Europe Can Have Sustainable Gas Supplies from Mediterranian Gas Reserves ()
1. Introduction
As a result of over a decade long geopolitical interactions between NATO, Ukraine and Russia, the Russian President Putin finally decided to invade Ukraine on 24 February 2022. The Russia-Ukraine military conflict had social and economic consequences far beyond the central Asian or Eurasian borders. European nations found themselves paying the highest price for their imported energy requirements as a direct consequence, Russian oil and gas supplies have significantly been diverted from West to East and Europe is depending on US, African and Asian LNG supplies to make up for reduction in Russian gas supplies.
Historically, Russian gas supplies were developed through pipelines coming to Europe via five different routes, with flow capacities provided in Table 1:
A) Yamal-Europe pipeline (through Belarus, Poland to Germany);
B) Brotherhood Gas pipeline via Ukraine (Gas Hub-Austria, Italy, Slovakia, Eastern Europe);
C) Nord Stream pipelines through Baltic Sea;
D) Blue Stream pipeline route through Turkey;
E) South Stream pipeline route through Black Sea.
A recent IMF report [2] analyzes the data related to fluctuating Russian gas for Europe’s balances and economic output, Russian gas supplies to Europe dropped over 60 percent during the year ending June 2021 with complete cessation of gas supplies to a couple of European nations anticipated. The IMF report indicates that alternative gas supplies could replace up to 70 percent of Russian gas in the short term for winter (2022-23), associated with a price hike, but a longer full shut-off of Russian gas to the whole of Europe would be very troublesome. Figure 1 indicates that almost all Russian gas supply routes got affected post Ukraine war with Ukraine route (Brotherhood Pipeline Route) worst affected while Blue Stream & South Stream (jointly Turkstream) routes were the least affected. It is evident from Figure 1 that by July 2022 the total capacity utilization of Russian-European Networks (all combined) was around 23 percent, only 125 MCMD gas was flowing from Russian gas sources towards Europe (all routes combined) against a total transport capacity of 541 MCMD. It is to be noted that additional 151 MCMD transport capacity is laying idle as Nordstream 2 pipeline was not commissioned despite its mechanical completion in 2021.
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Table 1. Russian gas supply routes to Europe―Capacity.
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Figure 1. Reduction of Russian Gas Supplies since Jan 2021. Source: ENTSOG Europe [3].
The existing transmission and distribution networks in Europe have been geared towards gas supplies coming from East and, thus, infrastructure bottlenecks are contributors towards very high prices and significant shortages in European countries, the Central and Eastern Europe being most vulnerable like Hungary, Slovak Republic and Czechia, refer Figure 2.
Without natural gas from Russia, there would be reduction in gross domestic product and shrinkage of European economy. There are immediate requirements related to policy formulations and elimination of constraints to a more integrated gas market with appropriate pricing pass through. Currently individual European national responses and RePowerEU [5] contain some important measures to help address the challenges that emanate out of Russia’s invasion of Ukraine, including:
1) Achieving quick reductions in gas demand (estimated at around 15.5 BCMA or 42.6 MCMD) through energy efficiency solutions.
2) Accelerating wind and solar deployment to replace 20 BCMA (55 MCMD) gas demand.
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Figure 2. Various existing and planned pipelines from Russia to Europe. Source: Samuel Bailey [4].
3) European Union’s existing plans such as “Fit for 55” expected to contribute to the EU goal of saving 170 BCMA (467 MCMD ~ 85 percent of existing Russian gas supply capacity) by 2030.
Above measures are supported by United States under strategic energy cooperation and required technology transfer, US and EC will collaborate for production and use of offshore wind turbines and renewable hydrogen. With regards to augmenting natural gas supplies to Europe, US has contracted next 10 years LNG sales (from its Shale Reserves) with European Commission (EC) [6]. US and EC announced creation of a Join Task Force (JTF) to reduce Europe’s dependence on Russian Fossil Fuels and strengthen European energy security, in the context of Russian war against Ukraine. JTF will organize its efforts around two primary goals:
i) Diversifying LNG supplies in alignment with climate objectives.
ii) Reducing demand for natural gas (discussed above with reference to RePowerEU Plan).
To achieve goal (i), US will work with international partners to ensure additional 15 bcm LNG volumes for EU market in 2022, with expected increases going forward. Currently, US has contracted 32 mtpa (out of total 57.8 mtpa long-term contracts executed in 2021) LNG which is equalent to 116 MCMD gas supplies and will be adding 20 mtpa (equivalent to 72.5 MCMD gas supplies) liquefaction capacity by 2024-25. The US will maintain its regulatory environment with an emphasis on supporting the emergency energy security objective and the REPowerEU goals. Additionally, EC is expected to upgrade its regulatory framework for energy security of supply and storage while EU member states will accelerate regulatory procedures to review and determine approvals for LNG import infrastructure.
Refering again to Figure 1, total curtailment in Russian supplies are expected to be in the range of 400 - 450 MCMD which is equivalent to 146 - 164 BCMA (approximately 110 - 124 mtpa LNG). According to EIA data, US export capacity was around 90 mtpa LNG (equivalent to 11.5 BCFD natural gas) at the end of 2021 which was expected to rise to 105 mtpa (equivalent to 13.5 BCFD natural gas) by end 2022 (refer Figure 3). Currently around 30 percent of US LNG production capacity or 27 mtpa is allocated for Europe, remaining 63 mtpa is going to Asian buyers. It is therefore obvious that US alone will find it difficult to sustainably serve the European LNG demand in near future, to entirely replace Russian pipeline gas supplies.
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Figure 3. US LNG production capacity enhancement.
Total global LNG trade in 2021 stood at 380 mtpa with Australia having the largest export quantity of 108.1 mtpa followed by Qatar exporting a quantity of 106.8 mtpa. It is well known that currently only 69 percent of global LNG trade is under term SPAs while 31 percent of global LNG is traded in spot market. This means that around 118 mtpa of LNG trade in 2021 was through spot market and while 262 mtpa was traded under term agreements. Top five LNG importing countries in 2021 were all in Asia, China at 79 million metric tons (21 percent of total LNG trade), Japan at 74 million metric tons, South Korea at 47 million metric tons, India at 23 million metric tons followed by Taiwan at 19 million metric tons. Almost 67 percent (255 mtpa including Pakistan and Bangladesh) of total LNG imports in 2021 had destinations in Asia. This explains the sharp increase in LNG price hike that was witnessed in 2021 and 2022.
Population of Eastern Europe is 292 million [7] while that of Western Europe is 198 million (40 percent of total European population). Thus, out of 490 million current population, 60 percent in the East have a lesser capacity to sustain expensive LNG supplies at prevailing high prices. South Eastern countries are the most distant from current LNG regasification terminals operating in Europe, refer Figure 4.
Reuters published an article [9] which hinted on possible alternatives for European nations to replace Russian gas supplies. Other than the energy conservation measures, use of alternate energy sources and LNG supply support from US, as already discussed, following options are suggested (refer Figure 4 for physical configuration of European LNG regasification infrastructure):
A) Britain’s Centrica has signed a deal with Norway’s Equinor for extra supply for the next three winters.
B) Europe’s largest consumer of Russian gas, Germany, could import gas from Britain, Denmark, Norway and the Netherlands via pipelines. Additionally, Germany is planning to build five additional LNG regasification terminals.
C) Europe’s second biggest gas supplier after Russia, Norway, is planning to increase production to help in ending Europe’s reliance on Russian fossil fuels by 2027.
D) Southern Europe can receive Azeri gas via the Trans Adriatic Pipeline to Italy and the Trans-Anatolian Natural Gas Pipeline (TANAP) through Turkey.
E) Europe’s LNG terminals also have limited capacity for extra imports, although some countries say they are seeking ways to expand imports and storage.
F) Poland, which has historically been relying on Russia for about 50% of its gas consumption is planning to source gas via two links with Germany. A new pipeline allowing up to 10 bcm of gas per year to flow between Poland and Norway will be opened in October. A new gas link between Poland and Slovakia was also commissioned in August 2022.
G) Spain is planning to build a third gas connection through the Pyrennes mountains.
H) France is planning to operationalize new FSRU/FSU based LNG terminals as a quicker and cheaper option than a new pipeline.
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Figure 4. European LNG infrastructure. Source: European Commission [8].
I) The Dutch energy minister is looking into the possibility of reviving its Groningen as long as ramping up production would not risk causing earthquakes.
2. Objectives of Study
It is a basic and exploratory research which highlights the severe energy problems currently faced by European consumers who have historically been dependent on Russian gas supplies. The problems started aggravating to damaging proportions for European nations after invasion of Ukraine by Russian military and consequential volume reductions of Russian gas supplies to Europe. While Europe is still receiving gas from Russia but there is an urgent need for them to manage sustainable and reliable gas deliveries from alternate sources. An effort has been made to identify and substantiate East Mediterranian gas (primarily offshore Egypt) supplies as priority option for enhancement of gas supplies to Europe in the middle to long term time frame, to present a professional solution that is viable enough to attract serious attention. Methods for identifying feasibility studies and possibly achieving FID for projects designed to extract and transport East Mediterranian gas supplies. Successfully dealing with geopolitical influences or strategic interests of stakeholders, will help in replacing Russian gas supplies to Europe with affordable alternative gas, LNG imports by Europe from US or Middle East are challenged to be neither cost effective nor sustainable in the longer run.
2.1. Methodology
Methodology adopted for achieving study objective constitutes collection, recording, presenting and qualitative analysis of data. The research design supports the investigation of the objective of study and formulation of hypothesis during the process of collecting, analyzing and interpreting observations.
Various options for gas supply to Europe have been presented to focus attention on “establishment of link between economic benefits, geopolitical wrangling and failure or success of European nations to implement sustainable energy supply projects”. Various options available with European nations to replace Russian gas supplies are discussed in this study for comparative analysis against Eastern Mediterranian gas supplies. This is an effort to make observations that are coincidental yet geographically scattered and thus help to support the findings and formulation of hypothesis. The methodology used in this study is outlined below:
1) Data available in public domain is the basis of this study. Data collection is done through internet research from authentic energy data publications like press releases, government notifications, project webpages, project partners’ webpages, World Bank, IMF, etc. technical reports and other relevant resources.
2) Data compilation is done in a manner so as to facilitate comparison of pros and cons of each gas supply option and challenges faced therein.
3) Observations have been recorded for each discussed option which include the following:
i) Current R-to-P ratio (Reserves-to-Production ratio).
ii) Proximity to Europe (Transportation Cost of delivering gas to European Consumers).
iii) Sustainability.
iv) Political (including geo-political and Security) Factors
v) Techno-Economic Viability of Sustainable Gas Supplies.
4) Conclusions are drawn to formulate a hypothesis for prioritizing sustainable gas import options for Europe in order to fulfill the desire of reducing dependence on Russian gas, or to completely replace Russian gas by other alternative supplies.
2.2. Literature Review
It is well known that energy supplies are socially and geo-politically sensitive. The published article [10] emphasizes that the changing global energy picture will continue to determine foreign policies and strategic interests of various countries depending on their status as energy producers, energy transit nations or energy consuming nations. Shifts in markets demonstrate shift in foreign policies of big players like the US. There are huge consequences of such market shifts on policies of energy deficient European countries towards their traditional energy suppliers, specifically Russia. Same is true for energy deficient and highly populated nations in Africa and Asia.
Relevant data is provided in this section for identifying the best economic and sustainable gas supply opportunities for European nations that replace Russian gas supplies while reducing the tremendous price increase, that is currently affecting the living conditions of European consumers and worldwide. Effectively there are only three options available:
A) Increased European Gas Production: Receiving natural gas via pipeline from Norway which is currently the biggest supplier of natural gas to Europe, due to curtailment of Russian gas supplies. Germany could import gas from Britain, Denmark, Norway and the Netherlands via pipelines. Poland, has already increased gas supplies from Norway and will also export it to Slovakia.
B) Increased Gas Imports from Neighbouring Areas: Southern Europe can receive Azeri gas via the Trans Adriatic Pipeline to Italy and the Trans-Anatolian Natural Gas Pipeline (TANAP) through Turkey. Other pipelines from Egypt may be considered.
C) Increased LNG Imports: France is planning to operationalize new FSRU/FSU based LNG terminals as a quicker and cheaper option than a new pipeline. Germany also has plans for building five additional LNG regasification terminals.
Above three options are discussed in detail in this study.
2.3. Additional Gas Supplies from Norway
According to the report [11], the only two European countries with significant proven natural gas reserves are Norway with 50.5 TCF (1.4 TCM) and Ukraine with 38.5 TCF (1.1 TCM). Total proven reserves of other European nations (excluding those of Norway and Ukraine) stand at 22.9 TCF (0.648 TCM). Current Reserves-to-Production ratio for Norway is 12.8 years, a small number compared to other natural gas suppliers in the world. Current gas production from Norway is around 111 BCMA available for approximately 12 - 13 years. Any significant increase, other than capital expenditure, would definitely require the analysis of Norwegian gas reserves’ ability to sustain the increased production.
2.4. Additional Gas Supplies from Azerbaijan and Kazakhstan
Southern Gas Corridor (SGC) was termed as the highest energy security priority by European Commission in 2008 with the objective: “Ensuring secure and affordable supplies of energy to Europeans by diversifying supply routes that decrease the dependence of EU countries on a single supplier (Russia) of ntural gas and other energy resources”. SGC was a USD 42 billion project transiting six nations but effecting more than 50 countries who have direct or direct involvement/interests associated with its construction and operations. SGC comprised three separate projects [12] [13]:
A) Southern Caucasus Pipeline Expansion (a 690 km pipeline laid parallel to SCP from Shah Deniz field Sangachal gas terminal in Azebaijan to Turkish border through Georgia).
B) TANAP, constituting 54 percent of the total length of SGC, lies entirely in Turkey, starting from eastern border with Georgia and terminating at western border with Greece. Total length of TANAP is 1850 km.
C) 878 km long Trans Adriatic Pipeline (TAP) is the final segment of SGC contributing 26% to its length. Starting from TANAP at Turkish border, this pipeline travels northern Greece into Albania, then crosses Adriatic Sea to end in Italy.
Gas supplies to SGC come from Azerbaijan and Kazakhstan. According to the report [11], Kazakhstan currently holds proven gas reserves of 79.7 TCF (2.3 TCM) while Azerbaijan holds 88.4 TCF (2.5 TCM) (Figure 5).
2.5. Additional LNG Imports from US
Number of major gas/LNG importing countries is rising swiftly and currently includes China, EU member states, U.K., Turkey, Japan, Korea, Taiwan, India, Pakistan, Bangladesh. As for market participants, major gas/LNG suppliers currently are Qatar, US, Australia, Iran, Russia, Malaysia, Indonesia, Nigeria, Algeria and Trinidad & Tobago. LNG/gas global spot trade has not been a very transparent phenomenon a decade ago. Until the turn of this century, most of gas/LNG transactions happen under long-term (CONFIDENTIAL) contracts, while the spot markets were dominated by few big LNG buyers like Korea and Japan. This has changed during last ten years and more transparency has been achieved by LNG/gas markets. To understand current world natural gas and LNG spot markets, one needs to compare it with oil trading, which has been actively carried out for over 50 - 60 years.
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Figure 5. Southern gas corridor (SGC) route.
Traditionally, well-functioning oil spot markets provided links and means for risk coverage through forward markets oil trading while maintaining transparency and liquidity for spot trades (achieving benchmark status). The Benchmarks (e.g. WTI or Brent) have thus traditionally served for gas or LNG price determinations in term-contracts.
Gas trading hubs are marketplaces―both virtual as well as physical―run by hub operators, where market participants transfer the title on natural gas already present (or expected to enter or leave in contracted future time) in the transmission system to other market participants. Originally, Europe had the UK National Balance Point (NBP), sterling-denominated, as the first traded natural gas hub. Subsequently, policymakers, market participants, and the Netherlands hub operator established the, Euro-denominated, Dutch Title Transfer Facility (TTF). TTF is gradually moving to establish its benchmark status as the Brent equivalent of natural gas. Henry Hub (HH) has been a benchmark for North American gas market. However, the use of Louisiana’s Henry Hub predates a global natural gas market and also when US was not a gas exporter. In order to understand functioning of global natural gas and LNG spot markets, Figure 6 is helpful as it provides reference ot various gas trading hubs. Refer Table 2 for description of important terms.
Above screenshot provides historical TTF price of spot LNG trades and provision of comparison with neighboring hubs like THE and PEG. Since each hub has different gas/LNG input sources, their comparison provides an insight, to the traders, into the LNG supply-demand situation to Pacific, Asian and US markets. Following is a description of some of the important symbols/terms used in LNG/gas spot markets.
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Figure 6. Screen shot of European energy exchange TTF price history.
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Table 2. Description of important terms used in LNG/Gas spot markets.
LNG globalization is transforming the market landscape across various trading hubs in Asia, Europe, and the US, there is an ongoing evolution in LNG trading hubs to achieve and maintain their benchmark status. As reported:
“In Asia, LNG liberalization has enabled the region to overcome a lack of pipeline infrastructure―producing Asia’s first natural gas benchmark with LNG contracts settled against the Platts LNG Japan Korean Marker (JKM). The success of JKM raises the question of further evolution―whether stakeholders will continue using existing pipe gas benchmarks in the US and Europe, or if new benchmarks will emerge. In addition, if LNG is viewed as a virtual global pipeline, the development of a supporting freight market could provide important price transparency for transportation between major trading centers.
With Asia as the key buyer of global LNG, and Europe as the world’s balancing market, the interplay between Europe’s TTF and JKM will underpin pricing formation for global natural gas. JKM has already hit key milestones―the ratio of the spot LNG to derivative market is now 1:1, indicating the same amount of trading in derivatives as physical markets [19].”
In Asia a gradually establishing spot market is Japan-Korea-Marker (JKM), JKM has recently been recognized as credible spot market benchmark and Platts Market on Close methodology is now being used for the determination of the JKM price assessment. The growing importance of liquefied natural gas (LNG) in Asia’s energy mix has spawned efforts in the region to create a trading hub like the established hubs in the United States and Europe. The most advanced hub initiatives are in Singapore, Japan, and China. However, each of these locations faces its own set of challenges, and none has so far been successful in establishing market-based gas pricing or a trusted pricing benchmark for the global LNG market. This can be termed as the major factor leading to severe LNG price fluctuations during the era of Russian gas supply disruption.
2.6. The Preferred Option for European Gas Supplies
Sourcing natural gas/LNG from the Mediterranian region is presented in this study as the preferred option for European nations to replace Russian gas supplies, being economical and sustainable. Main gas suppliers in the Mediterranian region are Egypt, Libya and Algeria. According to the report [11], Egypt currently holds around 75.5 TCF (2.138 TCM) of proven natural gas reserves with current Reserves-to-Production Ratio of 36.6 years (R/P). Egyptian gas reserves are 1.1% of worlds proven natural gas reserves. For comparison, these reserves are similar in magnitude to proven natural gas reserves individually held by countries like Kazakhstan (2.3 TCM), Azerbaijan (2.5 TCM), Canada (2.4 TCM) and Australia (2.4 TCM). Libya is holding proven gas reserves of 50.5 TCF (1.4 TCM) while Algeria holds 80.5 TCF (2.3 TCM). According to website [20], following Figure 7 provides the status of Concession/Lease Agreements in Egypt as of December 2021.
There are 61 Oil and Gas Extraction Companies (Refer Table 3) active in Egypt [21]. Egyptian General Petroleum Corporation (EGPC) [22] and South Valley Egyptian Petroleum Holding Company (Ganope) [23] operate under Egyptian Petroleum Ministry and manage upstream oil activities. Egyptian Natural Gas Holding Company (EGAS) [24] oversees the development, production, and marketing of natural gas and also organizes international exploration bid rounds and awards natural gas exploration licenses. The government earns revenue directly through royalty payments and indirectly through PSAs (Production Sharing Agreements).
Major IOCs/NOCs like Eni, Apache Energy, Sinopec, BP, Rosneft, Petronas and Shell are active in Egyptian natural gas sector. Figure 8 indicates that Egypt’s Mediterranean Sea region tops in natural gas production with 72% share of total natural gas production of 2.2 TCF per year (62 BCMA).
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Figure 7. Screen shot of European energy exchange TTF price history.
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Table 3. Oil & gas companies located in various regions of Egypt.
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Figure 8. Egyptian natural gas production by region.
Egyptian Gas sector is regulated by Gas Regulatory Authority (GASREG) [25]. On the first of August 2017, a new Gas Law “Law no. 196 for the year 2017” was issued to create and govern a new clear legal & regulatory framework aiming at creating a liberalized gas market with the opportunity for competition in the downstream segments amongst potential market players.
The main provisions of the law include the following areas:
i) Definition of all gas market activities subject to the regulated market.
ii) Identifying the roles, rights and obligations of all market participants as well as their relations among each other.
iii) Allowing specific segments of consumers (eligible consumers) to freely choose their own gas suppliers on freely agreed prices.
iv) Setting the rules & principles of regulating the downstream gas market activities.
v) Introducing “Third Party Access principle” where Third Parties will be allowed to access the gas infrastructure under transparent codes and against fair, transparent and cost reflective tariffs.
vi) Establishing the independent Gas Regulator.
vii) The Executive Regulation of the Gas Law was issued on 14 Feb 2018 [26].
3. Presentation of Data & Discussion
LNG terminals can be classified into three types:
A) LNG Export: LNG Liquefaction, Storage and Export Terminal.
B) LNG Import: LNG Import, Storage and Regasification Terminal.
C) Both: LNG Receiving, Storage, liquefaction/regasification and Reshipment Terminal.
All of Europe’s LNG terminals are import facilities, with the exception of (non-EU) Norway and Russia which export LNG via three terminals:
i) Snohvit LNG Export Terminal, Melkoya Island, Hammerfest, Norway.
ii) Baltic LNG Export Terminal, port of Ust-Luga, Russia.
iii) Kriogas-Vysotsk LNG Export Terminal, port of Vysotsk, Russia.
There are currently twenty-eight large-scale LNG import terminals in Europe (including non-EU Turkey). There are also eight small-scale LNG facilities in Europe (in Finland, Sweden, Germany, Norway and Gibraltar). Figure 9 helps in understanding the European natural gas inflows and cross-border movements. Thicker and darker lines represent larger transmission capacities as of December 2021. Direction of flows within EU and individual pipelines not shown. Dotted lines represent import pipelines into Europe. Dashed yellow lines represent pipelines expected to come online in the next twelve months.
3.1. European Gas Supplies Augmentation
Possibility of augmentation of gas supplies from European reserves lies only with Norway. However, Norway cannot sustainably supply gas to Europe over long term. Table 4 clearly indicates that current reserves to production ratio for Norway is 12.8 years and this will drop down to 6.4 years in case supplies are doubled.
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Figure 9. European cross-border gas transmission & import points. Source: IMF report [2].
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Table 4. Gas reserves ability to supply gas to Eurpean nations―Norway.
3.2. US Shale Developments Increased LNG Supplies to Europe
US Shale developments have changed the US status from an energy importing country to largest Oil (and major LNG) exporting country in the world. US has all the more interest to sell its abundant LNG to rich Western European nations. The U.S. Department of Energy (DOE) has recently approved 36 applications from 24 facilities in the lower-48 states for permits to export liquefied natural gas (LNG) to non-free trade agreement nations. As of now, Four LNG Export (liquefaction, storage and export) terminals are operational in US:
i) Dominion Energy’s Cove Point LNG facility in Cove Point, Maryland.
ii) Sabine Pass LNG, a Cheniere project in Corpus Christi, Texas.
iii) Sempra Energy’s Cameron LNG terminal, located in Hackberry, Louisiana.
iv) Freeport LNG’s terminal at Freeport, Texas.
Since majority of European gas imports were coming from Russia, there occurred a direct economic conflict between Russia and US for energy supplies to Europe. US has always supported Europe in reducing its dependence on Russian gas, recent changes in Europes gas imports are shown in Figure 10.
However, there have been serious price consequences for diverting large quantities of US LNG towards European region by cutting off Russian gas supplies through pipelines. Figure 11 explains the price shocks faced by gas consumers worldwide as a result of refusal to take Russian gas.
3.3. Augmented Gas Supplies through Southern Gas Corridor (via TANAP)
Southern gas corridor is currently receiving natural gas from Azerbaijan’s Shah Deniz field, however there is possibility of connecting this line to Kazakhstan to receive additional gas. However, the gas is transported over a long distance of over 3000 km which directly impacts its landed price in Europe. Table 5 indicates high current reserve to production ratio of 96.9 years which will drop to 48.45 years in case production is doubled.
Kazakhstan also has significant gas fields including Kazakh, Tengiz, Karachaganak, and Zhanazhol with total gas reserves of 2.3 TCM. Table 6 indicates current reserves to production ratio is 71.2 years which will drop to 35.6 years in case production is doubled.
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Figure 10. Recent increase in US LNG supplies to North West Europe. Source: Shell LNG Outlook 2022 [27].
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Figure 11. Fluctuations of energy prices, impending Ukraine crisis and beyond. Source: IMF Report [2].
Both Azerbaijan and Kazakhstan, through Southern Gas Corridor, are a viable option for sustainable gas supplies to Eastern Europe, nations in the East have been traditionally more dependand on Russian gas and are also comparatively less capable of paying the high LNG prices that Western Europe is paying. Figure 12 provides and idea of share of total gas imports on European nations energy mix.
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Table 5. Gas reserves ability to supply gas to Eurpean nations―Azerbaijan.
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Table 6. Gas reserves ability to supply gas to Eurpean nations―Kazakhstan.
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Figure 12. Eastern European countries’ dependance on Russian Gas Was Traditionally Large. Source: IMF Report [2].
3.4. Supplies from East Mediterranian Fields
The East Mediterranean Gas Forum (EMGF) was announced in 2019 in Cairo. In September 2020, it actually came into being as an intergovernmental organization based in Cairo that included Cyprus, Egypt, Greece, Israel, Italy, Jordan and Palestine. Offshore gas discoveries, and the potential for more discoveries to come, particularly those off of the Israeli and Cypriot coasts in deep waters are complex and expensive to develop. Insufficient infrastructure, limited local markets and geopolitical tensions added to these challenges. The establishment of the EMGF responds to the need for a regionally coordinated effort to unlock the full potential of Eastern Mediterranean offshore gas wealth.
Today EMGF is an 8-member alliance that includes Cyprus, Egypt, France, Greece, Israel, Italy, Jordan and Palestine, its observers include the United States, the European Union, and the World Bank. EMGF’s Vision statement included the following:
i) Developing policies and strategies for cooperation to enable adequate planning thus building a clear future vision for the region.
ii) Fostering cooperation between forum member countries to manage sustainable, efficient and environmentally conscious use of natural gas resources.
iii) Establishing a structural and systematic dialogue to unlock the full gas resource potential of the region leading prospectively to the development of a regional gas market.
Prior to signing of EMGF, Cyprus took the initiative to what effectively amounts to decoupling the energy issue from political complications by negotiating and signing border delineation agreements in relation to EEZs with Egypt (2003), Lebanon (2007, not yet ratified by Lebanon), and Israel (2010), refer Figure 13. Other border issues remain contested, notably in the case of Cyprus and Turkey, as well as regarding borders between Israel and Egypt and between Lebanon and Israel.
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Figure 13. Demarcation of exclusive economic zones in East Mediterranean Sea. Source: NPMS US DOT [28].
Figure 14 identifies major gas discoveries in East Mediterranian region while Figure 15 provides existing and planned gas pipelines to export gas from Eastern
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Figure 14. Nomenclature of major gas discoveries in East Mediterranean Sea. Source: NPMS US DOT [28].
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Figure 15. Existing and planned pipeline network connecting Europe with East Mediterranean Sea Gas Reserves. Source: NPMS US DOT [28].
Mediterranean Sea. Offshore pipeline is the only viable option due to opposition created by Turkey. Till the time EMGF remains unable to resolve their differences with Turkey, LNG export from Egyptian liquefaction plant becomes all the more attractive for EU nations, eager to replace Russian gas/LNG with alternate sources.
According to Euractiv website [29], East Mediterranean gas reserves are termed as “blue gold” reserves. Offshore Cyprus, Cypriot fields in exclusive economic zone (EEZ), is divided into 12 blocks (refer Figure 16) potentially rich in gas, however disputed by Turkey. Italian firm ENI and France’s Total are also mounting exploration activities further west, particularly in block 6 at a site called Calypso, which could contain between 170 and 225 BCM of gas. In block 10, US giant ExxonMobil and Qatar Petroleum announced the discovery in 2019 of the Glaucus-1 field, which could house 130 BCM of gas.
3.5. Importance of Egypt for Enhancing European Gas Supplies
Damietta LNG Export Terminal was the first facility of its type in Egypt and among world’s largest capacity single train facilities, commissioned Q4 2004. The Spanish Egyptian Gas Company (SEGAS) operates LNG complex in Damietta, situated on the Mediterranean Coast 60 km west of Port Said. SEGAS, is controlled by Union Fenosa Gas in conjunction with ENI of Italy (80%) and two state-owned Egyptian companies, EGAS (10%) and EGPC (10%).
The Egyptian LNG (ELNG) project, also known as the Idku LNG Export Terminal, is located approximately 50 km east of Alexandria. ELNG is a joint venture of state-owned EGPC and EGAS, and three IOCs namely Shell, Petronas, and
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Figure 16. Gas fields in the vicinity of Egypt. Source: U.S. Department of State (Unclassified).
Engie. LNG Export terminal consists of two natural gas liquefaction trains with a combined capacity to produce 7.2 million tons of LNG per annum (Mtpa).
i) Train-1: El Beheira Natural Gas Liquefaction Company (EBNGL), JV of Shell (35.5%), Petronas (35.5%), EGAS (12%), EGPC (12%), and Engie (5%), owns the first train of the Egyptian LNG.
ii) Train-2: Ownership of the second train is held by the Idku Natural Gas Liquefaction Company (INGL), which comprises Shell (38%), Petronas (38%), EGAS (12%), and EGPC (12%).
Table 7 indicates that Egypt has a reasonable reserve to production ratio of 36.6 years at current gas production rate which will drop to 18.3 years in case production is doubled, refer Figure 16 for location of major oil and gas fields in Mediterranian Sea.
Libya, adjacent to Egypt, has a high current reserve to production ratio of 107.4 years which will drop to 53.7 years in case production is doubled (refer Table 8).
Refering Table 9, Algeria can also be relevant to enhancement of gas supplies
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Table 7. Gas reserves ability to supply gas to Eurpean nations―Egypt.
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Table 8. Gas reserves ability to supply gas to Eurpean nations―Libya.
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Table 9. Gas reserves ability to supply gas to Eurpean nations―Algeria.
to Europe as it has a reasonable reserve to production ratio of 28 years which will drop to 14 years in case production is doubled.
Recently, in their publication Middle East Policy [30], Dr Shin and Dr Kim (Dr. Shin is an associate professor in the Department of Entrepreneurship and Small Business, College of Business Administration, Soongsil University, Korea. It asserted that the ongoing discoveries of natural-gas reserves in the eastern Mediterranean region significantly affect international relations because their viability has been increasingly confirmed and are attracting public attention in the international energy market. Anticipated gas production in the sea will have significant impacts on world energy trade and on geopolitical relations in the Middle East and Europe, possibly changing geo-economic strategies of global energy-market players.
Egypt is having two operational LNG Export Terminals and surrounded by significant gas reserves potential of Eastern Mediterranean region. Bypassing Egypt’s Exclusive Economic Zone is not possible for any commercially viable offshore gas pipeline connecting Eastern Mediterranean gas reserves with EU countries.
3.6. Improtance of Turkey in Augmenting European Gas Supplies
According to the report published by European Council on Foreign Relations (ECFR) [31], in the eastern Mediterranean, a scramble is under way between regional countries for access to recently discovered gas fields, the unresolved dispute in Cyprus and long-standing rift between Turkey and Greece. These disputes have also now grown to encompass the civil wars in Libya and Syria, and have drawn in states from as far afield as the Gulf and Russia. February 2020 deployment by French aircraft carrier to defensively stalk Turkish frigates sailing near contested gas fields near Cyprus changed EMGF perception as an anti-Turkey club. Greece and Cyprus have sought to leverage the undersea gas reserves and the creation of the EMGF grouping to improve their own political standing, at Turkey’s expense and with active US support. However, it is difficult to actively pursue agenda of EMGF in the noticeable absence of Turkey, due to its overlapping maritime claims, vast domestic market, and potential as a transit route for eastern Mediterranean gas exports.
Figure 17 gives an idea of recent Turkish exploratory efforts in Mediterranian Sea. Israel and Egypt maintain acrimonious relations with Turkish president Recep Tayyip Erdogan, while the forum’s anti-Turkey slant has also attracted the UAE, which is engaged in an acute regional rivalry with Turkey. This fault line is starkest in Libya, where Turkey and the UAE provide military support to opposite sides in the deepening civil war. In November 2019, Ankara and the internationally recognized Libyan government struck a partnership agreement on a maritime boundary, which created an exclusive economic zone that cuts across Greek and Cypriot interests. The move seeks to preclude the proposed EastMed pipeline, which is planned to bring gas to European markets from Israel, Egypt, and Cyprus. Turkey has also recently applied for licenses to start drilling off the coast of Libya.
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Figure 17. Turkey (grey) agreed with Libya (green) in 2019 on a maritime border, argued by Ankara as fair and equitable. Source: TRTWorld [32].
3.7. Geopolitics involved in Gas Supplies to Europe
Remarks of U.S. Ambassador to Egypt Jonathan R. Cohen (October 21, 2020) [33].
“…The United States is also the third-largest source of foreign investment in Egypt, and our companies are thriving in critical sectors across this growing economy… We owe much of our success on economic and commercial issues in Egypt to our outstanding cooperation with the American Chamber of Commerce (AmCham)… With the signing of this agreement, AmCham Egypt joins forces with AmCham Greece and AmCham Cyprus to promote increased trade and investment among the United States, Egypt, Greece, and Cyprus. The agreement highlights the U.S. private sector’s essential role not just in advancing bilateral commercial ties, but also in supporting deeper economic integration among East Mediterranean countries…This memorandum, as well as the recent establishment of the East Mediterranean Gas Forum (EMGF), underscore the private sector’s vital role in deepening international cooperation and promoting regional stability…America means business in Egypt, and in the Eastern Mediterranean. We have important work ahead of us.”
Announcement by Boston Consulting Group, BCG US, February 14, 2022 [34].
Francesco Palmieri, BCG managing director & senior partner and a co-leader of the project said:
“To support EMGF with the establishment of an effective long-term strategy funded by the European Union, BCG was appointed in September 2021 to carry out phase one of the project, including seven strategic objectives to articulate the role of EMGF along the natural gas value chain (upstream, midstream, and downstream) and enablers (Environment & energy transition, advocacy, private sector engagement, and data sharing). Phase one has been successfully completed and approved by Ministers of the member countries. Over the next few months, BCG will carry out phase two of the project…The announcement was made at the 2022 Egypt Petroleum Show (EGYPS); the leading oil, gas, and energy exhibition and conference event for Egypt, North Africa, and the Mediterranean; in Cairo.
A published article [35] explores the role of energy in regionalization processes, assessing the case of natural gas finds in the Eastern Mediterranean (East Med). It is contended that energy geo-politics go beyond analyzing the East Med energy region through the prism of security studies, which arguably is a function of both theoretical path dependence and a lack of attention to the insights from energy studies. East Mediterranean gas discoveries depict a typical example of the role of energy in regionalization processes, it is gradually becoming evident that energy resources can have truly transformative implications for the social and political dynamics of a region. Energy is setting in motion new forms of region-building and the emergence of new governance logics that may evade hard security or strictly economic logics, often referred as the “energization” of regions. Crucially, there are private companies, non-state actors, and hybrid public-private arrangements that are emerging in the picture to steer the control away from state-centric policies.
4. Analysis
In the context of East Mediterranean gas resources, Egypt and Turkey are currently competing each other to take a leading role in developing a gas transport hub. Traditionally, Turkey has been an active candidate of transit gas supply-route to Europe with significant gas infrastructure projects to its credit. Turkish advantage is its geographical positioning to act as an effective and feasible land link for alternate gas supplies, to EU nations, from gas rich Central Asia and Middle East, an existing alternate route for reducing EU dependence on Russian gas supplies.
However, this situation was challenged by Egypt due to recent significant discoveries in East Mediterranean Sea and development of EMGF grouping. Operational base of EMGF exists in Egypt. There is a need to realize that efforts pursued by US and EU to augment alternate (other than Russian origin) gas supplies to Europe can be seen as supplemental, rather than competitive, to Turkey’s quest to act as a gas supply hub. Currently, the gas infrastructure in Egypt, or in East Mediterranean region, is not developed enough to fully take on the gas requirements posed by EU nations in near future. The market actors, investment, demand and supply patterns, and regulation, are likely to increase the exposure of East Mediterranean region to global dynamics. Multi billion dollars are required to develop East Med upstream and transport pipelines. Raising the capital for energy investment presents a challenge, even for large players. The international gas markets remained soft till 2021 due to significant upstream projects coming online in Qatar, Australia, and other places. Winter of 2021-2022 saw markets tightening again, with increased interest in gas investments. For European supplies, four major external suppliers―US, Russia, Norway, and Algeria―currently compete for market share with each other as well as with LNG sourced from other countries. Serving the European market is a question of price competitiveness, a function of capital, production, and pipeline infrastructure costs as well as transit fees.
Moreover, specific physical properties of natural gas, for example, put important limits on strategies of simply stopping supplies. A security practice aimed at curbing physical delivery requires complex infrastructures―e.g., facilities to store the non-supplied gas. Natural gas is significantly different from Oil (a liquid, high-energy density resource with ease of transportation and handling). The volatile character of natural gas, by contrast, makes transportation much more difficult. This made gas trade historically reliant on national and transnational pipelines, limiting the geographic scope of natural gas trade. As a consequence, the governance of oil has a strong global dimension, whereas the governance of natural gas tends to be organized regionally. This started to change with the development of the liquefied natural gas (LNG) technology and the US shale gas revolution, resulting in the United States becoming a net exporter for the first time.
Turkey has emerged to be very important in the context of enhancement of gas supplies to Europe, be it from Azerbaijan, Kazakhstan or Egypt. However, one important factor related to gas supplies from Azerbaijan and Kazakhstan is Russian influence in the region which may prove to be a retarding factor in the development of Central Asian infrastructure for gas supply augmentation to Europe.
EU’s requirements for the separation of infrastructure ownership from gas sales and production, and oversight by independent regulatory authorities for import pipelines are not opposed by Turkey as it is a net importer of gas and a gas transit country. For Egypt, to be a supplier of pipeline gas to Europe, this is
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Table 10. Comparative analysis of European gas import options.
an important concern if it wants to become part of pipeline infrastructure for gas supplies to Europe while also aspiring to sell its gas to EU nations. Such restrictions do not hinder LNG imports to Europe. The interstate interactions are transitioning from outright geopolitics to indirect forms of competition eventually paving the way for possible cooperative stance of Turkey and Egypt (and other regional nations) towards development of a joint gas trading hub, wherein piped natural gas and LNG supplies will be supplementing each other, rather than competing. Table 10 provides a comparative analysis of various gas import options for Europe.
5. Conclusions
Figure 10 and Figure 11 clearly indicate that with the increase in LNG supplies from US to Europe (thereby curtailing Russian gas supplies), world energy prices went up tremendously. This is clearly an un-sustainable scenario in the short as well as long term as it is leading to severe recession. It is not even sustainable for the US LNG suppliers as higher LNG prices will ultimately lead to significant demand destruction worldwide for LNG (specially).
Bringing Turkey to EMGF would help in de-escalation of regional tensions. The EU should propose Turkish access to the EMGF as an entry point to a wider deal. This would also help improve relations between Turkey and Egypt, and ease exploration and development tension between the EU and Turkey. From the foregoing discussion and data, following can be easily inferred:
● Egypt and Turkey have the potential to become part of gas hub in East Mediterranean region. Augmentation of existing gas pipeline network can help in fulfilling the much-needed gas requirements of EU nations.
● Availability of LNG liquefaction terminals, with augmentation as required, can jump-start the alternative gas supplies anticipated/sought by Europe in near future.
● Egypt is maintaining good relations with Russia while significant quantities of Egyptian crude are supplied to China. Political support for Egypt’s pursuit to act as energy supply hub in East Mediterranean is actively available from EU nations and US.
● To act as a gas supply hub and to develop regional energy cooperation through development of trans-national gas pipelines, Egypt needs to resolve issues with Turkey and support inclusion of Turkey in EMGF. In the long run, this will help Algeria and Libya to be part of this gas supply option.
In conclusion, with reference to Table 10, a hypothesis is generated which constitutes relevant variables and basic elements of key issue at hand. The forming up of the premise is expected to help detailed research related to development of most sustainable gas supply option for Europe, with following characteristics:
A) Mediterranian gas import is a sustainable long-term gas supply option for Europe under severe geo-political and geo-economic conflicts.
B) Europe needs to support expeditious resolution of regional disputes to realize “A” above.
C) FID and construction contracts need to be executed with appropriate mechanisms in place (safeguarding investors and project beneficieries) to handle situations described at “A” above.
Abbreviations
Abbreviations for country names used in this article are ISO Country Codes [1]
AmCham―American Chamber of Commerce
BBL―Barrel
BCFD―Billion Cubic Feet per Day
BCMA―Billion Cubic Meter per Annum
BOTAS―Botas Petoleum Pipeline Corporation, Turkey
BP―British Petroleum Limited
DPR―Donetsk People’s Republic, Ukraine
EA―Euro Area (Comprising floating/expanding country list―currently 19 Members)
EC―European Commission
ECFR―European Council on Foreign Relations
EIA―Energy Information Administration (US)
EMGF―Eastern Mediterranian Gas Forum
ENTSOG―European Network of Transmission Sytem Operators for Gas
EU―European Union (Comprising original 11 Members)
FID―Final Investment Decision
FSRU―Floating Storage and Regasification Unit
FSU―Floating Storage Unit
HH―Henry Hub
JKM―Japan Korea Marker
LPR―Luhansk People’s Republic, Ukraine
LUKoil―A multinational oil company headquartered in Moscow
MCMD―Million Cubic Meters per Day
MMBTU―Million British Thermal Unit
MMSCFD―Million Standard Cubic Foot per Day
MTPA―Million Tons Per Annum
NBP―National Balancing Point (UK)
SCP―Southern Caucasus Pipeline
SGC―Southern Gas Corridor (Closed Joint Stock Company)
SOCAR―State Oil Company of Azerbaijan Republic
TANAP―Trans Anatolia Pipeline
TAP―Trans Adriatice Pipeline
TCF―Trillion Cubic Feet
TCM―Trillion Cubic Meter
TPAO―Turkiye Petrolleri Anonim Ortakligi (Turkish)
TTF―Title/Trade Transfer Facility (Dutch)
WTI―West Texas Intermediate