricity cables rom Israel to Cyprus and rom Cyprus to Greece.Tis would, however, require large-scale investments. Itis not clear whether the private sector would be ready tonance such investments.Te gas issue has urther contributed to political realign-ment in the region, which began with Israel’s opera-tion Cast Lead in Gaza in January 2009. Te markeddeterioration in relations between Israel and urkey hasencouraged Israel to develop its relations with Cyprusand Greece, in many elds including energy. Nonetheless,despite present difculties, observers in Israel and urkey consider that the two sides still have reasons to restoregood relations in the medium term.Te threat o a militarization o rival claims to the zonearound Cyprus has abated, at least or the present. It isto be seen whether Israel’s close relations with Cyprusand Greece create an additional obstacle to eventualrapprochement between Israel and urkey. urkey may be concerned that any such alignment could reduce itsown role as a potential energy hub, which planners inAnkara see as a key part o its power projection in theregion.
Opportunities and Dilemmas
Te prospect o at last achieving a high degree o energy security has sparked debate in the dierent countriesconcerned about the best use o the resources oncethey are available. In
Israel
, Noble Energy, which haspioneered exploration and development, making aconsiderable investment, is eager to bring the gas tomarket as soon as possible. Meanwhile it aces a numbero hurdles in terms o Israeli policy on taxation, revenuesharing, and market competition.

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