Having attended the Flame conference in Amsterdam in April it was evident that Europeans feel uneasy regarding their long-term gas needs.
The reality facing Europe is totally different to that expected at the start of 2022, since when shipments from former key supplier Russia have collapsed. This led both to measures to cut gas demand, and obtain gas from other sources such as US LNG. Many countries, such as Germany, had to rapidly augment their gas infrastructure to enable them to import liquefied gas rather than pipeline gas from Russia.
So, is Europe out of the crisis? For now, yes. But things can change: it’s too soon for Europe to rest on its laurels.
More LNG supplies will come onto the market from the US and Qatar by 2027, with forecasts showing that by then global LNG markets will be over-supplied. But can these sources be fully relied on? Whilst Europe is searching for a quick fix, none of the candidates are ideal. Qatar has a geopolitical risk and price tag attached to it; Nigeria, Congo and Mozambique are chronically unstable and the US enacted a self-inflicted wound when it put on hold some new projects.
As for current short-haul suppliers, there are questions as to whether Norway will be able to continue to supply 30% of EU gas, and as to whether demand destruction in EU industry as prices surged in 2022 proves permanent.
Some industries switched to other fuels, but many cannot do so. Other consumers changed behavioral patterns such as installing solar panels, some placed heat pumps in their homes, but these need subsidies to be affordable.
Weather, in particular two relatively mild winters, played a significant role in enabling Europe to cope without Russian gas for the last couple of years. Future gas prices are an important element of where demand in Europe will go, and eyes remain focused on how Asia will compete with Europe to attract supplies, and whether infrastructure will be able to keep up with demand, whilst all wait to see how geopolitical situations progress.
Given the limited flexibility in LNG supplies in the near future, Europe needs to do more on both the demand and supply sides to secure long-term low risk gas supplies.
The recent Biden administration pause on LNG developments is a stark reminder that diversity of supplies is of paramount importance, since even one’s closest and most benign ally cannot be counted on to do the “right” thing, especially not during an election year. If the US pause on LNG permits persists, Europe could face the choice of either accepting cascading future energy crises or re-signing gas deals with Russia.
This is all compounded by Europe being reluctant to sign long-term contracts due to three risks: over-supply risk including potential return of Russian gas in ten years, price, and regulatory risks. Europe’s procrastination on signing long-term contracts is nevertheless mindboggling, considering that many European countries are admitting that the energy transition is progressing slower than anticipated. The continent lacks enough wind and solar power, and many are turning away from nuclear energy. Expensive batteries are needed, but lithium is not an energy-dense solution, and Europe needs energy that is not intermittent, variable, expensive, or weather dependent.
CRISIS = OPPORTUNITY
This all takes me to look at the Eastern Mediterranean and the discussions in Amsterdam at the recent Flame conference.
I concluded at the event, that if we look at the region, that Egypt, Turkey and Greece have surplus gas import/export infrastructure capacity, but no and/or not enough gas to export any additional volumes to global markets. Israel and Cyprus (although Israel is far more advanced as its gas fields are already producing) have more gas than they need for their own consumption, but either have no and/or insufficient export infrastructure to get this gas where it is needed.
Thus, for the Eastern Med region to have the maximum impact on global markets in the fastest time frame and at the lowest cost, it would be optimal for the countries to cooperate, in terms of establishing joint infrastructure and pooling gas reserves.
Of all the options amongst these countries, Leviathan is by far the biggest field, at more than 600 bcm (22tcf) and with the most gas earmarked for export, but Cyprus also has a few hundred bcm of gas that could be put into the mix.
Israeli gas is already having a strong impact on Jordan and Egypt, with Jordan having no indigenous gas production and Egypt having become a net gas importer (namely it consumes more than it produces and needs to import gas). The shortage is so acute that even with imports, last year Egypt suffered extensive power outages and as of 16 April this year, has resumed power cuts. On 2 May, Egypt signed a contract to lease an LNG regasification facility so that it can dip into the global market for its needs.
If Leviathan gas can reach Europe (with or without Cypriot gas), this can greatly assuage still lingering concerns of energy volatility and uncertainty on the Continent. Indeed, each time there is a crisis, and there have been no shortages of such crises since the beginning of this decade, it causes volatility and price changes. Europe understands that the key solution is to ensure diversity of supplies. If the Straits of Hormuz were to be shut down, then the global gas supply situation would get worse before getting better, with LNG from Qatar and the UAE having a problem reaching markets. In addition, Qatar insists on inflexible, and often large volume contracts, which not every consumer can sign.
It is thus imperative for the Israeli government to move rapidly ahead to give the additional export permit requested by the Leviathan field’s partners, as per the existing regulation, and for all parties to help facilitate the optimum route to reach the markets. In addition, all will benefit if the Ministry of Energy puts an end to the never-ending delays of the Ashdod-Ashkelon looping project that was expected to end in 2022-2023. This will increase gas deliveries to Egypt to 8 bcm a year, via the EMG pipeline.
Israel needs the money from greater exports and the relations this will help forge going ahead. Since these are investment and time intensive projects, decisions must be taken in a timely fashion, if we want to be relevant to Europe.
*Gina Cohen is an analyst, consultant, lecturer and author on natural gas issues, with a focus on the Eastern Mediterranean region.
