The Geopolitics of Mediterranean Natural Gas
Over the last two decades, a series of major natural gas discoveries in the eastern Mediterranean have had a profound impact on the international relations of the region. Even more significantly, the geologic evidence suggests that these discoveries are just the beginning of a Mediterranean-wide hydrocarbon bonanza that could significantly transform the geopolitics of the region.
The Mediterranean Sea was formed about 30 million years ago when the African continental plate collided with the Eurasian plate. The two plates are still colliding, which is why the region is so prone to seismic and volcanic activity.
Technically, the Mediterranean is a gulf of the Atlantic Ocean. The eight-mile-wide Strait of Gibraltar connects the Mediterranean to the Atlantic. In addition to acting as a shipping lane, the strait has another important function: It permits the inflow of Atlantic waters into the Mediterranean.
Evaporation results in the loss of roughly six feet of water per year in the Mediterranean. Inflows from the Black Sea and the rivers that ring the Mediterranean, along with rainfall, make up about two feet of that loss. The remaining deficit is made up by inflows of Atlantic waters. Without that inflow, the Mediterranean would largely dry up in less than a millennium -- a long time by human historical standards, but not even an instant in geologic time.
The continued collision between the African and Eurasian plates has from time to time blocked the Strait of Gibraltar, resulting in a cycle of emptying and filling. It's believed that the Mediterranean has dried up dozens of times over its history, only to be refilled again when Atlantic waters returned. The last time the Mediterranean was refilled was approximately five million years ago.
The result of these tectonic forces is a complex geology across eight different sub-basins, featuring metamorphosized sedimentary rocks of sandstone, limestone and shale; marine carbonates; and thick layers of evaporates. Combined, they create a perfect environment to host oil and gas deposits.
Hydrocarbons in the Mediterranean
Notwithstanding that the North African countries ringing the southern shore of the Mediterranean are all hydrocarbon producers, the Mediterranean region has been only lightly explored. Estimates of the region's hydrocarbon potential have ranged from North Sea-sized reserves to potentially holding as much as 50 billion barrels of petroleum, or BOP, and upward of 500 trillion cubic feet, or TCF, of natural gas. The latter number is roughly comparable to U.S. continental reserves.
To date, the major discoveries have been in the Nile Delta and the Levantine Basin. The latter encompasses a broad area north and east of the Nile Delta -- up to the southern portion of Cyprus and extending to the eastern Mediterranean coast. According to the U.S. Geological Survey, these two regions alone have estimated reserves of 345 TCF of natural gas and upward of two billion barrels of oil.
The discovery of the Noa field (1999) and the Mari-B field (2000), both of which were relatively modest in size, ushered in a series of major gas discoveries: Tamar and Tamar SW (Israel/2009/11 TCF), Leviathan (Israel/2010/21.5 TCF), Aphrodite (Cyprus/2011/4.5 TCF), Zohr (Egypt/2015/30 TCF), Calypso (Cyprus/2018/6-8 TCF) and Glaucus (Cyprus/2019/5-8 TCF). Combined, these six fields contain more than 80 TCF of natural gas. Since the Levantine Basin has not been fully explored, and there are seven other sedimentary basins in the Mediterranean that have been even less explored, the estimate of 500 TCF of gas may prove to be unduly conservative.
The Israeli and Cypriot discoveries were made in a type of sandstone deposit that is widely found throughout the Mediterranean. The Egyptian discovery was made in carbonates, similar to the carbonate reef structures that hosts many of Libya's onshore oil fields. Tight limestone and shale deposits, like the source rock that was economically developed by American frackers, are also widely present in the Mediterranean and could represent another potential store of hydrocarbons.
Moreover, at least in the Levantine Basin, the chemical analysis of the natural gas discovered suggests that there may be even deeper deposits of both biogenic and abiogenic gas present. There has been virtually no ultra-deep offshore drilling in the Mediterranean region. In short, the hydrocarbon potential of the Mediterranean Sea might be orders of magnitude greater than even the most optimistic assessment.
Mediterranean Geopolitics and Natural Gas
The discovery of large deposits of natural gas in the eastern Mediterranean has already had a wide-ranging geopolitical impact. If these discoveries continue, and the region's hydrocarbon potential is borne out, the consequences will be even more dramatic.
The Leviathan and Tamir discoveries have transformed Israel from a net importer of hydrocarbons to a net exporter. Likewise, the Zohr field, when fully developed, will also make Egypt a net exporter of gas. The Levantine gas discoveries have also led to a close working relationship and a pronounced warming of Israel's relations with Greece and Cyprus. Historically, both of those countries tended to side with the Palestinian Authority and often had frictions with the Israeli government.
For Jerusalem, the export of Israeli gas to its neighbors and its potential involvement in gas exploration elsewhere in the Mediterranean could give it significant diplomatic leverage and lead to an improvement in its relations with many of its Mediterranean neighbors, as well as export access to markets in the Middle East and North Africa region.
Major gas discoveries in their respective portions of the Levantine Basin also could revitalize failed states like Lebanon and Syria. Alternatively, the prospect of a massive hydrocarbon windfall could also catalyze sectarian violence there.
Egypt has some liquefied natural gas, or LNG, export capacity, and Cyprus is building additional LNG export facilities. But pipelines are the cheapest and best way to link up with Europe's existing natural gas infrastructure. The European Union, or EU, consumes roughly 16.6 TCF of gas yearly; it is the logical outlet for the region's natural gas exports. Currently, the EU gets 40% of its gas from Russia, 30% from domestic sources and 25% from Norway/the North Sea. The balance comes from LNG imports and North Africa. With North Sea and domestic gas production rapidly declining, Russia has been poised to sharply increase its share of European gas imports.
In 2019, Cyprus, Egypt, France, Greece, Israel, Italy, Jordan and the Palestinian Authority organized the Eastern Mediterranean Gas Forum, or EMGF. The EMGF is an intergovernmental organization based in Cairo, mandated to increase natural gas exports from the region. The organization is also taking the lead in formulating a consensus on which pipelines to Europe will best suit its needs. The U.S. and EU have observer status on the EMGF.
Italy has played an important but generally sub-rosa role in the development of the Mediterranean's gas reserve. ENI, Italy's state energy company, is the operator of the Zohr gas field in Egypt. It's likely that most of the Mediterranean's gas exports will flow through Italy to connect with the rest of Europe's gas grid. Italy has also been extensively involved in the exploration for hydrocarbons in North Africa, especially off Libya's shores -- a region ENI knows well and whose hydrocarbon potential has barely been scratched.
Conspicuously absent from the EMGF are two countries that could be significantly affected by the development of Mediterranean natural gas: Turkey and Russia.
Turkey's gas consumption has tripled over the last two decades and is continuing to grow rapidly. It can supply only about 1% of its needs from domestic sources, however. Roughly half of Turkey's gas comes from Russia; 18% comes from Iran; and 11% comes from Azerbaijan, with the balance from miscellaneous sources.
The amount of Russian gas Ankara imports is relatively easy to expand, but Ankara is also wary of growing too dependent on Moscow for its energy needs. There are significant reserves of natural gas in Central Asia, Iran and Iraq, but tapping into those supplies will likely require additional pipelines. The Caspian Sea-Azerbaijan-Georgia Route is the most reliable politically but requires crossing extremely rough terrain.
Moreover, Turkey believes that it can garner significant diplomatic and economic leverage by positioning itself as an energy hub between Europe, Russia and central Asia. There are more than half a dozen pipelines that bring gas from Russia and Central Asia to Turkey, and from there on to Europe.
Ankara has proposed an Israel-Turkish pipeline to move gas from the Levantine Basin to Turkey. Given its growing energy demand and its proximity, Turkey is a logical market for east Mediterranean gas. Neither Israel, Egypt nor Cyprus, three countries with which Ankara has had particularly difficult diplomatic relations, have supported the idea, however. Instead, they have proposed the East-Med pipeline to bring the gas to Greece and there connect it with Italy and the rest of the European gas grid via the Trans-Adriatic Pipeline.
Turkish President Recep Tayyip Erdogan has expressed his concern that if significant quantities of Mediterranean gas flow to Europe, Turkey's role as an energy hub could be marginalized. That's why he has insisted that, without Turkish participation, it will be impossible to fully develop the eastern Mediterranean's gas reserves.
Turkey is not a signatory to the United Nations Convention for the Law of the Sea, or UNCLOS. It therefore does not recognize the exclusive economic zones mandated by UNCLOS for maritime nations. Moreover, Ankara does not recognize the legitimacy of the Republic of Cyprus or its claim on the territorial waters that surround it. Additionally, the Turkish government believes that islands, such as the Greek islands in the Aegean Sea, should not be entitled to exclusive economic zones, and that the claims of larger maritime states should take precedence over those of small islands.
Furthermore, Ankara in recent years has repeatedly advanced the concept of Blue Homeland (Mavi Vatan). The term is shorthand for Ankara's contention that the 1920 Treaty of Sevres, which ended the hostilities between the Ottoman Empire and the Allied powers, improperly stripped Turkey of many of its historic island and maritime possessions in the Aegean and eastern Mediterranean. The restoration of those possessions would allow Turkey to put an additional 178,000 square miles of the Mediterranean Sea under Turkish control.
Turkey has followed an increasingly aggressive foreign policy in the eastern Mediterranean. It has dispatched drilling ships accompanied by Turkish navy ships to waters claimed by Cyprus, and on one occasion to drill in blocs that had already been leased by the Cypriot government to foreign oil companies.
In November 2019, it reached an agreement with the Tripoli-based Government of National Accord, or GNA, under which it would supply troops and armaments to the GNA in return for opportunities to invest in the Libyan oil sector. As part of that agreement, Ankara and the GNA agreed on a demarcation of territorial waters between the two countries along a diagonal that ran from Derna to the Egyptian border in eastern Libya, across to the southwest corner of Anatolia from Marmaris to Antalya between Libya and Turkey. The region cuts across Greece's Exclusive Economic Zone as set out in UNCLOS.
The agreement was condemned by scores of Mediterranean nations, as well as the U.S. and the EU. The Libyan parliament in Tripoli refused to ratify it. On Jan. 27, 2021, the Turkish-GNA memorandum on maritime zones was canceled by the Al Bayda Court of Appeals of Libya. The Turkish government, however, has continued to insist that the agreement is a valid demarcation of Turkish-controlled waters.
Turkey's aggressiveness toward its Mediterranean neighbors has led to a deterioration in its relations with the EU, in particular with France, and risks further diplomatically isolating Ankara.
There is no question that the development of the Levantine gas fields will be easier with Turkish cooperation. Israel, Cyprus and Egypt, however, are resisting Turkey's attempt to deal itself into the development of those gas fields. Turkey has hinted that it will block the laying of the East-Med pipeline, and may dispatch military forces to do so. A confrontation will only further isolate it and likely precipitate a confrontation with the EU, and possibly even with the U.S.
To date, Russia has played a minor role in the development of the Levantine Basin gas fields. Russian state energy companies have offered to help finance the development of the Cypriot gas fields, but otherwise it has not played a visible role.
Notwithstanding the significance of the Mediterranean gas discoveries, they pale in comparison to the EU's gas consumption and Russian exports. The EU consumes about 16 TCF of natural gas per year, about 40% of which comes from Russia. The Levantine Basin gas fields represent about a five-year supply for the EU and a 12-year supply of Russian imports.
Russia is banking that its gas imports to the EU will rise as the North Sea fields and Europe's own onshore gas production declines. The main challenge to Russian plans is either the growth of LNG exports to Europe, from either the U.S. or the Persian Gulf, or a significant increase in gas from the Mediterranean basin. If the Mediterranean's other sedimentary basins have a similar geology to the Levantine Basin, the region could be on the cusp of a prolonged natural gas boom.
The EU has expressed its concerns in its policy on the "security of energy supply," where it diversifies its energy sources lest it become dependent on Russian gas. That policy will limit the growth of Russian gas exports and likely also put a damper on pricing, regardless of what happens with the Mediterranean's gas boom.
There are political issues that will need to be overcome. Most of the southern fringe of the Mediterranean is politically unstable. Libya is still in a civil war. Tunisia and Algeria could well slide into one also. Many maritime boundaries have not been completely delineated, in particular the waters around Libya and portions of the Adriatic's Balkan coast. France and Spain currently have a moratorium on offshore hydrocarbon development in the Mediterranean, although the prospect of major gas finds could well lead to a reversal. Turkey's foreign and energy policy in the eastern Mediterranean is potentially destabilizing in the region and may trigger a confrontation with one or more of its maritime neighbors.
The two other wild cards in the region are the U.S. and China. Both have played a minor role to date. Under the Trump administration, the U.S. pushed the EU to take American LNG in lieu of Russian gas. Given its climate policy, the Biden administration is unlikely to aggressively push LNG exports. The U.S. has been supportive of developing the hydrocarbon resources of the eastern Mediterranean, seeing it as a way of economically strengthening both Israel and Egypt, two important American allies in the region, even though Mediterranean gas will compete with U.S. LNG exports.
China has not been directly involved with the development of Mediterranean gas resources. Gas reserves in Central Asia and the Middle East are closer to China and easier to access and transport. Through its Belt and Road initiative, Chinese state companies have invested heavily in infrastructure projects in the Mediterranean region. These projects include a wide range of investments in port facilities and industrial sites throughout the Mediterranean.
In particular, Shanghai International Port Group has acquired a 25-year contract to manage the Port of Haifa, while China Harbor Engineering is building a new port terminal in Ashdod, Israel. Chinese shipping conglomerate COSCO has acquired a 51% interest in Noatum Port Holdings, which in turn owns, among other things, container terminals in Bilbao and Valencia, Spain. It has also acquired a 67% interest in Greece's Piraeus Port and, along with Qingdao Port International, has invested in the Vado Ligure Container terminal in Italy. Euro-Asia Oceangate acquired a 64.5% interest in Kumport Terminal in Ambarli, at the mouth of the Bosporus Strait on the Black Sea. Collectively, these investments represent an expenditure of around three billion euros.
Mediterranean gas will likely move to European markets across pipelines, but the Mediterranean-wide development of the region's gas resources will be a boom to port facilities and industrial sites. The cost of developing the six major gas fields in the Levantine Basin will run between $20-$25 billion. A Mediterranean-wide gas boom could result in upward of $100 billion of new energy-related investment in the region.
The Mediterranean's natural gas boom is real. What remains to be seen is whether the region's other sedimentary basins will be equally prolific. If they are, the Mediterranean could well develop into a major supplier of natural gas to Europe to the detriment of Russia's gas exports and, to a lesser extent, America's LNG export plans.
Such a development would shower the smaller Mediterranean countries like Cyprus, Malta, Albania or Croatia with a gigantic hydrocarbon windfall. It could also facilitate the rebuilding of failed states like Lebanon and Syria. It will lead to new alignments and coalitions, but it will also likely spur conflict between those countries fortunate to have a piece of the natural gas cornucopia and those that don't.
Hydrocarbon riches are a double-edged sword that could create more social conflict in weakly governed states, especially those along the North African rim.
Turkey poses a particular challenge. In Ankara's case, the discovery of natural gas has galvanized an already increasingly revanchist foreign policy, and may lead toward a more confrontational stance between Turkey and its maritime neighbors.
Simply put, the Mediterranean's gas boom will create many economic opportunities but also new risks to the region's stability.