East-Med States Seek Framework to Sell Gas to Europe by Year-End

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(Bloomberg) -- Israel is trying to finalize working agreements with European governments interested in buying natural gas from the eastern Mediterranean region by the end of the year, according to the country’s energy minister.

Greece, Cyprus, Italy and Israel are pushing a 6 billion euro ($7.3 billion) project to build a pipeline that would expand the export markets for gas found in Cypriot and Israeli waters. About 10 billion cubic meters of gas would traverse the Mediterranean to onshore stations in Greece, potentially connecting from there with Italy and Balkan nations, according to initial plans. An inter-governmental framework would allow companies to sign commercial agreements.

“We are speaking very seriously about the cross-Mediterranean pipeline,” Yuval Steinitz said in an interview at his Jerusalem office.

Access to European markets would be a boon for officials in Israel, Cyprus and Egypt, who have been promoting the Eastern Mediterranean as an emerging energy hub. Some of the world’s biggest gas discoveries of the past decade were in these waters and the prospect of bigger finds is spurring more drilling, but companies developing those reservoirs have struggled to get past the region’s political tensions to cement sizable export contracts.

Attractive Market

The European Union offers an attractive market for the region’s explorers. Though demand is estimated to remain flat over the next decade, the EU is keen to diversify its supply away from Russia, according to a report from the European Council on Foreign Relations in April last year.

The prospect of Mediterranean gas flowing to Europe is still far off: The pipeline wouldn’t be completed before at least 2025. At nearly 2,000 kilometers (1,200 miles) long, and at some points 3 kilometers below sea level, the project would be the longest and deepest undersea pipeline in the world.

Despite the prohibitive cost and the technical challenges, the governments are pressing ahead after a study conducted by IGI Poseidon -- an Athens-based joint venture between Depa SA and Edison SpA -- deemed the project economically viable.

The European Union already has invested about $100 million in the project, first to finance the feasibility study and now to fund Poseidon’s initial plans for the pipelines, Steinitz said. Poseidon is “deeply involved,” and has expressed interest in making a final investment decision by the start of next year, he said.

Cypriot Energy Minister Georgios Lakkotrypis confirmed they’re working on a framework and that the targeted date to sign the inter-governmental agreement is the end of this year.

Representatives for Edison declined to comment. The Greek energy ministry and the Italian environment ministry didn’t reply to requests for comment.

Mighty Aphrodite

Governmental disputes are holding up another promising export contract. Officials in Israel and Cyprus are trying to settle a row over economic rights in Aphrodite, a natural-gas reservoir that straddles both countries’ waters. The companies that own the rights to Aphrodite, including Royal Dutch Shell Plc, and those developing Leviathan, Israel’s largest gas reservoir, are in talks to combine resources from both fields and sell the gas to Shell’s liquefied natural gas plant in Egypt.

Israel aims to quickly reach an agreement that will settle matters “once and for all” now that elections in Cyprus have passed, Steinitz said. Cyprus’s Lakkotrypis declined to comment on ongoing talks with Israel on Aphrodite.

“It’s in our interest and also the Cypriot interest to conclude it,” Steinitz said. “I don’t understand what’s taking so long.”

©2018 Bloomberg L.P.

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