Opinion

Is the EastMed gas pipeline just another EU pipe dream?

Is the EastMed pipeline really a feasible project? The answer to this question is not simple, but the EastMed plan sounds unconvincing.

By: Date: May 10, 2017 Topic: Energy & Climate

This blog post will be published in Il Sole 24 Ore.

ilsole24ore

On Monday 3 April, the energy ministers of Cyprus, Greece, Israel and Italy met in Tel Aviv, warmly watched by the EU Commissioner for Climate Action and Energy. They had gathered to sign a preliminary agreement to advance a gas pipeline project aimed at linking their four countries: the EastMed pipeline. The project is ambitious, enormous and – at least today – probably unnecessary.

At first glance the EastMed is an impressive idea. The pipeline would transport 10 billion cubic metres per year (Bcm/y) of gas from eastern Mediterranean gas fields to Greece and Italy. About 1900km long, and reaching depths below 3km, it would be the world’s longest and deepest subsea pipeline. The estimated cost is €6.2 billion.

But for those who follow European energy security, Monday’s ceremony brought a kind of déjà vu. It was difficult not to remember a similar ministerial ceremony that took place in Vienna in June 2006, proclaiming next steps for the Nabucco pipeline.

The two projects have many similarities: huge gas transit capacity; long pipelines; connections between Europe and multiple gas supply sources (in the case of Nabucco, Azerbaijan, Turkmenistan, Iran and Iraq). Both were also predicted to be costly, although the EastMed pipeline is even more expensive than Nabucco’s €5 billion initial estimated pricetag. And in both cases, energy ministers and the European Commission promised that the project would contribute not only to the security of Europe’s gas supply, but also to wider regional cooperation.

As we know, the story of Nabucco did not have a happy end. The project soon proved to be more of a pipe dream than a realistic pipeline project.

So the question now is whether the EastMed pipeline is really a feasible project. Or is it just more wishful thinking from the EU? The answer to this question is not simple, but the EastMed plan sounds unconvincing.

Preliminary feasibility studies claim that the project is viable both technically and commercially. However, these studies make a double bet on future gas trends in the region. On the demand side, they assume a substantial increase in EU gas import requirements. On the supply side, they predict that large amounts of eastern Mediterranean gas will become available for export to Europe.

The first bet looks reasonable, albeit with a caveat. The EU’s gas import requirements are likely to grow in the future, partly due to rapidly declining domestic production. However, this does not necessarily mean that eastern Mediterranean gas will be best positioned to fill the gap. At the end of the day, cost competitiveness will be key. Will Europe satisfy its growing requirements with eastern Mediterranean gas, or simply by increasing deliveries from Russia and other traditional suppliers?

The second assumption, that the eastern Mediterranean is sure to become a major exporter, is even more doubtful. Over the last years various challenges have revealed the limits of the region’s gas potential: continuous investment decision delays in Israel; downward revisions of gas resources in Cyprus; major gas shortages in Egypt.

In fact, only the 2015 discovery of the large-scale Zohr gas field in offshore Egypt, the largest discovery in the Mediterranean, could revitalise the outlook. But Egypt is not interested in the planned EastMed pipeline, having at its disposal two large liquified natural gas (LNG) facilities that currently sit idle. And even if regional gas production accelerates, domestic demand might limit export potential. Egypt’s gas demand is set to rise from the current 50 Bcm/y to around 70 Bcm/y in 2030. Israel expects its gas demand to quadruple by 2040.

In short, the gas export potential of the eastern Mediterranean is still not clearly defined, and it will also depend on domestic gas demand.

With all these uncertainties, it seems premature to discuss such a large and costly project as the EastMed pipeline. EastMed could make sense in years to come, once European gas dynamics and the real export potential of the eastern Mediterranean become clearer. But for the time being it looks like another EU fantasy.

A more reasonable option for the eastern Mediterranean region would be joint use of the existing Egyptian LNG facilities. Indeed, the geographical proximity of Egyptian, Israeli and Cypriot offshore gas fields could well allow coordinated development. This might create the economies of scale needed to make the first gas exports from the eastern Mediterranean region competitive.

Such an approach would also offer eastern Mediterranean gas suppliers flexibility in terms of destination markets. For instance, through Egyptian LNG terminals, these fields could also serve the rapidly growing Turkish market – and not just southern Europe, as would be the case with the EastMed pipeline. Furthermore, a joint regional export scheme via the Egyptian LNG facilities could also provide a first opportunity to test commercial gas cooperation between Egypt, Israel and Cyprus.

If successful, this cooperation could then eventually scale-up in the 2020s, if new gas resources are found in the region and gas demand justifies the construction of additional infrastructure. Only then would it be worth considering grand projects like the EastMed gas pipeline.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Upcoming Event

Jun
22
13:00

Renewing the 2050 Roadmap

The objective of this brainstorm session is to explore how we can improve the quality and the impact of the revisited 2050 Roadmap, set the agenda for revising it, increase ownership of it and analyze the methodological basis of the 2050 Roadmap.

Speakers: Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Blog Post

simone

Global decarbonisation: a wake-up call for the Middle East and North Africa

Many countries in the MENA region are heavily dependent on oil and gas for exports and taxes. But global decarbonisation could undermine revenues, even though MENA exports are globally competitive. This threatens the MENA region's social contract, so economic diversification needs to start now.

By: Simone Tagliapietra Topic: Energy & Climate Date: April 11, 2017
Read article Download PDF More on this topic More by this author

Working Paper

WP 2017_05 cover

The political economy of Middle East and North Africa oil exporters in times of global decarbonisation

Middle East and North Africa (MENA) oil exporting countries are still not adequately equipped to prosper in a decarbonising world. Decarbonisation should therefore represent an incentive for MENA oil exporters to pursue structural processes of transition from rentier to production states.

By: Simone Tagliapietra Topic: Energy & Climate Date: April 11, 2017
Read article Download PDF More by this author

Parliamentary Testimony

Uri

Interdependence in difficult times

This presentation was delivered in Malta at the Western Mediterranean Forum, commonly referred to as 5+5 Dialogue, was officially launched in Rome in 1990 as an informal sub-regional forum which main aim was to foster relations between European countries and the newly born Arab Maghreb Union. The 5+5 Dialogue comprises Algeria, France, Italy, Libya, Malta, Mauritania, Morocco, Portugal, Spain and Tunisia.

By: Uri Dadush Topic: Testimonies Date: April 10, 2017
Read about event More on this topic

Past Event

Past Event

Towards EU-MENA shared prosperity

The second edition of the "Platform for Advanced & Emerging Economies Policy Dialogue" will discuss global supply chains, energy and security.

Speakers: Abdelhak Bassou, Jean-Francois Dauphin, Maria Demertzis, Karim El Aynaoui, Larbi Jaidi, Marion Jansen, Giacomo Luciani, Rania Al-Mashat, Iverna McGowan, Jolana Mungengová, Francis Perrin, Francesco Presicce, Simone Tagliapietra, Valeria Talbot and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 10, 2017
Read article Download PDF More on this topic

Policy Contribution

PC 10 2017 cover

Europe’s role in North Africa: development, investment and migration

The authors of this Policy Contribution propose five ways in which EU policymakers can contribute to development in North Africa and build partnerships on trade, investment and migration.

By: Uri Dadush, Maria Demertzis and Guntram B. Wolff Topic: Global Economics & Governance Date: April 8, 2017
Read article Download PDF More on this topic More by this author

Policy Brief

PB 2017_03 cover

The carbon buyers’ club: international emissions trading beyond Paris

The effort to define rules for international emissions trading faces the strong desire of nation states to develop their own climate policies, which collides with the need for tradable units in one country to be equivalent to tradable units in another country. To overcome this dilemma Georg Zachmann proposes a club of carbon-buying countries that would regulate only imported mitigation outcomes.

By: Georg Zachmann Topic: Energy & Climate Date: April 4, 2017
Read article More on this topic More by this author

External Publication

securing the energy union

Securing the Energy Union: five pillars and five regions - Southern Europe

As a part of a publication on energy security, Simone Tagliapietra looks at the countries of southern Europe: Cyprus, France, Greece, Italy, Malta, Portugal and Spain.

By: Simone Tagliapietra Topic: Energy & Climate Date: March 30, 2017
Read article More on this topic More by this author

Blog Post

simone

The EU antitrust case: no big deal for Gazprom

Earlier this week, the European Commission presented the draft compromise reached with Gazprom regarding the antitrust case launched in April. Simone Tagliapietra argues that Gazprom has no reason to break the commitments made in the draft compromise, since they are well-aligned with its own interests.

By: Simone Tagliapietra Topic: Energy & Climate Date: March 15, 2017
Read article More on this topic

Blog Post

unnamed
simone

Brexit goes nuclear: The consequences of leaving Euratom

The UK Government has confirmed that it will withdraw from Euratom. But what does Euratom actually do? And what will happen when the UK leaves? The authors find major risks, potential costs and open questions.

By: Enrico Nano and Simone Tagliapietra Topic: Energy & Climate Date: February 21, 2017
Read about event More on this topic

Past Event

Past Event

Different perspectives on Nord Stream II

At this event, we bruoght together key-experts that studied the regulatory and economic aspects of Nord Stream II

Speakers: Severin Fischer, Siobhan Hall, Alan Riley, Szymon Polak, Sebastian Sass, Simon Schulte, Borbála Takácsné Tóth and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 21, 2017
Read article More on this topic More by this author

External Publication

tagliapietra_pass-2

Energy Relations in the Euro-Mediterranean: A Political Economy Perspective

This book provides a detailed overview of the current status and future prospects of Euro-Mediterranean energy relations through analysis of those relations and pertinent case studies.

By: Simone Tagliapietra Topic: Energy & Climate Date: December 13, 2016
Load more posts