EU looks to Eastern Mediterranean for gas

Tamar

The European Union has given Cyprus €2 million for feasibility tests concerning a gas pipeline to mainland Europe.

The European Union (EU) is considering ways of developing natural gas reservoirs in the Eastern Mediterranean, and has given Cyprus €2 million for feasibility tests concerning a gas pipeline from Cyprus to mainland Europe, the Cypriot press today reported.

A European Commission spokesman said today, "The gas reservoirs in the Eastern Mediterranean can help the neighboring countries and countries seeking to increase their energy security." Europe gets 35% of its gas from Russia, and is therefore looking desperately to diversity its sources of supply.

Israeli and Cypriot gas flowing through a pipeline to Europe is one of the most feasible options for achieving this purpose. "Europe has a strong interest in helping to develop the gas reservoirs in the Eastern Mediterranean. The EU has a number of projects it calls 'projects of common interest' (PCI), and this is one of them," Marianna Charalambous, a Cypriot attorney in the Cypriot energy sector and a director in Cygas, the government company responsible for buying natural gas for Cyprus, told "Globes" today.

Charalambous says that the money by the EU to Cyprus is designated for preliminary tests for such a pipeline. "It has to be checked whether this is technically possible and whether it is economically worthwhile. Only then will the EU consider whether it is willing to take part in financing the pipeline."

US also in the picture

Russia, of course, will do everything possible to prevent such a project from getting underway. Russia is one of the world's biggest oil exporters, and 50% of its economy is based on oil and gas exports. The international sanctions enforced against Russia and plunging oil prices have dealt the Russian economy a serious blow.

Two days ago, at the end of a meeting between Russian President Vladimir Putin and Prime Minister Benjamin Netanyahu, it was reported that Putin wanted a share in Israel's gas reservoirs, after his previous efforts to buy gas from the Tamar reservoir and become a partner in the Leviathan reservoir were unsuccessful.

A former senior defense establishment official told "Globes" that one of Israel's main concerns was that Russia's interest is in preventing development of the Leviathan reservoir in order to avoid it competing with Russian gas, or if it is developed, to prevent the sale of its gas to Europe and Turkey, which gets 55% of its gas from Russia.

Senior gas sector sources believe that in order to maintain its market share, Russia will adopt a strategy of volume over value, just as Saudi Arabia did it with its oil. Indeed the vice president of Gazprom, the Russian government gas company, recently said that his country was planning to boost its gas production by 8% in 2016, from 418.5 BCM in 2015 to 452 BCM in 2016.

The US, which began exporting liquefied natural gas (LNG) for the first time only two months ago, is now also entering the picture. As of now, the US has exported only to South America, but its main and final goal is to export its gas to Europe. Up until a year ago, gas prices in Europe were $11-15 per mmbtu. The US, where the current price of gas is $2 per mmbtu, can sell gas to Europe for $6.90 per mmbtu (after liquefaction, transportation, and gasification costs). There is no doubt that Russia (although not necessarily Cyprus or Israel) can compete with this price, and the question now is for which of the three Russia, the US or the Eastern Mediterranean geopolitics is more important than economics.

Published by Globes [online], Israel business news - www.globes-online.com - on April 26, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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