In recent years, a triangle of interdependencies has emerged in the gas sector: Israel must move its surplus to Egypt; Egypt is in a gas deficit and needs Israeli imports, and Cyprus will likely profit by sending gas to Cairo
What the geopolitics of the Eastern Mediterranean will look like once the current hostilities end and when and how this will happen is impossible to predict. Outside of geopolitics, however, there is a functioning gas industry and important fuel flows within the region. Israel and Egypt are both major producers and consumers of gas, and Cyprus is trying to chart a development path in the sector, which at the moment almost certainly means exports to Egypt.
So far, gas production and flows in the region have not been affected much by the hostilities: it has been business as usual, with Israeli production and exports reaching new highs and announced field expansion plans continuing. The Oxford Institute for Energy Studies has produced a paper to outline the fundamentals of gas supply and demand in the eastern Mediterranean, to establish a gas baseline and identify where the main flows, bottlenecks and problems are in supply and demand.
Europe’s efforts to realize gas supply options following the war in Ukraine constitute a further component of the regional picture. In June 2022 the EU signed an agreement with Israel and Egypt for a stable supply of LNG from Egypt.
FORECASTS ON THE GLOBAL LNG MARKET
Following Cairo’s current trajectory, this MOU will not be feasible for at least two to three years, after which it will be redundant, because after 2026 the global LNG market will see new capacities come online in the United States and Qatar.
According to OIES assessments, global LNG export capacity from new projects that have made a final investment decision between 2024 and 2030 will increase by just over 300 million tonnes (over 50%), and most part will come into operation in 2026-2028.
The focus of the OIES paper is the triangular relationship between Israel, Egypt and Cyprus and the markets into which Israel’s impending gas surplus will be delivered. This implies Egypt’s role as a market, both for domestic consumption and as a secondary export option for the gas that powers its LNG plants. Cyprus’ gas discoveries could play an important role, although persistent delays in government decision-making mean this is unlikely to emerge as a strategic consideration until the end of the decade.
ISRAEL, EGYPT AND CYPRUS THE MAIN GAS PLAYERS IN THE MEDITERRANEAN
Over the past four years, Israel has emerged as a major regional player in the gas sector, transforming itself through its developed resources into a gas-based economy and a major exporter to Jordan and Egypt; at the same time, Israel has attracted a large pool of major international energy companies, both to join existing projects (BPADNOC) and to acquire exploration licenses. Egypt, for its part, has suddenly regressed into supply-demand uncertainty, relying on gas imports from Israel and drastically cutting LNG exports to strike a balance. Renewable energy plans would reduce gas demand if achieved. However, given the country’s economic context and the enormous scale of the transition from the current small contribution of renewables to 40% of total energy by 2030, it seems too ambitious.
Cyprus could also soon become a gas player: a few months ago it seemed that before the end of 2024 it could import LNG and accept upstream development plans, both for Aphrodite and for Block 6. Since, however, the Vasilikos is not complete, LNG imports have slipped to 2025, and the timing of any upstream commitments could do the same.
THE GAS TRIANGLE IN THE EASTERN MEDITERRANEAN
What is certain is that, in recent years, a triangle of gas interdependencies has emerged: Israel must move its surplus to Egypt; Egypt is in a gas deficit and needs Israeli imports, and Cyprus’ first route to monetization will likely be gas to Egypt. Getting out of this triangle will require investments in large infrastructure, LNG, FLNG or large-capacity gas pipelines. In solving this problem, Chevron, ENI and NewMed will likely be the primary planners and enablers, with support from Energean, Shell and perhaps BP-ADNOC.
As for Europe, in the short term there will be no gas arriving beyond an occasional winter LNG cargo, when Egyptian demand will be lower. In the medium term there may be LNG available thanks to the increased production of Egyptian plants, but by then the EU will be able to enjoy a long market for liquefied natural gas. As for pipelines, electrical connections and new LNG plants, while they enjoy political support, assembling all the pieces needed for a major project puts them all beyond 2030.
CONCLUSIONS
For Europe seeking to replace Russian gas, the prospect of supply from the Eastern Mediterranean has diminished in the near term due to Egypt’s shift from being a supply-side taxpayer of LNG to a demand-side consumer . However, with increased imports from Israel and potentially Cyprus, LNG exports in 2-3 years could resume.
