The Arab protests and additional European Union sanctions against Iran and Syria have had major ramifications on current and future natural gas supplies and trade. What has made serious dents in national energy portfolios has garnered surprisingly little coverage in the international media, but involves a vast network of pipelines that are intended to connect the Middle East, Central Asia and Europe, reports Paul Cochrane in Beirut.
Delays and Sabotage
The first setback was to a pipeline project that was supposed to enable, in the words of a pan-Arabist at the Egyptian Natural Gas company, “the dawn of Arab integration” when work started in 2003. The Euro-Arab Mashreq Gas Pipeline (AGP) was intended to run 1,200 kilometers through Egypt, Jordan, Syria and end in Turkey. Egypt was to provide gas to Jordan and an off-shoot pipeline of the AGP from Arish, Egypt to Ashkelon, Israel. What gas Jordan did not consume would be piped to Syria, where Syria would then add its gas into the mix – with an off-shoot pipeline to Tripoli, Lebanon – and export gas onto Turkey, whether for Turkish consumption or to be transported onto gas-hungry Europe.
While the AGP had delays and was supposed to be finished by 2007, the pipeline had reached the last leg, from Aleppo, Syria, to Kilis, Turkey, slated for completion by the end of 2011. But the Egyptians took to the streets, President Hosni Mubarak was overthrown, and the AGP came under sustained attacks in Egypt's Sinai Peninsula with 14 acts of sabotage and attempted attacks throughout the year and well into 2012.
Egypt's gas supplies plummeted from 220 million cubic feet (mcf) per day in 2010 to 80 mcf in 2011 to negligible levels in 2012, when the pipeline was shutdown. It has cost the Israelis at least $4 billion to source gas from elsewhere, as well as having lost the highly controversial, preferential pricing deal that Mubarak and his cronies had inked with Tel Aviv in 2005, at anywhere from $0.70-$1.50 per million British thermal units (BTU), according to Egyptian media, to $2-$4 per million BTU, according to Israeli media – both well below the global average of $6-7.
Jordan also had a special price arrangement with Cairo of $3 per million BTU, but with no Egyptian gas through the pipeline, Amman has lost access to 20-25% of its gas needs, prompting the government to raise electricity prices by 9% in early 2012, which it later back-tracked on due to public outcry (Amman is keen to avoid any further reasons for the populace to protest). To make up for the short fall, Jordan has had to switch to heavy fuel oil and diesel, adding on a projected $2.4 billion to the cash-strapped kingdom's energy bill.
Syria has been marginally affected as well, having received around 50 million mcf a day of Egyptian gas – or 8% of the country's annual needs – prior to the shutdown.
Egypt turning off the pipeline has shown a chronic weakness of the AGP: the pipeline was simply over-dependent on Egyptian gas. If Egypt stopped piping gas, then Syrian gas could be piped in the opposite direction to make up for the short-fall in Jordan, but despite Syria having some 8.5 trillion cubic feet (tcf) of gas reserves, domestic and projected consumption is higher than production, meaning Syria is, and will remain, a net importer.
Egypt's domestic consumption has also been steadily rising – as has Jordan's.
So even if the AGP had been completed, whether in 2007 or the end of 2011, the only real beneficiary was Jordan, and to a lesser degree Lebanon (while the Egyptians were financially losing out due to Mubarak’s deal-making). The AGP is a nice idea, like Egyptian President Gamal Abdel Nasser's pan-Arabist ideals of the 1950s and the attempt at an United Arab Republic, but has proved equally untenable. What could inject new life into the AGP is if gas were piped from Qatar and Iraq to Syria, as well as from Iran and Central Asia via the projected Nabucco pipeline through Turkey.
An LNG tanker sails through the Bosphorus (Paul Cochrane)
The Turkish Connection
“If a pipeline comes from Iraq or Qatar there would be a principle pipeline, and a viable network,” said Ziad Ayoub Arbahe,an energy consultant in Damascus. However, piping gas from the east would require greater stability in Iraq, as well as of course in Syria now. The ongoing uprising in Syria caused the final leg of the AGP to be put on hold until the situation calms down. Given stability and willing investors in both Syria and Iraq, Damascus would stand to gain as a major transit hub. As Naeem Danhash, Project Director of the Euro-Arab
Mashreq Gas Co-operation Center (EAMGCC) in Damascus explained: “the medium- to long-term prospects for Syria to become a gas hub are excellent.”
Turkey also has greatprospects if regional geopolitics allowed for the stability needed for pipeline investment, given the country's strategic position at the crossroads between the energy-rich East and the energy hungry West.
The most audacious plan came following a meeting of five companies in 2002 (OMV of Austria, MOL Group of Hungary, Bulgargaz of Bulgaria,Transgaz of Romania and BOTAŞ of Turkey) to establish a pipeline to transport Middle Eastern and Central Asian gas some 3,000 kilometers via Turkey to Baumgarten in Austria. After the five companies met, the executives attended a performance of Verdi's Nabucco at the Vienna Opera House, and the name for the pipeline was coined: Nabucco. By 2009, deals had been inked and pipes were to be laid in 2010 with gas to flow by 2013.
Back then, Nabucco was big news and hailed as the EU's future gas lifeline after Russia caused serious alarm about energy security when Moscow stopped exports to Europe via Ukraine in the icy winter of January 2009. The impetus was there, but the Nabucco pipeline has not materialized due to ongoing financial issues – costs were projected at $10.25 billion but recent forecasts estimate it could cost over $25 billion – and the realization that the project is only commercially viable if there is access to the world's second largest gas reserves for the Nabucco mix. That possibility is now impossible, as the EU, following the U.S. lead, recently smacked sanctions on Iran to pressure the country to abort its alleged nuclear weapons program. This resulted in the EU stopping all imports of Iranian oil – some 4-5% of the EU's oil imports – as well as gas. As Dr. Tugce Varol, a Scientific Advisor at the 21st Century Turkish Institute in Ankara, stated bluntly: “Nabucco is dead.”
The irony is that the EU has repeatedly denounced the stranglehold Russia has over Europe's natural gas imports, accounting for 34.2% of total European imports, and that Nabucco was meant to loosen Moscow's grip. This is a similar story in Turkey, also not keen to have to rely on Russian gas, yet Ankara – for political reasons – has commissioned the Russians to build a $20 billion nuclear power plant in which Russia will retain 51% shares, as well as having all the technical know-how.
Turkey was also pressured by Washington to lower its oil imports from neighboring Iran (about 30% of Turkish demand) by a tenth in March 2012. And then there is a serious possibility of a falling out between Ankara and Tehran over the explosive situation in Syria. In the end, Turkey needs pipelines to be constructed on its soil.
Varol concluded that: “an energy crisis is coming. Turkey will need more than 60 billion cubic meters (bcm) of natural gas in the next five to 10 years. There are contracts for 52 bcm, and some liquefied natural gas (LNG) contracts, but there is a need to find new energy. Turkey gets 10 bcm gas from Iran but if that stops, then Turkey is in a catastrophic situation.”
A man works on part of the AGP in Syria (courtesy EAMGCC)
The Russian Play
With Nabucco dead in the water, a new project is to be fast-tracked, the TransAnatolian Pipeline (TANAP), announced in November 2011 at the 3rd Black Sea Energy and Economic Forum in Istanbul, and a memorandum of understanding was signed between Ankara and Baku to establish a consortium to build and operate the pipeline, which is to run from Azerbaijan through Georgia to Turkey and onto Europe. Despite claims that TANAP will eventually be realized, it is still years off and Azeri gas alone will not be sufficient to cater to Turkish and European needs or have the capacity to provide enough gas for the countries connected via the Arab Gas Pipeline.
Iranian gas is needed, but the West's hypocritical stance over Tehran's nuclear program (Israel can have an undeclared nuclear arsenal but Iran cannot develop nuclear energy for civilian purposes like the Emirates) has squandered any possibility of accessing such needed energy. The winner from Europe's strategic mistake of blindly following Washington and Tel Aviv's stance on Iran is Russia, which will be able to bolster its gas export capabilities to Europe, consolidate its power in Central Asia, and have a firm friend in energy-starved Turkey. Moscow's assertiveness could sabotage another pipeline that would give Europe indirect access to Central Asian gas – the Trans-Caspian Pipeline between Turkmenistan and Azerbaijan – to give preference to the Russian-Italian backed South Stream pipeline.
The Israel-Greece-Cyprus Axis
Natural gas is proving to be a useful foreign policy tool in the eastern Mediterranean. All countries are waiting and hoping for more stability in Egypt and Syria for the gas to start flowing again, and for the AGP to be completed so that gas can be piped in from Turkey.
The politically-motivated preferential gas deal between Egypt and Israel that ended in the wake of the ouster of Hosni Mubarak has been a setback for Israel, costing an extra $4 billion a year and enabling Cairo to make more commercially viable demands of the Israelis for the gas to start flowing again.
However, the discovery in 2010 of the underwater natural gas field – the “Leviathan” – off of Israel's northern coast provided some leverage. The Leviathan could offer enough for domestic consumption and potentially for export. Lebanon shares the gas field with its southern neighbor but politicians just bicker over which ministry will get the spoils even before prospecting has begun.
In 2011, the Israeli gas find was used as a bargaining chip with Greece to prevent a second freedom flotilla from setting sail to attempt breaking the blockade of the Gaza Strip. As confirmed by a Greek consular official in Canada, Athens put its economic interests at the fore in cooperating with Israel to prevent the flotilla from departing from Greek ports. The incentive for cash- strapped Greece was future gas and electricity sharing deals with Israel.
Greece currently consumes 3.75 billion cubic metres (bcm) of gas per year, which is slated to rise to 9.3 bcm by 2020. Not wishing to be reliant on Russian gas via the South Stream pipeline, Athens was scouting for other sources – Israel and Cyprus' gas finds seemed ideal to offset forecasted demand.
In March 2012 the energy ministers of Greece, Israel and Cyprus agreed to bolster cooperation to exploit natural gas deposits in the eastern Mediterranean. The long-term plan is for gas exports to go from Israel and Cyprus to Greece, but the laying of pipe on the sea bed is slated to take at least eight years, meaning sharing of gas-produced electricity via undersea cables is more probable in the short-term.
“At the moment two major natural gas fields have been identified... both of them will suffice for Israel's needs for 50 to 60, some say 70, years,” Associated Press reported Israel's Energy Minister Uzi Landau as saying in Athens. “In the Middle East that is now caught in a tremendous earthquake, stretching from the Atlantic to the Persian Gulf and beyond, the axis of Greece, Cyprus and Israel will provide an anchor of stability.”
The politics of pipelines and the changes underway across the region are going to cause many challenges in the years ahead until some of these competing gas projects become more than just pipe dreams.
Box: Syria's “Four Seas Strategy”
Syria could be one of the region's key energy transit hubs with some 6,300 kilometers of oil and gas pipelines. But geopolitical events have thwarted Syria's “four seas strategy” which was aimed, when it was announced in 2009, at making the country a transit hub for hydrocarbons between the Persian Gulf, the Black Sea, and the Caspian and Mediterranean seas.
Instability in Iraq has been one of the biggest setbacks to the plan – the pipeline going from Kirkuk in Iraq to Banias on the Syrian coast was still not back online after the U.S. bombed it during the 2003 invasion of Iraq. Given ongoing instability in Iraq and now in Syria, it is unknown when the pipeline will be operational again, as well as when work will start on two new pipelines: one carrying 1.5 million barrels per day (bpd) of heavy crude oil from Iraq to Syria; and a smaller pipeline with a capacity of 1.25 million bpd of light crude.
Instability has also delayed the roll out of a gas pipeline from the Akass region in the west of Iraq, which is only 50 kilometers from the Syrian border that could provide up to 30 million cubic meters of gas a day and feed into the AGP. The export of Persian Gulf gas, particularly from Qatar, which has the third largest gas reserves in the world, is also dependent on a stable Iraq for the relevant pipeline infrastructure to be developed.
The viability of such connections and the “four seas strategy” will equally hinge on stability returning to Syria and for the AGP to be finished, which had reached the last stage of completion between Aleppo and Kilis, Turkey, before the uprising broke out in March 2011.
What state Syria's oil and gas infrastructure will be in following the end of hostilities will be another factor to consider with the EU having slapped sanctions on Syria in 2011 that resulted in the country losing 94% of its oil exports and prompting oil production to drop by up to 30-35% to 260,000 bpd.
Rebels also target infrastructure to debilitate further the regime.