A new backbone for European gas supply?

The pipeline project has been discussed since the early 2000s, when Israel began producing gas off its coast. For a long time there were doubts about the profitability of the project. The construction is expected to cost seven billion euros. The dispute over the delimitation of the economic zones in the eastern Mediterranean also slowed down the plans. But the rise in gas prices, supply shortages in Europe and the EU’s efforts to cut its own cord from supplier Russia put the project in a new light.

Eastmed is to bring natural gas from the eastern Mediterranean to Italy over a distance of 1,900 kilometers across the Mediterranean via Cyprus, Crete and mainland Greece. This would allow countries such as Israel, Lebanon, Egypt and Cyprus to feed gas from their production areas directly into the European grid. The Balkan region and Eastern Europe are to be supplied via Greece, and north-western Europe from Italy.

The project developer is the consortium IGI Poseidon. The Greek gas supplier Depa and the Italian energy group Edison belong to it in equal parts. The pipeline should be technically designed in such a way that it could also transport green hydrogen from the Middle East to Europe at a later date. “In the long term, the Eastmed pipeline could become the backbone of hydrogen supply for the EU,” believes Minister Sdoukou.

Reserves could supply Germany for 60 years

Cyprus’ Energy Minister Natasa Pilides puts the proven natural gas reserves in the region at 2,200 billion cubic meters. According to a study by the US Geological Survey, undiscovered gas reserves of another 6,320 billion cubic meters are suspected in the Nile Delta alone. That would be enough to supply Germany with gas for 60 years.

The pipeline is considered expensive and technically demanding, among other things because of the great water depth of up to 3000 meters. In 2013, the EU Commission included Eastmed in the list of eligible projects of common interest (PCI). Brussels supported preliminary studies with grants of 34.5 million euros. In 2020, the heads of state and government of Greece, Israel and Cyprus signed an intergovernmental agreement on the construction of the pipeline in Athens.

Two years later came a setback: in early 2022, the US withdrew its political support for the project. The State Department explained in a non-paper that the pipeline was uneconomical and unacceptable in terms of climate policy.

Even without the pipeline, gas could come to Europe from the eastern Mediterranean. In June, EU Commission President Ursula von der Leyen signed an agreement with Egypt and Israel in Cairo. It envisages pumping Israeli natural gas through pipelines to the two existing liquefaction plants in Egypt and transporting it from there as liquefied natural gas (LNG) in tankers to Europe.

>> Read here: Hope for Europe: 510 billion cubic meters of gas are stored south of Cyprus

Another possibility would be to pump the gas from the eastern Mediterranean to the Turkish coast and from there to Europe via existing pipelines. The Turkish government favors this solution. In doing so, she wants to strengthen the country’s role as an energy hub for Europe.

Erdogan is opposed to the plans

Ankara has therefore already lodged an objection to the planned Eastmed pipeline. It is to lead through a sea area that Turkey and Libya have defined as their own economic zones in an agreement concluded in 2019. The EU and the USA regard the Turkish-Libyan treaty as contrary to international law. Nevertheless, President Recep Tayyip Erdogan could try to prevent the pipeline from being laid. As early as 2020, he deployed his war fleet in the dispute over the economic zones in the Mediterranean.

Greece Energy Minister Sdoukou said Turkey should “take note of the new reality” that has emerged with Russia’s aggression against Ukraine. Threats to cut off gas supplies to other countries are not timely, warns Sdoukou.

In addition to the problem of regional rivalries, the capacity of the pipeline would be relatively small: it is initially intended to transport ten billion and in the final phase 20 billion cubic meters per year. For comparison: almost 60 billion cubic meters flowed through Nord Stream 1 in 2021.

>> Read here: Turkey could become Europe’s new gas hub – but can Erdogan be trusted?

Nevertheless, there are good arguments for the pipeline. “Of all possible options, the Eastmed pipeline would be the most direct route to export gas from the eastern Mediterranean to Europe,” Israeli energy adviser Gina Cohen told Handelsblatt. Compared to the LNG transport from Egypt planned by the EU, she sees a significant advantage for European customers in Eastmed: “The pipeline gas would only be intended for Europe. This would make it possible to set an Eastmed gas price as a benchmark for Europe,” said Cohen.

In long-term gas supply contracts, reference is often made to the price at the Title Transfer Facility (TTF) virtual trading point. Due to the link to the TTF rate, gas is now more expensive in some European countries than it should be. However, the gas price in Israel and Egypt is generally lower and more stable than the TTF price, Cohen said. If Europe were to buy gas from this region, it could do so via a new trading point based on the prices there or set a new price on which contracts are based

>> Read here: Greece reduces gas consumption by 40 percent
Cohen also sees an impetus for the pipeline project in the agreement recently reached between Israel and Lebanon on the demarcation of the economic zones: “This will bring further stability to the region in which there are already pipelines and gas transactions between Israel, Jordan and Egypt.” the political agreement and the financing.

However, the participation of Italy as the end point of the pipeline is crucial. The government in Rome initially supported the project, but later distanced itself from it. When the heads of state and government of Greece, Cyprus and Israel signed the declaration of intent to build the pipeline in Athens in early 2020, Italy was not there due to climate policy concerns and internal government disputes.

Under the impact of the Ukraine war, sharply rising gas prices and growing supply bottlenecks, the Italian parliament passed a resolution for the construction of the pipeline in April 2022 with a large majority. But it is still uncertain what the new government of Prime Minister Giorgia Meloni will think of the project.

Project faces bureaucratic hurdles

Leonardo Belloni, former manager of the mineral oil company Eni and today’s management consultant, still considers Eastmed a “tricky project” from an Italian point of view. Even if a political decision is made for the project, there are many bureaucratic hurdles that make legislative changes necessary.

The CEO of the energy company Edison, Nicola Monti, said in the spring that Eastmed deserved more attention. It is “the only real diversification project for the European gas market”. The project was competitive even before the recent gas price increases, “even more so now”.

Meanwhile, the Poseidon consortium is pushing the project. “Eastmed is the most advanced pipeline project in the Mediterranean,” said Poseidon CEO Fabrizio Mattana. The line will “connect Europe directly to the gas fields in the eastern Mediterranean, while opening up opportunities for access to future hydrogen production centers in the region,” he said.

In June, the international certification company DNV confirmed the feasibility of the project after a thorough examination. According to company sources, IGI Poseidon will complete the technical studies by the end of this year. Then the investment decision should be made. The consortium plans to start commercial operation in 2027.
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