A large offshore natural gas find in the eastern Mediterranean in June 2010 and now ready to be extracted, has threatened to shake up the region’s energy sector, with heavyweights Egypt and Turkey at the forefront, and Israel, Lebanon and the Gaza Strip also vying for a lucrative stake.

The scale of the find is unprecedented for a country like Turkey — at the beginning of 2011, the Oil & Gas Journal estimated that the country had 218 billion cubic feet of natural gas reserves. The latest find — the largest in the world since late 2010 — could potentially exceed these figures by nearly 600 times.

In addition, to the 122 trillion cubic feet of natural gas said to be in the Leviathan gas field, 4.2 billion barrels worth of crude oil is said to be in its infancy stages of exploration and retrieval. With oil prices hovering around $100 (LE 604) per barrel, this equates to $420 billion (LE 2.54 trillion) gross — before exploration, production and tertiary costs are applied as the commodity hits the market. The net resultant for Turkey, in terms of crude oil however, would be that for every two million barrels of oil processed, TRY 205 billion (LE 676.13 billion) net would be added to its annual budget.

Turkish Petroleum Refineries Company, which currently holds a near monopoly in the sub-sector, puts the country’s current processing capacity for crude oil at less than 715,000 barrels per day. Undoubtedly this operation would have to be expanded, which is where both the pan-European Nabucco pipeline scheme and, more importantly, a solid relationship in the form of trade, that is, natural gas originating from Egypt come into play.

“Turkey and Egypt are the big, traditional diplomatic players in the eastern Mediterranean. It is better they cooperate than compete,” says Simon Henderson, director of the Gulf and Energy Policy program at The Washington Institute for Near East Policy in Washington, DC.
In a September 13, 2011 policy paper for the Washington Institute on Egyptian–Turkish relations, Henderson said that Ankara’s desire for a solid relationship with Cairo vis-à-vis this find, likely takes precedent over a maritime border agreement that it currently has with Cyprus — a contentious issue because of the gas find’s proximity to the island state. Henderson keenly notes that in September 2011, during Turkish Prime Minister Recep Tayyip Erdogan’s visit to Egypt, no mention of the Turkish–Cypriot agreement was raised.

Erdogan and a number of his cabinet members attended the Egyptian–Turkish Economic Forum to discuss bilateral trade on September 14, 2011 in Cairo with then Egyptian Prime Minister Essam Sharaf and current Minister of Industry and Foreign Trade, Mahmoud Eissa. During the visit, the Turkish Minister of Economy Zafer Caglayan and Eissa released a joint statement with an energy overtone. They stressed “the importance of establishing a maritime route between […] Alexandria and the Turkish port of Mersin [southeast Turkey], which will facilitate the access of Egyptian exports to the Turkish market which will be characterized with high competitiveness, and will also allow Egyptian exports to reach neighbors of Turkey.”

The Memorandum of Understanding (MoU) between the two ministers was signed at the conference in order “to develop […] trade and economic cooperation […] with regard to trade legislations and economic activities.” With the two countries in step at such a crucial juncture geophysically, the potential for disagreement over energy in the future significantly decreased.

“As was announced by the Turkish Minister of Petroleum, [an] MoU was signed between Egypt and Turkey in the field of energy, [so] both countries will cooperate in drilling for natural gas in the Mediterranean Sea. Now [what is important] is the import of natural gas from Egypt,” says Turkey’s Honorary Consul, Adel Abdou El-Lamei.

A BOOST FOR TURKEY’S ENERGY POSITION
According to the US Energy Information Administration (EIA), there is a rapid increase in natural gas consumption within Turkey, up 300% in less than a decade — from 1999 to 2008. The forecast for the next 10 years, according to the Eurasia Review is that energy consumption in the country is to continue to rise with more power plants coming online coupled with rising electricity consumption.

Fragile energy transport in the region is important because Erdogan wants from Egyptian delivery of natural gas to the proposed Nabucco gas pipeline, which would send natural gas northwest from Egypt to Turkey, the Balkans and Eastern Europe. This would complement the movement of gas via the Baku–T’bilisi–Ceyhan (BTC) pipeline whose seemingly unending pipes across the countryside snake from the Caspian Sea shores in Azerbaijan to the Georgian capital and onward to the Mediterranean at the southeast Turkish port of Ceyhan.

Furthermore, Egypt’s cooperation in the transport of gas to the southern Israeli city of Ashqelon has been complicated by attacks now numbering close to a dozen at El-Arish in the Sinai Peninsula. In July 2011, it was feared that a repeated and prolonged stoppage of gas distribution from Egypt could prove detrimental to Israel. However, with the Leviathan find, the country now looks to be sitting comfortably for its energy needs in the short and medium term.

THE WAY FORWARD
There are two options currently on the table for Egypt and Turkey. One avenue is the Arab Gas Pipeline, which bypasses Israel entirely. Originating in Taba, its route continues to Aqaba, overland to Amman and Damascus, with its terminal point in Syria’s third largest city, Homs. A proposed extension, which has been delayed for more than two years, would see the pipeline make its way to Kilis on the Turkish border. Finally, an additional 15-kilometer pipeline would connect it to the country’s grid, whereas in the future it may be linked to the Nabucco pipeline. In short, Turkey would achieve its goal in being the conduit for gas making its way into continental Europe and establishing, if not already, its dominance throughout the region. For Egypt, revenues as a result of being the catalyst in this extensive endeavor would undoubtedly bolster the faltering economy.

The second option may also in part be a slap in the face to Israel and indirectly Cyprus, in that shipment of natural gas directly from Egypt to Turkey and onwards circumvents both of Israel and Cyprus’ littoral states as well as its maritime borders.

In a July 2011 policy paper, Henderson alludes to the 1982 UN Convention on the Law of the Sea which entered into force internationally two years later. In Part V, the convention recognizes that states with coastal waters have sovereign rights within an exclusive economic zone (EEZ), which includes, but is not limited to, natural resources and other economic activities. It goes on to say that all other states have the freedom to lay pipelines within the EEZ but that “coastal states [must] share with the international community part of the revenue derived from exploiting resources from any part of their [continental] shelf beyond 200 miles (370 kilometers) [...].”

“The distance between the Turkish and Egyptian coasts is about 280 nautical miles [520 kilometers] so the two countries need to agree [on] a maritime border,” says Henderson. “A country can claim 200 nautical miles but needs to agree on a border if this conflicts with another state’s rights. […] Having signed a [maritime] agreement with Cyprus, Egypt cannot now cancel it, even if the existence of the agreement upsets Turkey.”

The Turkish daily, Hurriyet Daily News, reported in late November 2011 that the agreement made between Greek Cyprus and the US-based Noble Energy for exploratory drilling off the eastern coast of Turkish-controlled Famagusta upset Ankara, already compounded by an olive branch the Greek–Cypriot government extended to the Israelis regarding the cooperation of the natural gas find. Turkey maintains strong diplomatic relations with Northern Cyprus, which of note, is not legally recognized by Egypt or any other state, including the EU — one of a myriad issues for Turkey’s accession to the body.

“The question here is ‘why now?’ Why are the Cypriots hurrying to start drilling now?” Selcuk Unal, a spokesman for Turkey’s Ministry of Foreign Affairs said in The Wall Street Journal. “[...] The reason is that it coincides with a crucial moment in reunification negotiations, which is why we [Turkey] find that this is all a provocation.”

In early December 2011, Turkey announced that their exploration for energy sources would begin by mid-February 2012 with the assistance of Royal Dutch Shell, first reported by Emre Peker for Bloomberg News.

Complicating the issue is that Noble Energy is developing the Leviathan oil and gas field in partnership with an Israeli drilling company, Delek Drilling — the latter hoping to activate an option that would allow it rights to Famagusta’s shores, brushing aside Turkish condemnation.

What this will mean for Egypt is the increased need to have and keep Turkey on its side. Over the course of the exploration and drilling phases of the Leviathan, this relationship will be put to the test. bt