Mediterranean Policy Program

Eastern Mediterranean Energy Project

Policy Brief
June 2012

Summary: This policy brief introduces five reports on the opportunities and risks associated with recent gas discoveries in the eastern Mediterranean. It concludes with a number of recommendations to the parties in the region, the United States and the European Union.

Energy Resources in the Eastern Mediterranean: Source for Cooperation or Fuel for Tension Preliminary Reports and Recommendations
by Michael Leigh
The German Marshall Fund has published five reports on the implications of recent discoveries of natural gas in the eastern Mediterranean. These complement the publication earlier this year of an overview paper entitled Energy Resources in the Eastern Mediterranean: Source for Cooperation or Fuel for Tension, which is the title of GMFs Eastern Mediterranean Energy project. The five more recent reports form part of a series that will include a number of additional policy briefings, conferences, and workshops, focusing in more detail on the implications for the European Union, the United States, Russia, Israel, Turkey, Cyprus, and Lebanon. The report by Brenda Shaffer of the University of Haifa gives an overview of discoveries to date and sets out the prospects for exploration and production of natural gas from offshore sites in Egypt, Israel, Gaza, Lebanon, and Cyprus. It provides estimates of the volumes likely to become available in coming years as well as the key regulatory and commercial issues arising in each case. Tullio Scovazzi of the University of Milan Bicocca explains the delimitation disputes in the eastern Mediterranean, notably between Israel and Lebanon and between Cyprus and Turkey, in terms of the relevant principles of maritime law, especially the United Nations Convention on the Law of the Sea. Mehmet t of Global Resources Corporation, U.K., analyzes the implications of the gas discoveries for Turkey, especially in terms of the division of Cyprus, Turkeys energy security, and Ankaras relations with Israel, the United States, and Russia The implications of the gas discoveries for the United States is the main focus of the report by Jeffrey Mankoff of the Center for Strategic and International Studies in Washington, against the background of other challenges in North Africa and the Middle East. In his report, Simon Henderson of the Washington Institute for Near East Policy highlights the options facing Israel in making best use of natural gas from offshore sites domestically or through export as well as Israels security concerns.

1744 R Street NW Washington, DC 20009 T 1 202 745 3950 F 1 202 265 1662 E info@gmfus.org

Eastern Mediterranean Energy Project

Policy Brief
Implications These reports are part of an ongoing project. Nonetheless, a number of implications can already be distilled from them. Gas and oil discoveries in the eastern Mediterranean can strengthen the energy security of the countries concerned and bring benefits to their citizens but carry a number of uncertainties and risks. There are a number of potential benefits for Cyprus, Israel, the Palestinian Authority, and Lebanon, including: More reliable electricity supplies at competitive prices; Less reliance on energy imports from uncertain suppliers; A cleaner energy mix based on natural gas; More abundant water supply from desalinization plants fuelled by natural gas and potentially less conflict in the region over water; Sounder public finances through increased tax revenues; Improved trade balance and gross domestic product (GDP); and Investment in upstream and downstream industries bringing economic diversification. Benefits for the European Union include: Reinforcement of the economy of Cyprus, a member state highly exposed to the euro crisis, and of two associated states, Israel and Lebanon, hitherto dependent on energy imports; Diversification of energy sources, both in terms of geographic origin and type of energy; and Increased overall energy security. Benefits for the United States include: Profitable investment opportunities for U.S. based companies; Strengthened economic prospects for Israel and Greece as well as Cyprus; and Possible diversification of supply away from Russia for U.S. allies, especially in southeast Europe. Benefits for Turkey include: Potential access by Turkish Cypriots to revenues from energy production and reduced economic dependence on Turkey; Increased interest in the Southern Corridor, especially if political circumstances permit transport of gas from the eastern Mediterranean to Europe through Turkey; and Increased incentives for exploration offshore Turkey in the Mediterranean. Political risks include: Delimitation disputes, mainly affecting Israel/Lebanon and Cyprus/Turkey; Underlying political conflicts, including the division of Cyprus, Israels state of war with Lebanon, the Israel/ Palestinian conflict, and tensions between Israel and Turkey following the Gaza flotilla incident; Uncertainties concerning the political regimes in Egypt, Lebanon, and Syria; and Spillover from regional turbulence, especially in Syria. Security risks include: Possible naval and aerial incidents, notably involving Israel and Turkey; Escalation of such incidents; Security of energy installations, especially when located far offshore; and Terrorism. Recommendations Against this background a number of preliminary recommendations can be derived from the five reports. The United States and the European Union should give greater priority to opportunities and risks in the eastern Mediterranean. The United States and the EU should include this topic in high level political dialogues with the countries in the region, Turkey, and Russia, and engage in preventive diplomacy.

Eastern Mediterranean Energy Project

Policy Brief
The United States and EU member states should warn their allies in the region of the risks of escalation and discourage brinkmanship. The United States, EU, Israel, and Cyprus should hold consultations on maritime security, especially the security of offshore installations. The EU should establish enhanced energy dialogues with Israel, Egypt, Lebanon, and Turkey with a view to sharing best practice and supporting investment in energy infrastructure. The feasibility of public-private partnerships should be considered. The Republic of Cyprus and Turkey should consider possible interim agreements on the energy sector, pending progress with the UN Cyprus settlement talks. The Republic of Cyprus should give further consideration to a confidence-building measure in the form of an escrow account for energy revenues, from which both communities on the island will benefit. Turkey should avoid the risk of military incidents through patrolling close to Israeli and Cypriot gas fields. Turkey, Cyprus, and Israel should consider the scope for tripartite consultations, with third-party facilitation, on risk reduction and exploration/production issues. Lebanon and Israel, as well as Cyprus and Turkey, should consider recourse to third-party arbitration, mediation, or facilitation regarding delimitation disputes. Israel, Cyprus, and Greece should pursue cooperation on the energy sector and should be ready to include other regional states, including Turkey, in the process, when political circumstances permit. Lebanon should strengthen its administrative capacity for regulating the energy sector, including efficiency and transparency of tendering procedures and the award of licenses, on the basis of best practice in existing gasproducing states. Israel and the Palestinian Authority should reconsider the conditions under which exploration and production offshore Gaza could be pursued. All regional states should improve environmental regulation and oversight to prevent an environmental disaster. The NGO community, with the support of public and private sector partners, should organize regional workshops at the expert and civil society level to help build consensus in favor of the above recommendations.

About the Author

Sir Michael Leigh is senior adviser to the German Marshall Fund of the United States and leads a GMF project on energy in the eastern Mediterranean. The views expressed here are the views of the author alone and do not necessarily reflect the stance of either The German Marshall Fund of the United States or the authors of the five pieces cited.

About GMF
The German Marshall Fund of the United States (GMF) is a nonpartisan American public policy and grantmaking institution dedicated to promoting better understanding and cooperation between North America and Europe on transatlantic and global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has six offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, and Bucharest. GMF also has smaller representations in Bratislava, Turin, and Stockholm.

Eastern Mediterranean Energy Project

Policy Brief
Map 1 The Republic of Cyprus EEZ delimitations and hydrocarbon research blocks, and Turkeys continental shelf claims

Source: International Crisis Group, Aphrodites Gift: Can Cypriot Gas Power a New Dialogue? Europe Report no. 216 (April 2, 2012).

Eastern Mediterranean Energy Project

Policy Brief
Map 2 The Turkish Cypriots claimed hydrocarbon research blocks

Source: International Crisis Group, Aphrodites Gift: Can Cypriot Gas Power a New Dialogue? Europe Report no. 216 (April 2, 2012).

ii

Eastern Mediterranean Energy Project

Policy Brief
Map 3 Disputed border area between Israel and Lebanon

Source: PFC Energy, Memo Petroleum Risk Manager (May 2012).

iii