Sean Mathews
Middle East Eye / May 29, 2023
Israel could back downsized Eastern Mediterranean pipeline in bid to reduce reliance on Egyptian LNG facilities.
Cyprus is making a new push to cement energy ties with Israel, as the dust settles from a string of elections in Turkey and Greece which will set the agenda in the Eastern Mediterranean for years to come.
Representatives of oil and gas giants from Chevron to Eni and Total are convening Monday and Tuesday in Nicosia to hear the Cypriot governments’ pitch for a pipeline that would link Israel with Cyprus, where gas will be liquefied and exported abroad to Europe.
“The Cypriot move to discuss this pipeline right now is a very clever one,” Michael Harari, Israel’s former ambassador to Cyprus, now a fellow at Tel Aviv-based think-tank, Mitvim, told Middle East Eye.
Turkey is fresh off elections that saw President Recep Tayyip Erdogan extend his rule into a third decade. Meanwhile, in Greece, Prime Minister Kyriakos Mitsotakis trounced rivals in parliamentary elections that set his centre-right party up for a comfortable lead in a June run-off.
The results provide clarity on who will be at the helm at two regional centres of power that have big stakes in Cyprus, an ethnically divided island that has long been a focal point of regional rivalries. Cyprus is split between a mainly Greek internationally recognized government in the south and a Turkish-Cypriot government in the north recognized only by Ankara.
“Cyprus clearly wants to set the political agenda in the Eastern Mediterranean before the formation of new governments in Turkey and Greece,” Gabriel Haritos, a Jerusalem-based expert on Greek-Israeli ties at the Hellenic Foundation for European and Foreign Policy (Eliamep), told MEE.
Tensions between Turkey and Greece cooled during their election seasons. In a recent interview, Erdogan said he hoped for a “new era” in relations with Athens. Israel has also moved to patch up ties with Ankara and was quick to congratulate Erdogan on his win.
Cyprus, however, has been left out of the thaw. This month Turkey criticized the US for dispatching a warship to the island.
“Cyprus wants to send a message to its neighbours that no matter what happens, it is in lockstep with Israel and that Athens and Ankara can take it or leave it,” added Haritos, who is the author of an upcoming book on Israeli-Cypriot relations.
‘Cypriot smoke and mirrors’
But Cyprus will have to convince skeptical energy companies, after a decade of stalled efforts to tap gas deposits in the Mediterranean, its plan can attract foreign investment, cut through red tape, and navigate a fraught geopolitical environment.
“We’ve seen this story before and it smells like smoke and mirrors from the Cypriots,” a Mediterranean energy executive told MEE on condition of anonymity to discuss the sensitive talks. “Could this be a game-changing moment? Maybe.”
The Cypriot plan downsizes the proposed 1,900km Eastern Mediterranean pipeline which aimed to link Israeli gas fields to Greece and Italy. Energy companies balked at the $6bn price tag while the plan faced geopolitical pushback from Turkey and resistance in the US.
The Israeli-Cypriot link would run just 320km and cost $489m, sending gas to a liquefaction plant off the Cypriot coast which the government estimates would cost an additional $1.1bn.
Michali Mathioulakis, academic director of the Greek Energy Forum, told MEE the switch was “long overdue” and the cheaper price tag made it a more attractive option. He estimates a floating liquefaction facility could produce around 2-3 billion cubic metres (bcm) of gas annually, compared to the 10bcm envisioned for the Eastern Mediterranean pipeline.
“Israel can’t export big quantities,” he told MEE. “They need something that can take minimum amounts of gas but give them the benefits of sending LNG to the European Union.”
“A floating LNG energy terminal in Cyprus puts them in a sweet spot,” he said.
But Leslie Palti-Guzman, CEO of Gas Vista, told MEE that even with lower volumes, the project faces an uphill battle.
“Cyprus does not have enough gas to do this on its own, so it needs buy-in from Israeli companies,” she said, “but they have signaled their priority is the Israeli domestic market first, followed by exports to Jordan and Egypt.”
‘Israel needs another option’
Israeli gas production hit a new record in the first quarter of 2023, as the country received a boost with the Karish field coming online after it struck a maritime demarcation deal with Lebanon in October.
Eastern Mediterranean gas has seen renewed interest as Europe looks to wean itself of Russian energy, and both Israel and Egypt have emerged as net energy exporters.
Israeli gas is currently piped to Egypt where it undergoes liquefaction at facilities in Idku and Damietta along with gas from Egypt’s Zohr field. The two countries signed an agreement last year to boost LNG exports to the European Union. The top destinations for Egyptian gas exports the past year have been Turkey, followed by Spain and Italy, according to Gas Vista data shared with MEE.
Egypt has forged close ties with Greece, Cyprus and Israel and is home to the Eastern Mediterranean Gas Forum. In 2020, it signed a maritime demarcation deal that helped Athens rebuke an agreement Turkey made with Libya’s Tripoli-based government. But Cairo’s ability to position itself as an energy hub to Europe is limited by high domestic demand for cheap gas from its 100 million-strong population.
Still, the Cypriot proposal has led to some grumbling in Cairo, which has benefited from having the only LNG processing facilities in the region, two regional diplomats told MEE.
“Right now for Egypt, the status quo is perfect,” a senior regional diplomat told MEE on condition of anonymity. “Egypt does not want any added competition.”
But that also makes the Cypriot proposal more attractive for Israel, experts say.
“If tomorrow [Egyptian President] al-Sisi is overthrown, the next day will be a nightmare for all three countries, and especially for Israel,” Haritos told MEE.
“Israel needs another option,” he added. “The Republic of Cyprus is the only Middle Eastern country that is not Arab and does not have a Muslim majority.”
But the elephant in the room, according to Harari, the former Israeli ambassador, is Turkey, which invaded Cyprus in 1974 in the name of protecting its Turkish minority after a failed coup attempted to unite the island with Greece.
Although the pipeline would likely avoid waters near the Turkish-Cypriot north, Ankara has long demanded a say over how energy profits in Cyprus are used, and in 2019 it was sanctioned by the EU for unauthorized drilling in Cypriot waters.
As it moves to patch up ties with Israel, Ankara is pitching its own proposal to receive Israeli gas by a subsea pipeline.
“The Cypriot option is more attractive to Israel, but even if the government decides to go ahead with it, I think they would have to orchestrate some kind of Turkish involvement,” Harari told MEE.
Guzman says geopolitics aside, a decade of failed efforts to develop any tangible infrastructure between Greece, Israel and Cyprus should warrant skepticism about the plan. “At the end of the day, this has to be a commercial project and not just political.”
Greek-owned Energean created a local buzz after its quarterly update in May included a map showing a pipeline linking Israel to Cyprus. The company predicted it will have surplus gas to export outside of Israel from its Karish and Tanin fields, but added that it was reluctant to make capital investments.
In order to obtain financing, Cyprus and Israel would need to strike a long-term supply contract. The project would also be subject to EU rules that include unbundling regulations which aim to separate ownership of processing facilities from upstream fields and third-party access.
On Friday, Cyprus’ energy minister said the country received “positive” feedback on the pipeline proposal from Chevron, the US energy giant with a 35 percent stake in the massive Aphrodite gas field.
Cyprus discovered the Aphrodite deposits in 2011 but has failed to extract a single molecule from the field. Chevron, along with Shell and Israel’s NewMed Energy, are drilling in the area.
Despite being closely aligned, Cyprus and Israel remain locked in a dispute over the field.
“If Cyprus and Israel don’t reach a quick resolution on Aphrodite, it doesn’t bode well for pipeline talks,” Harari said.
Sean Mathews is a journalist for Middle East Eye writing about business, security and politics
