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Chief Executive Officer, EC Natural Hydrocarbons
Senior Editor, Iraq Oil Report
Senior Director, Turkey & Turkey Programs, Atlantic Council
Nonresident Fellow, Global Energy Center, Atlantic Council
BINA HUSSEIN: So East Med has been a topic we’ve been discussing for years at the Atlantic Council—many, many years. And so, you know, I think, given the current events, it’s only logical that we’re actually discussing it again and bringing it back to the forefront, as given the current situation with Ukraine and Russia and the need for gas especially in Europe.
But throughout its history of the energy developments in the East Med, it has always been heated one way or another. While joint ventures for exploration and drilling, pipeline building and LNG export access were successfully established in some parts of the region, it continues to be overshadowed by territorial and political issues. Turkey, in the meantime, has created its own development plans, often contesting maritime claims mostly centering around Cyprus, which lies at the center of the infrastructure network—or what could be the infrastructure network, I should say.
And of course, I already mentioned it a little bit, but in the light of the current events, the current war in Ukraine and with Russia, gas is needed for Europe, and so once again making it a worthwhile topic for discussion. And I think for those of you who attended most sessions yesterday, it has become clear that gas has definitely become popular again in the past month. And while there had been momentum to pivot away in the region, everyone is now going—pivoting, actually, back.
So, Charles, let me start with you, actually, because you recently published a report on the energy developments and the geopolitics in the Eastern Mediterranean. It was published just last month. And you know, let’s maybe start with what do you see as potential opportunities for de-escalation, if there are any, or cooperation in the short to medium term?
CHARLES ELLINAS: Well, I’m glad you mentioned the report because as soon as it was written—I mean, it was prepared last year—the events in Ukraine but also the energy crisis that preceded it have changed almost everything. All the basis of the report has gone upside down. I mean, the views we had about the East Med and potential projects has changed. Projects which were not commercially viable before are coming back into the foreground. So we need to think again about it.
But in answer to your question, during the discussion perhaps you will cover these areas and show that perhaps exporting that gas is going to be a challenge still despite the changes. So what is—what can be done to help the region?
I believe we’ll go back to the idea that the future for the region is going to be to move to renewables and interconnectors joining the countries so they can not only sell electricity, but enhance the development of renewables, and then develop the gas for use regionally—somehow cooperate and develop the gas for use regionally as backup to renewables, at least during the energy transition.
BINA HUSSEIN: So how would that look like regionally?
CHARLES ELLINAS: Well, it’s—I mean, just—
BINA HUSSEIN: That means they would still have to overcome some of their issues.
CHARLES ELLINAS: There have to be some solutions to the problems, you’re absolutely right. And I’m hoping that maybe also Defne will—Defne will talk about this later on. I’m hoping that there are going to be new opportunities to look back into the Cyprus problem and get it out of the way and enable this development to happen, because ultimately there is gas off Cyprus and there is a regional need for it—I mean, in Lebanon, for example, but also in Egypt. In Egypt, Zohr—the famous Zohr gas field is not doing as well as people thought it would and no new discoveries have been made. So gas is depleting quickly, but Egypt has huge infrastructure. So all of this can be—can come together.
An interconnector has already been approved by the European Commission and with funding from the European Commission to join Cyprus with Crete. Turkey and Greece are already joined with interconnectors. Saudi Arabia and Egypt are about—are being joined by interconnectors. So that’s the beginning of a new system.
BINA HUSSEIN: And enlargening the region from—
CHARLES ELLINAS: Exactly.
BINA HUSSEIN: —from just the bordering countries, to be fair.
CHARLES ELLINAS: Exactly.
BINA HUSSEIN: And so let’s bring Defne in, because, you know, Turkey, hot topic. And you know, Charles mentioned some of the interconnectors that Turkey actually objects to, especially from Cyprus to—
DEFNE SADIKLAR-ARSLAN: Not the interconnectors, actually.
BINA HUSSEIN: The pipeline.
DEFNE SADIKLAR-ARSLAN: Yeah. Yeah, pipeline.
BINA HUSSEIN: Yeah.
DEFNE SADIKLAR-ARSLAN: So let me, you know, just talk about that. You know, as we all know—first of all, it’s great to be among friends, you know. And Charles and Kate, nice to meet you; and Bina, you know, my great colleague from Atlantic Council.
And today we will be discussing—and no need to say, you know, we are here, you know, just to give an independent view, and I’m just point out the facts that why Turkey keeps this position, you know, on their end.
BINA HUSSEIN: I think that’s important that you mention that.
DEFNE SADIKLAR-ARSLAN: Yes.
BINA HUSSEIN: What you’re saying is you’re just claiming the facts.
DEFNE SADIKLAR-ARSLAN: Yeah, exactly.
So a very quick, you know, overview so we can kick off the discussion, which I think also in line with the concept that we put on our webpage on the Global Energy Forum. As you all know, you know, Ankara and Athens disagree on the roles and extents of the islands in generating the exclusive economic zones, with the former taking a more restrictive view and the latter a more expansive view. So what I’m trying to say with that is that Turkey objects to the Republic of Cyprus—which is Cyprus—being the sole conductor of energy exploration activities in the East Med.
And Turkey’s perspective on establishing maritime boundaries in the East Med can be summed up with one word, according to their definition: equitability. Equitability is a fundamental principle of international law and is specifically established as the principle states with conflicting maritime boundary claims should adhere to in negotiating a settlement, you know, in cooperation with all sides.
And as we also know that Turkey is also—is not a part of the, you know, UNCLOS, which is the, you know, UN Convention for—Law of Sea Convention, which is put into force in 1994. And actually, Turkey, neither US, are signatory of UNCLOS. So given that—and Turkey claims that I am not a signatory to UNCLOS, so why I am, you know, forced, you know, to, you know—forced by the rules of the UNCLOS?
And another conflict is that United States is also not a signatory of the UNCLOS… And so how come, you know, US has become the, you know, observation country for the EastMed Forum? And so this is also a conflicting position for the United States, right? It is—in a way, it seemed that United States seems to be supportive of something that it is not a signatory. And Turkey objects all that scheme.
And while this is happening, another new development has been is the 3+1 scheme moving, you know, between Israel, Cyprus, and Greece, plus United States. And even United States recently said that I am pulling—I mean, this is not exactly the wording, but you know, I am—I’m not that supportive of the, you know, pipeline—of the EastMed Pipeline anymore, but let’s—you know, but I’m actually supporting the inter—you know—connectors in the—in the region. So this was—this came as a shock to the, you know, Greece and Cyprus. But on the other hand, you know, just this 3+1 scheme is moving forward very rapidly also, you know, just in Washington, D.C., and also with all countries. So this is still—
BINA HUSSEIN: Well, allow me to interrupt you. But do you truly believe that? Because more recently, you know, if you—I think it was in January there were a little bit mixed signals coming from the US administration on where they stand on the 3+1, and I think maybe the tone has changed a little bit since the Biden administration took over compared to the Trump.
DEFNE SADIKLAR-ARSLAN: What I heard in Washington, actually literally last week, was this is really moving on.
BINA HUSSEIN: OK.
DEFNE SADIKLAR-ARSLAN: OK? But on the other hand, they—you know, just they also—I mean, there are two different things going on at the same time. You know, while they are pushing this 3+1 scheme still relatedly to East Med energy, they are also, you know, just saying that we—maybe, you know, we are not that supportive of the EastMed Pipeline anymore. So I think United States, you know, just needs to give a more clear message to both countries—that’s what I am saying—both Turkey and Greece and also Cyprus, all these countries.
BINA HUSSEIN: So they are giving mixed signals continuously?
DEFNE SADIKLAR-ARSLAN: Yes. Yes, they are giving mixed signals.
BINA HUSSEIN: Yes.
DEFNE SADIKLAR-ARSLAN: And one more thing, you know, before moving on. I’d also like to underline that a lot happening, also, in the region. As you know, Turkey has been in an effort recently, you know, to normalize things with a lot of countries, and among these countries is—Israel is among them, and also even Greece. So there are a lot happening, and Turkey’s also playing this, you know, mediator role in the Ukraine conflict as well. You know, this is not about our topic, but I just want to give a clear picture that there is some positive momentum on Turkey’s side as well. So we don’t know what this will lead to, but I do expect that, you know, this will lead to something positive also on this East Med solution.
This is where I stop now so we can continue. Thank you.
BINA HUSSEIN: Yeah. OK. Thanks, Defne.
Well, let’s go to Kate because, actually, Kate, you know, you don’t just cover East Med; you actually cover the entire MENA region. And Defne already touched upon it a little bit that, actually, the dynamics are changing regionwide. What do you think are some of the impact that that could have on the East Med? And take, for instance, also into consideration the meeting that was taking place just in the last two days in Israel, where Secretary Blinken, Bahrain, Turkey, UAE, and a few others were together.
KATE DOURIAN: Yeah, Morocco and Bahrain, I think.
BINA HUSSEIN: Yeah.
KATE DOURIAN: But it seemed to be more of a security—
BINA HUSSEIN: It was more Iran-focused, I think, yeah.
KATE DOURIAN: You know, I mean, more of a security, you know, Iran, et cetera.
But I’ve been looking at numbers. And I heard yesterday, you know, people saying, oh, Africa can supply more gas and—you know, and the East Med. And I’m thinking—oh, and the KRG. And I’m thinking, no, there isn’t any. I mean, I’ve been looking at the numbers.
So you look at, for example, Algeria, which supplies—I think 80 percent of its exports go to Europe. It has—you know, it produced a record in 2021, but it can’t—I think it was 100 bcm—but they can’t really go beyond because they have very steep decline rates. So as soon as they start up, they’ve got to keep drilling, drilling, and it goes into decline. So no potential there.
I was looking at Libya. You know, Libya maybe—I heard that, you know, Eni was looking at Libya, potentially, because they’ve got the pipeline. But again, they don’t really have the capacity. And even if they did, it’s not very reliable because of the political situation. The country’s split in two.
Look at Iraq, for example, which is a country I look at very closely, KRG. And again, you know, gas flaring is still happening. You’ve got maybe a potential boost eventually from the British—the Basrah Gas Company. They’re building new units and they hope to capture 94 percent of all the gas from the three main fields that fall under their remit.
So, you know, there is—the market is tight. First, gas was a—was a transition fuel, then it wasn’t. Now it is again and people are scrambling to find it. But you know, Mozambique LNG is on—is on hold. It’s force majeure. We don’t know when it’s going to start again. There just isn’t the capacity there.
And I—fun fact, when we were doing a recent webinar at the Arab Gulf Institute they were saying demand within the region is also very, very high. So you have—Saudi Arabia and Iran apparently consume more gas than China, which to me was, you know—I hadn’t looked—
BINA HUSSEIN: Surprising.
KATE DOURIAN: Surprising, but apparently true.
BINA HUSSEIN: Yeah.
KATE DOURIAN: And you’ve got—you know, it was supposed to be the second-largest demand-growth season for the region. Sorry, I’m not an early person. But anyway, largest demand growth.
BINA HUSSEIN: It is early morning, yeah.
KATE DOURIAN: And you now see Oman might come up with an extra million tons with de-bottlenecking. You’ve got Qatar. That’s coming this year, the Omani, I’m told.
BINA HUSSEIN: Yeah. But I mean, you know, I’ve been traveling throughout the region for the past week before coming here, and one thing that has been—become very clear to me is that, actually, everyone is already at capacity. There’s not going to be much more coming to the market unless new developments actually come up. So, I mean, that’s going to take years. Is East Med something we could look at?
CHARLES ELLINAS: Except for one thing. I mean, there is spare capacity in the East Med. But some of it, as you said, needs to be developed. The gas field off—gas fields off Cyprus have to be developed. There is no infrastructure.
However, Leviathan, the infrastructure is already there. Egypt has two LNG plants. The infrastructure is still there and can be expanded quite easily. So Leviathan, roughly speaking, has about 300 bcm spare capacity that can be easily developed. So the—initially, at least, the—Chevron has signed agreements with Egypt that could allow it, from this year, to export something like 11 bcm per year to Egypt for use in Egypt but also for liquefaction and export. So the exports of LNG from Egypt to Europe will increase this year and probably next year as a result of it.
But in addition to that, this extra capacity of 300 bcm in Leviathan can easily be channeled into Egypt, adding maybe a couple of new liquefaction trains at Idku and Damietta, and send it to Europe. So that can be done within the confines of the messages coming from Europe.
And I think we—can I mention here what Europe is telling us, because often we talk about pipelines and exports but we are not listening to what Europe is saying.
BINA HUSSEIN: So what is Europe saying?
CHARLES ELLINAS: So Europe has two messages.
First of all, they want to get rid of Russian gas.
BINA HUSSEIN: Sure.
CHARLES ELLINAS: So by this year, they want to reduce dependence on Russian gas by two-thirds, and by 2027 completely.
BINA HUSSEIN: Yes.
CHARLES ELLINAS: The second message—which I think is very, very important because it sends the wrong signals to those who want to develop long-term projects—is that by 2030 Europe targets to reduce gas consumption by 30 percent and carry on going downwards from there and reduce gas consumption by 80 percent by 2050. That message cannot support a new pipelines. And I refer to that because we keep talking about the EastMed gas pipeline and maybe a pipeline through Turkey to Europe. These are long-term projects. They need five years to develop them and they need 20 years of operation to produce results. The European message does not support that. And nobody will invest in two projects which will cost billions of dollars when Europe is not giving the right message, that we actually need that gas up to 2040, 2045.
BINA HUSSEIN: Well, and I want to bring in the audience in a minute, so start thinking about it and catch my eye if you have a question or have something to say on it.
But you know, the financing part is really important and we should discuss that further. But I think one thing that has also become clear is that even if everyone is upping production and we are developing new gas fields and whatnot, which will take years regardless, it would still not meet the demand in Europe. We would still need Russian gas.
CHARLES ELLINAS: In the period to 2030, yes.
BINA HUSSEIN: Yes.
CHARLES ELLINAS: True. When I was at the European Gas Conference last week, where all of the people in gas in Europe and the US were there, and the LNG exporters from the US and the buyers and traders from Europe, and that—the message was loud and clear: It is not possible to get rid of Russian gas even by 2030.
BINA HUSSEIN: So I think Kate wants to respond and I think Defne then also wants to respond. So, please, go ahead.
KATE DOURIAN: I was going to say, I mean, you know, this whole business of having to pay in rubles, apparently I saw yesterday that it comes into effect on Thursday, so we may see Russian gas flows, you know, fall even before the end of the year.
And again, we talked about this yesterday. Qatar is maxed out. They are expanding, but that’s not going to happen until the first phase, won’t come into—be operational until 2025. You’ve got—the UAE is considering doubling its LNG capacity. But again, you’re talking long term.
So I think, you know, the market was tight to begin with on both oil and gas, and now suddenly we’re scrambling. But the ruble issue might just mean that we will have a very cold winter because we won’t be able to—you know, to fill up the storage, which is what Europe is supposed to do now between now and October.
DEFNE SADIKLAR-ARSLAN: OK. Thank you, Charles. Actually, he pointed out a very important point about Russian gas and still dependability. Despite all happening now, you know, it is a known fact that it is not—it will not be that easy to cut Russian gas and dependability in the region, and including Turkey as well. You know, right now, you know, Turkey’s gas dependence from Russia is around 40 percent. You know, it is diversifying its dependent on Russia, but it is still going on.
While saying that I also like to talk about the Southern Corridor a bit, you know, which I was—I have been—you know, I’m always proud that I was part of the US team, Dan, you know, as developing together with Ambassador Dick Morningstar. And this was a project, you know, supported, you know, internationally and by—definitely by the United States for the region. So it is realized, you know, at the end of long negotiations, and now that gas goes to Europe through TAP as well. So it had a lot of stages, but it had a big political support.
So for East Med, now there is, you know, different views with the increased gas prices in the region and also with the recent discussion about decreasing dependability on Russian gas in the region whether, you know, EastMed Pipeline can be feasible again or can, you know, receive support again. This is what, you know, Greece and Cyprus is pushing on. And on the other hand, Turkey is also, you know, pushing on, you know, just given that—also that, you know, the fact that the Russian gas dependability in Europe is not likely that going away, the quickest way to—you know, to shortcut is—will be, you know, connecting the Israeli gas right now to the, you know, Southern Corridor and then, you know, move the gas to Europe through that. And this will be also most cost effective as well, given developments. So—
CHARLES ELLINAS: Can I—
DEFNE SADIKLAR-ARSLAN: Yeah, please, Charles.
BINA HUSSEIN: Briefly, and then I’d like to turn to Ana Palacio here in the front, who has something to say as well. Go ahead, Charles.
CHARLES ELLINAS: It cannot—I mean, the problem is—that is an option, but the problem with—even with that is it cannot deliver gas to Europe—I mean, let me just add one thing. At the conference in Vienna on—the European Gas Conference—I was chairing a session where the manager of the TAP pipeline was presenting, and he said that TAP has a capacity of 20 bcm and it can be incrementally added to to reach 20 bcm. The problem is getting the gas either out of Azerbaijan or possibly Israeli gas. But none of these projects is fast enough, quick enough to get the gas into TAP, into Europe within this period of between now and 2027. So it’s a long-term project.
And as a result, based on what I said before and Europe’s determination that—even today I read another article, Europe reiterating that they are sticking to Fit for 55 and reduction of gas utilization up to 2030 and beyond, which does not support new gas pipelines either through TAP or EastMed. Those are not possible within that. I mean, unless Europe changes its message and says, yes, we really want gas up to 2040—which I think will be the case, but they’re not saying that—the European—I mean, at the—at the conference in Vienna, the European Commission said we are sticking to our plan for—
BINA HUSSEIN: In the energy transition.
CHARLES ELLINAS: Energy transition. And in addition to that, they also said the activists in Brussels are totally against any long-term projects, because they say that if you build long-term projects they will lock in supply for another 20, 30 years; we don’t want that, we want to stop that.
BINA HUSSEIN: OK. I think that’s clear.
Q: Well, I just want—I agree with you. Just a bit of an explanation, and it’s more psychological than anything else.
In the European Union, we have decided—you said it very well—first gas was part of the transition, then gas was a no-no and pushed outside the realm of the good things with oil—with nuclear in many places, as well. And the European Union, in this idea that we are standard bearers of the best and the green—the green agenda, the green deal, we completely—we completely just took for granted, forgot, or misregarded energy security.
But absolutely, I mean, you take the papers from 2007 and there is energy security balance with climate change. In 2019, energy security, suddenly, well, it’s—there it’s granted, and what we have to do is to get to this Fit for 55 net zero.
Now, they say—because of Russia, they say, the European Commission, that they have to review. But you are absolutely right that it’s not there. And the other day there was a very interesting projection of the—of how to replace Russian gas by the European Commission and by the IEA—the International Energy Agency—which is not a revolutionary thing. And of course, I mean, they were much more realistic than the European Commission.
I think this has taken Europe by surprise. There are many issues that we don’t really have a European Union energy policy. It’s member states with some issues that are common. But it’s member states, and Germany weighs a lot. So I think that we are still finding how to do it. And the old—I mean, the old ideology of the green revolution is hard to die.
BINA HUSSEIN: OK. Before we respond to that, let’s give the mic to Chris over there, who has—go ahead.
Q: Yeah, I had just a question. Defne, how—I hear about the normalization by Turkey. How sustainable is it? And what are the prospects for that going forward?
DEFNE SADIKLAR-ARSLAN: For Israel, you’re asking, or?
Q: For the whole region.
DEFNE SADIKLAR-ARSLAN: For the whole region.
Q: I mean, you know, Turkey—you know, you were talking about Turkey’s recent diplomacy.
DEFNE SADIKLAR-ARSLAN: Sure.
Q: How sustainable is that? Thank you.
DEFNE SADIKLAR-ARSLAN: My view is that, I mean, President Erdogan, he is going on elections in 2023, and he also knows that this will be his, if elected, last term, according to the current constitution in Turkey. So he really, I think, wants to leave a name, you know, apart from what he is doing, so I really do think that he is really sincere with what is going on in the region. He is really willing to fix things, because he’s also aware that Turkey is very much isolated in the region. And this is—and also, Turkey is a big regional player as, you know, the NATO country with the second-largest army in the southern flank; has to do more and has to, you know—and needs to play a role, you know, just to fix things.
But of course, even so, in every relationship it’s a two-way relationship. Turkey will never say that, OK, I am doing this and that, I mean giving all, you know, and compromise with everything. In return, of course Turkey will ask something from its partners—you know, from Greece, Cyprus. So there should be a, you know—and also, Israel as well. But the main thing which is important is that this conversation has started and there’s an intention by all sides, you know, to move forward. So I think this is what we should—we need to focus on.
So I don’t know how this will evolve in the future, but—because now the elections, whether—Erdoğan is a politician that he can sell anything—
BINA HUSSEIN: OK, I think Kate. Let’s go to Kate.
No, no. Oh, sorry, you wanted to finish your sentence, Defne?
DEFNE SADIKLAR-ARSLAN: Yes.
KATE DOURIAN: Oh, sorry.
BINA HUSSEIN: Sorry.
DEFNE SADIKLAR-ARSLAN: No, no. Again, I just want to ask Chris—so I don’t know if I were able to reply your question or not, you know. So, I mean, did you get whatever you were asking for, or?
Q: Yeah. I mean, I suppose—
BINA HUSSEIN: Well, it depends on what he wanted to hear.
DEFNE SADIKLAR-ARSLAN: Right. That’s what I’m asking.
Q: I wanted to hear what you have to say.
DEFNE SADIKLAR-ARSLAN: OK.
BINA HUSSEIN: There you have it. OK. Then let’s go to Kate.
KATE DOURIAN: Yeah, I was wondering, Chris, were you referring to that old, old project to link—to link, what, the Israeli fields to—directly to Turkey? They won’t—
Q: No, I was simply asking a question about Turkey.
KATE DOURIAN: It was Tamar they were thinking at the time of linking directly to Turkey. But I was going to say, you know, we’ve seen the rapprochement with the UAE. We see the rapprochement with Israel with the UAE. Given the state of the Turkish economy, there was actually some financial incentive because the UAE, I think, pledged to pour some funds into the central bank. There was a currency-swap agreement. And I think the fact that Mubadala is now involved in Tamar, the fact that there has been rapprochement, there may be more of an incentive now to say, hang on a second, you know, we can develop Aphrodite and Leviathan maybe together—I’m looking at you, sorry, but not—
BINA HUSSEIN: I mean, he is Chevron, so—
KATE DOURIAN: Yeah, you know, because it is Chevron. You know, there may be a—
Q: I am—this is my poker face.
KATE DOURIAN: The new pipeline that is proposed to go to Egypt but not to the LNG plant. Because the logical—I mean, for me, it would be logical to export LNG from Egypt. It’s the easiest option. The gas is there.
BINA HUSSEIN: It’s the easiest and perhaps also the most immediate option.
KATE DOURIAN: Yeah.
CHARLES ELLINAS: Yes.
DEFNE SADIKLAR-ARSLAN: Yes. Yes.
BINA HUSSEIN: No, continue, Kate. Sorry, I just—
KATE DOURIAN: No, no, that was it. I mean, you know, and maybe even the Arab gas pipeline could eventually be extended. I mean, it’s there, but again, geopolitics. You’ve got—
DEFNE SADIKLAR-ARSLAN: Can I have a response?
BINA HUSSEIN: OK. Well, you follow up—
CHARLES ELLINAS: Oh, I—just one point. This argument you started—
BINA HUSSEIN: You each can say something. So, Charles, you—
DEFNE SADIKLAR-ARSLAN: OK. OK, sure.
CHARLES ELLINAS: Related to what—arguments, the point is that we have two major countries in the region, Turkey and Greece, with ruined economies. Both economies are in dire trouble. And they have—they have been spending their time during the last two, three years fighting each other instead of concentrating on their economies. I think now it dawned on both, the two leaders. Erdoğan and Mitsotakis I think understand that they can only concentrate on sorting out their economies by solving their problems, and both of them have to because Mitsotakis in Greece needs to be reelected and won’t be reelected unless he has a message on the economy. It’s Clinton’s old message: It’s the economy, stupid. And Erdoğan is the same. Erdoğan wants to leave a legacy behind, but the legacy, it cannot be external. It has to be internal. It has to be the economy of Turkey, recovery of the economy. And that cannot happen without cooperation among neighbors. And I think that is what is driving this newfound interest among all of the countries of the region—including Greece, including Turkey—to promote cooperation. And I think that is what we will be seeing for the rest of the year into next year, and I’m looking forward to that.
DEFNE SADIKLAR-ARSLAN: It is true—and thank you, Kate, actually, you know, pointing out that, yes, the current state of Turkish economy is a driving factor. But even Turkey didn’t have the current crisis, Erdoğan will be doing this, you know, at that time. But this is definitely something that accelerated the efforts, you know, both in—you know, just for the UAE, Israel, and even Armenia, you know, surprisingly, and definitely with Greece. And—
KATE DOURIAN: All of the above, yeah.
DEFNE SADIKLAR-ARSLAN: Right, right. And so, yes, that’s right, you know, especially, you know, the swap agreement with, you know, UAE, you know, plays a role. You know, and Turkey needs, you know, the foreign investment and foreign money to grow and also to fix things, at least in the short term. That’s for sure.
BINA HUSSEIN: OK. So briefly, Kate, I do want to go back to you because we’ve heard Defne’s perspective on this all. But how sustainable do you think this new or renewed relationship between Israel and Turkey is?
KATE DOURIAN: It depends on what happens next. You know, I mean, we’ve seen—we’ve seen ups and downs. You can’t really—I mean, look at what happened within the GCC. But if you read MEES—and it is actually a very good publication; I was reading yesterday, you know, just catching up—one of the reasons that the market was slightly tighter than it should be, even though it’s Kuwait—Kuwait is not a huge market. But you know, we must remember that most of the countries in the Gulf region are now net importers. But Kuwait started its year-round permanent receiving LNG terminal—receiving terminal. So, you know, they’ve now started at small volumes, but in a tight market every little bit helps.
But you know, you saw what happened with—you know, it’s very hard to tell in the Middle East. But you know, when I said I’m all of the above—I’m Armenian, born in Cyprus, brought up in Beirut, of British parents, Armenian parents born in Palestine. I’m British by birth, Swiss by marriage, so I can be neutral. And I also—
BINA HUSSEIN: Maybe you’re the person to fix it.
KATE DOURIAN: Yeah, maybe. Maybe, yeah, get me to mediate. Or, yeah, but still, it’s—
BINA HUSSEIN: Yeah.
KATE DOURIAN: It’s complicated, as they say. So I don’t think—it’s early days. I don’t think we can—we can say for sure. But you know, it’s—Israel, I think the relationship—one of the things I heard Minister Mazrouei say a while back, you know, that the Abraham Accords should actually lead to more integration, I’m surprised there isn’t a common gas grid in the region. The interconnection is, yes, working, but not really efficiently. But they can go to North Africa. Morocco’s linked by pipeline. OK, Morocco, Algeria, there are problems, but it can all be resolved because at the moment, with prices the way they are, you’d sort of think, OK, we’ll put aside our differences, let the gas flow, and it’s a win-win for everyone.
BINA HUSSEIN: Easier said than done.
Go ahead, Charles.
CHARLES ELLINAS: I was just going to say that putting aside the gas pipeline is—as I said, I don’t believe are going to happen either from Israel to Turkey to Europe or East Med. Israel and Turkey, despite their animosities and everything else, commerce between the two countries has always been flourishing. It never ceased. And having a closer relationship now, it doesn’t have to be revolutionary. It doesn’t have to produce anything other than a friendly relationship. That is enough for the two countries and the region. We shouldn’t be looking to expecting big things like, yes, Turkey and Israel are getting together, now they’re going to build a pipeline to Europe. That doesn’t happen.
And I need to also point something out—else out. Who is going to benefit from pipelines from the region to Europe is the oil companies that own that gas. Has any of them so far volunteered to even—to look into these projects or even commit to these projects? No, because they’re not feasible. So it’s politicians that are driving these ideas, and politicians do not build pipeline. This is—you need investors. The investors are not forthcoming because the pipelines are not real.
BINA HUSSEIN: Right.
And let’s turn to Harry Tzimitras. Yes, there, please.
I think you’re very right in the sense that even if—an additional outcome of this Ukraine crisis is exactly the fact that people are very unwilling to invest in permanent infrastructure if there is mistrust. And in this region, mistrust rules rather than being the exception. But having said that, continuing your thought on things having to be quiet, one of the things that is less well known is the electrical interconnection between Turkey and Greece. This has been going on. There’s not a big fuss about it. Notwithstanding the other problems, it’s working. And I think this is the value added, if you like. The beauty of interconnectedness is exactly that it deflates traditional problems of delimitation and so on and so forth. The value added of interconnectedness lies in the fact of connectivity when need be, but it’s not like gas or other commodities that need to be delimited between states. And if you have a problem in existence in—a political problem, as the case is in the region, then I think that that adds a lot.
Two final points, if I may. One is, you know, we’re talking about mixed messages from the US, and I think it is the EU that also gives very mixed messages. You can’t have on the one hand the European Bank of Reconstruction and Development, the EIB saying that we stop funding of fossil fuel projects at all, and at the same time you have seed funding of 100, 120 million for the East Med gas pipeline. These are mixed messages that I think need to be straightened out.
But if there is a will, there is a way. And I’m saying what Defne was saying about the Law of the Sea Convention and everything, it doesn’t matter being a part of the Law of the Sea Convention or not. If there is a will, there is a way. Nothing stopped the Republic of Cyprus signing a delimitation agreement with Israel, and Israel is not part of the Law of the Sea Convention. International law provides for a multitude of ways if there is a will on the part of states. So let’s not stick with the technicalities to hide the political unwillingness to do such things.
BINA HUSSEIN: OK. Defne, I know you’ve been wanting to say something.
DEFNE SADIKLAR-ARSLAN: No, no, I agree with Harry. By the way, you know—so I agree with you, but you know, this is—this is also Turkey’s position that they are putting on the table, you know, just for discussion. And also, if you go—I mean, OK, since you talk about, you know, giving mixed messages, you know, if you go to the, you know, start of, you know, the thing—the start of this problem, that, you know, rejection of the Annan plan, right, you know, just in the past that just broke out everything. You know, just if—I mean, I think if it were not rejected by that time, then we might have found a different situation by now.
And in addition to that, you know, just—and then Cyprus has become the, you know, EU—part of the EU. This really made things even, you know, worse, you know, more complicated now. Then, you know, EastMed Forum establish, you know, just in March 2021, you know, just keeping Turkey a part of, you know, this scheme. And all these things, what I’m saying is that, I mean, you cannot—I mean, it is not realistic to keep Turkey out of the solution, OK, in the East Med, whatever it is, because unless you—I mean, all these countries need to include Turkey also in this scheme so that an equitable solution, a realistic solution can be found, you know, easily. This is—this is what my point is, so thank you.
CHARLES ELLINAS: I mean, adding to what Harry said—
BINA HUSSEIN: Charles first and then Kate. You both want to jump in.
CHARLES ELLINAS: OK. Adding to what Harry said, I mean, what is this EastMed Gas Forum other than just a talking shop? It has done nothing. It has created nothing. Nothing has come out of it other than every now and then they meet and talk and then go away and then nothing develops. So I think let’s not put too much emphasis on that. It has a long way to go before it becomes an entity of some kind.
But I think there is something else I want to highlight that is moving us away from gas. I mean, look at all of the major oil companies that came to the region before the—before coronavirus, before 2019. They came because they saw gas potential in the region. That gas potential hasn’t developed. Those companies have not really gone flat out to drill. They are not drilling anymore because the pressure on all of them is to move away from oil and gas. Their investors, the banks, are not lending the money to go into major new developments. As a result, in the East Med there have been no new discoveries, major discoveries, since 2019. There is no major new drilling happening anywhere. The oil companies, like Shell, BP, Total, ExxonMobil—ExxonMobil has just done the appraisal drilling in Cyprus. They’re all investing in drilling near existing developments where they can get immediate returns. They are not investing in wildcat drilling new areas, new exploration, and that is going to be a big limitation. I don’t believe we’re going to have any serious new drilling off Cyprus or Lebanon or Israel. Maybe a little bit in Egypt. So the companies are not going to develop this gas.
So the future is finding a way to make best use of what we already have. And that’s why—that’s why I said before that if you look at Egypt, Zohr is not performing. There are no major new discoveries. Egypt is going to need gas from others. That’s why there is a link with Israel and Israel is sending more and more gas to Egypt. And eventually, even some of the gas from Cyprus will probably end up in Egypt if they find a solution to get it there. And that is the future.
That’s why I said before there is a regional use of the gas. I mean, Lebanon eventually is going to come out of its mess and it’s going to need gas. Egypt is trying to send some gas, but it’s not actually Egyptian gas; it’s Israeli gas going—in theory going to Egypt, but being diverted through the Pan-Arab Pipeline to go to Lebanon. That is not enough. It’s small quantities of gas. I mean, the—Lebanon will need more. Cyprus has gas to get rid of because it cannot make use of it. So this is where I see this regional thing developing eventually, but it’s not going to happen today or tomorrow. It’s a longer-term project.
BINA HUSSEIN: And it hasn’t happened in the past 10 years.
CHARLES ELLINAS: No, no.
BINA HUSSEIN: OK, Kate, go ahead.
KATE DOURIAN: Final two words. I agree with you. I think it should be a regional—you know, gas should—East Med should provide the region.
But two things. We can’t talk about gas in the region without talking about Iran. I mean, look at what sanctions did, two LNG projects down the tubes. I remember a few years ago I was here at ADIPEC and Iran LNG had a stall. I don’t know if you remember, but then they were giving away these yellow bags They were very bright yellow, and inside—there was a crab-looking thing that was a neck massager. But of course, you know, it never happened. We’re going to see the same thing in Russia—you know, companies pulling out, a lot of them from LNG projects, you know, the majors.
The other point I wanted to make was the UAE has got it right. They’ve got nuclear and we’ve already seen a decline in gas usage. So, you know, finding the right energy mix, I think, is really important. We’ve now seen Kuwait and Saudi Arabia finally agreeing to develop the Dorra field, which is in the shared neutral zone offshore. So we’re seeing it, but it’s a bit too late, you know.
And as you said, you’ve—you know, it’s got to be—it can’t become a stranded asset, so you also have to decarbonize. You need CCUS, as Qatar is doing. So it’s—you know, gas is going to be a transition fuel, but it has to be minus, you know, methane emissions, minus flaring, and so on.
BINA HUSSEIN: OK.
So, then, I mean, you know, I think it would be fair to say that, actually, this is the only complete, full European panel—we’re all Europeans in some way or form—sitting here. And you know, diversifying the energy mix is crucial, but that includes gas. I mean, you know, we’ve talked about changing the message within the EU, that that needs to change. We’ve talked about, you know, that if they don’t do it, then it’s highly unlikely that financing is going to come through. So how are we going to get there? And I can ask this question to any of you.
CHARLES ELLINAS: Sorry, get to where?
BINA HUSSEIN: Sorry?
CHARLES ELLINAS: Get to where?
BINA HUSSEIN: How are we going to change the message? Because, you know, it’s—so far, the EU is not doing it. So where is this pressure going to come from? Let’s give Ana Palacio the mic.
Q: We will try to muddle through. And I think—in my opinion, this time it’s not going to work because we are going—we need to address the markets. And the European Commission and the European bubble is very deft at muddling through—saying yes but no, but you know, maybe. But when you have to address financiers of big projects, that’s different. So I think that we need to go through a kind of sobering moment where we say, hey guys, we need gas. If we want to get out of the Russian gas, which is—in any case is going to be extremely difficult for the region—as you said; and particularly, Kate, that you have highlighted—is that we are navel-gazing. Americans as well. We navel-gaze. But the rest of the world wants energy. So, you know, we have to fill the equation.
KATE DOURIAN: I was going to say we were kicked out of the other room because there’s a net zero—the IEA’s net-zero scenario is being—but I mean, that was published last year. It’s been talked about. But again, it’s been overtaken, right?
I mean, I was at the IEA. I didn’t work on that one because it’s become very controversial, but that’s one of the reasons why people are saying, hang on a second, you know, we started too soon. We moved very fast to the transition before the system was ready.
But you know, you’ve got to do it in a—as the minster said yesterday, it’s got to be wise. We have to be wise and we have to do it in the right—in a phased manner as opposed to, boom, you know, out of gas into hydrogen. Where is hydrogen, you know?
CHARLES ELLINAS: But could I add? I mean, last week—or I think it was last week—BP released its annual Global Energy Outlook, and it still shows that by 2050 the world will need 50 percent of its energy to come out of fossil fuels—out of gas mostly, and some oil. And that—I think that is—I mean, despite the fact that it’s BP who is saying that and maybe people will say, well, they would say that, wouldn’t they, I think there is a basis to that. But Europe is not going to change its approach. Europe is going to stick to this idea that there’s going to be energy transition, less gas by 2030, and much less gas by 2050.
So we—here we are talking about the East Med. We need to get that message and stop talking about gas pipelines and putting so much hope there into these pipelines. Every time that something happens, we resurrect them and we come back and say, hey, we are going to build the EastMed gas pipeline. Who is going to build it? I said before nobody will build it because the investment is not there. And as long as the EU keeps saying that message, no investors will put money into this pipeline. So let’s put it to rest and start looking, as I said, at the—before, regionally what we can do.
What Defne said about the newfound interest for cooperation, and central to that is Turkey. If Turkey really puts its mind to cooperation in the region, it will make a hell of a difference to the region. And that is the beginning—maybe the beginning of a chance that we were going to go away from this confrontation into some kind of regional cooperation, maybe because Mr. Erdoğan wants to leave a legacy behind. 2023 is important to him. And then we have a chance to develop something regionally.
Egypt is going to need that gas. The infrastructure is there. Egypt aspires to become the gas hub of the region. It will get that gas. If there is no other gas in the region other than Leviathan and Aphrodite… then nobody—in my own experience, and I’ve had a very long experience in the oil and gas sector, if projects are commercially viable politics do not stop them. They eventually happen. And I believe that these developments in the region, it will be—they will happen, but it will be regional developments, not for export to Europe.
BINA HUSSEIN: Right. OK.
Defne, final last words?
DEFNE SADIKLAR-ARSLAN: Sure. Very quickly, you know, just, yes, we need to develop something regional. But on the other hand, even though—I mean, again, Southern Stream, you know, just Southern Corridor was not viable at the beginning—it had the political support and it is realized, something to just underline.
And for the regional, you know, projects, that’s why US shifted, you know, supporting interconnectors from, you know, pipelines in the region.
And also the second thing, and also which is in line with the EU targets and net-zero targets, is the—you know, developing the renewable energy, you know, cooperation in the region has a big potential. That’s why we are also, as the Atlantic Council, you know, we will have our conference with EBRD in Istanbul in October. Hopefully, I’d like to see you all there.
So I’ll stop here. Thank you.
BINA HUSSEIN: Well, thank you all for your perspectives on this and thank you all for being here.
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