East Mediterranean Energy: A Discussion of Possibilities – Interview with Mr. Gary Lakes February 2, 2016

by on January 08, 2017

East Mediterranean Energy: A Discussion of Possibilities
Interview with Mr. Gary Lakes
February 2, 2016.
Larnaca, Cyprus


Dr. Christodoulos Pelaghias (C.P.): Good afternoon and thank you again for joining us once again on ERPIC Live. Our discussion tonight focuses on Eastern Mediterranean energy. I have with me Dr Klearchos Kyriakides, Head of our Law and Democracy Program, and Mr Gary Lakes, co-Director of our Energy Program. As usual, I need to remind everyone that all participants express their personal views. Gary, we’ve had some news over the weekend that there’s a deal that was closed between Turkey and Israel regarding the sale of gas. Is this about the Turkish-Israeli gas pipeline that we’ve been hearing for so many months?

Gary Lakes (G.L.): No, that wasn’t an agreement between Israel and Turkey, it was an agreement between Leviathan partners and the Edeltech, an Israeli company, and it was for the supply of gas to Israeli domestic market. The report you’ve seen that is connecting Turkey with this was erroneous. Edeltech has as a partner the Turkish company, Zorlu, and together they intend to build a power generation stations in Israel. I think this is the first contract that’s been agreed for the supply of Leviathan to Israeli domestic market. That gas will be used to supply those facilities. The agreement is for six billion cubic meters over a period of 18 years, and the estimated value is 1.3 billion dollars. So that’s what all this was about.  It’s not part of anything, any of the relationship, or reconciliation or whatever that’s going on between Israel and Turkey.

C.P.: However there are some developments on the sale of Israeli gas to Turkey, aren’t there?

G.L.: Well there may be, I don’t think there’s anything out in the open. Relations between Israel and Turkey haven’t really reached a point of normalcy yet. There may be discussions between the companies, there certainly has been lot of expressions of interest on both sides I believe, but as far as any sort of agreement, I haven’t seen any indication of that. Although there is always speculation and talk amongst those interested.

C.P.: Is this though part of a developing conceptualization of what the regional energy industry is going to look like? There competing models, I suppose, the direction that the pipelines are going to take, the placement of the LNG facilities, if any, etc. Is there a context where the idea of a Turkish hub competes with the idea of an Egyptian hub, let’s say?

G.L.: I don’t think it’s anywhere near that yet. You need a heck of a lot more gas than what has been discovered in the East Med for there to be several hubs. I think the idea that seems to be materializing, that the companies are working towards right now, is that in the region there is a demand for gas and for energy. And I think that the idea essentially is to use East Med gas to serve those regional markets. And so this will materialize in terms, as far as infrastructure is concerned, with more pipelines, like from Leviathan to Israel, to serve that market, also perhaps on to Jordan. I have seen reports that there is a deal very close between Leviathan and Egypt, whereby there would be gas going to the BG plant, which is going to be at Idku, which is going to be turned over to Shell very shortly, because Shell has purchased BG. Of course everybody is interested in the prospect of the possibility of an Israeli gas going to Turkey, and sometimes on the periphery of that there is the question – could Aphrodite gas, Cypriot gas wind up going through Turkey too. You know, there’s no real clear indication of any of this yet because of political circumstances that exist within the region.

C.P.: But the planning for the Turkish corridor, lack of a better term, has been long in development. There is a number of years where several plans were being kept around, where you would have a number of Middle Eastern pipelines ending up near Ceyhan and then finding their way onto Europe. So it’s not a new thing, but obviously the new developments in Eastern Med are new, and are perhaps affecting this. But how are they affecting, are they affecting it? You’ve got your finger on the pulse better than we do.

G.L.: The idea of Turkey being a hub for energy has been around for quite a long time. In the early nineties I member writing a story about “Rotterdam on the Med”, and that was in reference to Ceyhan, where regional oil and gas supplies would be directed towards Ceyhan, and from there it would go out to the markets. That idea’s fallen away. Of course, there’s the BTC from Azerbaijan which delivers crude oil, and there is, I think, Kurdish oil going now through Ceyhan as well. But if you are referring to the Turkish corridor, the plan of sending a gas pipeline from Leviathan…

C.P.: No, it’s the general idea that it was going to be this… actually from Azerbaijan….

G.L.: Yeah, the Southern Corridor. That’s going to materialize. The contracts are signed, construction should begin….

C.P.: But that was scaled down at some point, or is it still going on?

G.L.: Oh yes, it’s going ahead, it will carry 10 billion cubic meters of gas initially. There are plans ultimately to pump that up. The gas coming from Azerbaijan – Turkey will take 6 billion cubic meters (BCM) and10 will go on to Europe through the Trans-Adriatic Pipeline. When you here mention of the East Med gas going to Turkey, I guess people are thinking that the East Med gas would hook up into this system and go to Europe. But personally I think that Turkey’s situation is such that any East Mediterranean gas, primarily from Israel, would stay in Turkey, because the market needs that. It’s big, it’s projected to grow. And also there are complications now with Turkey and Russia, which is its largest gas supplier.

C.P.: It’s strange that Turkey itself has very few reserves. Kleachos, the other day you were commenting that you came across some material indicating that there was a…

Dr. Klearchos Kyriakides (K.K.): Yes, it’s a very interesting declassified CIA memorandum dated 16th of July 1974 – this is a day after the coup here in Nicosia. The CIA comments: “The Turks have long been frustrated by seeing valuable oil reserves discovered near their borders in lands formerly part of the Ottoman Empire, while Turkey itself has had only minor success in finding oil in commercial quantities within its own boundaries”.

C.P.: This is way before the East Mediterranean discoveries, so I guess the feeling must run even deeper that Turkey is sort of cut off from this, or will it be?

K.K.: What we know for certain is that the Ottoman Empire came crashing down at the end of the World War I, at the time when the oil industry was bubbling to life. And the territories that flaked away from the Ottoman Empire and fell initially into British and French hands and then became independent, were once…

C.P.: Did they just fall into the British and French hands, or was it a little bit more calculated?

K.K.: It is more complicated than that.

C.P.: Not complicated, but calculated.

K.K.: The historical point that’s worth making is that the lands which used to be part of the Ottoman Empire ended up becoming major players in the oil industry.

C.P.: Perhaps one can say that one of the reasons for the breakup of the Ottoman Empire was exactly that – the discovery and exploitation of huge resources.

K.K.: And that must rankle with Turkey, as the CIA acknowledged in July 1974.

G.L.: Well, certainly now. There was a period when Turkish economy was doing much better than now, and demand was growing, and the Turks signed a lot of contracts, especially with Russia, even Turkmenistan, which has yet to materialize. But it’s the circumstance of geology. It is a bit upsetting, I would imagine, if you need this energy…

C.P.: What is your view of developing situation between Russia and Turkey? The Russians, surprisingly, or perhaps not surprisingly, didn’t cut off any energy supplies to Turkey, they wouldn’t do that. Or would they?

G.L.: No, but they have put up the price to the Turks. They’ve refused to give them the discount they usually do. But it’s a curious development with Russia and Turkey, and how it seemed that Mr. Putin and Mr. Erdogan where very much on the same tack for quite some time. And then this incident with the jet fighter happens, and it immediately falls away. And you have to wonder – what’s behind it? Why has it been such a dramatic falling out?

C.P.: So in addition to all the other things that Turkey is taking into consideration, one would think it would push Turkey towards looking at the Eastern Mediterranean gas in addition to the Iranian gas, oil, and other things. It would perhaps be more keen to enter into contracts for the Eastern Med gas? Or is there not enough, I mean, is the gas find still not sufficient? Everybody’s talking about the potential revenue, potential huge industry, but is it…

G.L.: I think that Turkey’s recently has been having talks with Azerbaijan to secure more supplies in future. They want to get gas supplies from Iraqi Kurdistan, from the Kurdish Regional Government. There were times they were talking about piping gas from Iran and piping gas from Qatar into Turkey.

C.P.: Now with Iran coming back, is that a possibility? What’s the main export route for the Iranian oil and gas?

G.L.: With Iranian oil and gas, I think they send about 10 BCM a year to Turkey, also to Armenia, maybe a little to Azerbaijan.

C.P.: Is there a pipeline?

G.L.: There are pipelines, but sometimes the Iranians fail to meet those supply targets and because it’s got its own domestic demand. Imagine now with the sanctions having been lifted, I think there’s going to be a considerable amount of effort going into developing gas resources for domestic use.

C.P.: How large is Iran in comparison to Qatar, let’s say?

G.L.: Iran shares the same reserve. In Qatar it is called the North Field, and Iranians call it South Pars, and that’s located in the Persian Gulf. And so the maritime border runs through that and splits that in accordance with their maritime areas. The Iranians have drawn up a huge development plan for South Pars. And now that the sanctions are removed, they will be offering contracts. I’ve seen reports that they are very anxious to develop them quickly. And one of the things that Iran wants to do is, it’s got a three stalled LNG projects, I think in total they are about forty million tons a year – that’s quite a lot of LNG to come on. If it works, maybe in the early 2020s, it would be there. Of course the comments you see from the Iranians are a little bit more ambitious, but in practical terms…

C.P.: Have you come across any rumor plans of pipelines coming through Syria to the Med?

G.L.: I think there were, but all that stuff is put on hold. Prior to 2011 there were talks about oil pipelines to one of the Syrian towns on the Mediterranean. I mean, there’s all kinds of ideas about how to ship and send oil and gas, but not all of them materialize.

K.K.: The reference to Syria has made me thinking. Can I just make two points? Firstly, unfortunately energy has formed the backdrop to at least three conflicts in the Eastern Mediterranean and Middle East that I can think of. One is the Suez Crisis of 1956, the second is the Iran-Iraq war of the1980s, and the third is the Iraqi invasion and occupation of Kuwait. And that should put us on notice that there may be a bonanza flowing from the energy deposits here in the Eastern Mediterranean, but the potential bonanza must be counterbalanced with the ever-present risk of conflict.

G.L.: If you want to include the American invasion of Iraq in 2003, if that was all about oil, than you’ve got that factor too.

K.K.: It should make us pause and think carefully about how we deal with energy in this region. And the second point I wanted to make specifically does concern Syria. This is an exceptionally dangerous part of the world. And energy security requires an energy security strategy. And then the energy security strategy must dovetail with a national security strategy. So the Republic of Cyprus, in my view, must have coherent, effective and transparent national energy and security strategies, which everyone understands and contributes towards.

C.P.: One thing that sets the Eastern Mediterranean energy industry apart is that it’s an offshore industry rather than land-based.  That kind of gives it a little bit of a different dynamic, because how do you control the maritime areas? I mean you control them in a different way, obviously. So it’s a different set of geo-political or strategic considerations.

G.L.: Well, because it’s offshore, defending those facilities is going to be a big concern. The Israelis have expressed this many times already, and I’m sure the Cypriots have given a good thought as well.

C.P.: At the beginning, when Noble was first drilling, Turkey was very annoyed, was present with its naval ships. In the view of the development of the last couple of years – do you do think that’s dissipated, that’s changed in any way, or is it just because there haven’t been any other drillings?

G.L.: I don’t think Turkey’s position has changed much on that. I just think it’s actually rather convenient that the circumstances aren’t conducive for drilling right now. The talks are taking place at this time. You would have to wonder if there would be some sort of impact on the negotiations if drillings were under way.

C.P.: You think Turkey wouldn’t back down? It does not seem that it would, there is no evidence, or is there?

G.L.: I don’t know. It hasn’t before, so it seems pretty adamant its position regarding the Eastern Med. I don’t think that’s going to be resolved until the Cyprus issue is resolved as well.

C.P.: So why is there no drilling? In view, especially, of the new Zohr discovery, you would expect everybody’s would be rushing. Are they rushing?

G.L.: It has rekindled the interest of companies – the Zohr discovery.

C.P.: But certainly less than what it was supposed to.  

K.K.: Can you just tell us where the Zohr discovery is?

G.L.: Zohr discovery is only just about six kilometers from Cyprus EEZ, from Bloc 11, which has been awarded to TOTAL.

C.P.: Which TOTAL wanted to leave, it wanted to abandon it before Zohr, and then it came back, right?

G.L.: It did relinquished Block 10, which was awarded in February 2013, and the Cypriot government persuaded TOTAL to continue to look at things. And it was sort of touch-and-go, I don’t think it was a great deal of enthusiasm until the Zohr discovery. And now TOTAL has announced that it is planning to drill next September.

C.P.: They’re talking about looking at a new model…

G.L.: All the gas discoveries that have taken place offshore in the Eastern Med so far have been in sandstone, and the Zohr discovery was made in carbonate built-up. So the geology is different. It’s ENI that’s made the discovery. So I think this may have something to do with ENI’s explanation what has been a year and a half now, it was late 2014, when they pulled out of Block 9. They had a drilling plan for four wells. They drilled two dry holes instead. So it could be that that’s what’s happened. They’ve used a different economic model on Zohr and they’ve come up with this discovery. Now mind you, they initially announced 30 trillion cubic feet (TCF), they’ve since said it’s about 16. But it’s encouraging when you think that ENI will return to Cypriot waters and perhaps using this model, and try again and actually find something. So that’s one thing to maybe look forward to regarding the Cypriot offshore. The point to make here on the Cyprus offshore, and I get the impression at times, you see that in the press and certainly in comments on some of the stories, that people are really rather cynical about Cyprus and its gas potential. But, there’s only been four wells drilled here and there’s the Aphrodite discovery well, and the appraisal well in Aphrodite, and the two dry holes in Block 9. I attended conferences here in Cyprus where representatives from Norway have said, “Well, listen we’ve drilled 50 wells or more.”

C.P.: To put it into perspective – how many Israel has drilled?

G.L.: That led to some of the confusion there in Israel, you know, couple of years back when they were just basically giving the licenses away.

C.P.: So what’s the timeline now for ENI and TOTAL? We hear all sorts of things, but presumably you’ve got a better sense.

G.L.: Total wants to drill in September, they’re preparing to try to meet that target. That’s contingent on them having the facility here in Larnaca to an operations’ base. If they don’t have a based operate from, then this will push drilling back.

C.P.: What is the municipality’s objection? One would think that any municipality would be jumping at the chance of becoming the new Aberdeen.

G.L.: It is supposed to be state of the art facilities, I haven’t visited them, but there are supposed to be very nice facilities there.  

C.P.: And people don’t want them?

G.L.: There seems to be a tourism project.

C.P.: Oh, the competing project, yes.

G.L.: But Cyprus has got to provide a facility like this if it is really serious about developing its hydrocarbon industry.

K.K.: This reinforces my point. There needs to be an energy security strategy. It needs to be sketched out and drafted and published, so everyone can…

C.P.: But you can’t get away from the population’s response. In Israel for example for many years it was the environmental issue that they couldn’t find the appropriate spot on the coast for facilities. After that they did.

G.L.: But it is going to remain an issue.

C.P.: It is going to remain an issue. In Cyprus it was originally felt that there was none of this public reaction, but it’s proven wrong. And I think that a number of companies have come to regret their decision to move to Cyprus.

G.L.: To develop these reserves, there’s got to be an operations space. Cyprus is a good place to have an operational space.

C.P.: Provided you get one. Could you see it being developed in the North?

G.L.: You mean without a settlement? I don’t know. No, I don’t see anything happening there without the settlement. You can’t operate legally.

C.P.: Sure. So what are the plans for Aphrodite?

G L.: About a week ago BG finalized its farm-in to Block 12, it is taking 25% from NOBLE, I think it paid only 165 million for that.

C.P.: It was a good price.

G.L.: Seems like IT.

C.P.: Why was Noble in such a hurry to sell it?

G.L.: I don’t know if they were in a hurry, I think they were looking for a partner.

C.P.: Is that a good price for NOBLE?

G.L.: That’s the price they sell.  I can’t understand why the BG would buy into Block 12 if they didn’t have some intention of actually using the resource. And, of course, BG operates the LNG plant in Idku.  BG will of course be taken over by SHELL, but it seems that some reports I’ve seen say that SHELL intends to make use of that facility, and you know, Leviathan gas is there to use, and hopefully Cypriot gas as well. Block 12 is waiting on a commercial agreement and we don’t know if that’s going to be for the LNG plant, for the Egyptian domestic use. And the government has seen the development plan. NOBLE has seemed to deliver a development plan to the Israeli government as well for Leviathan. It doesn’t seem like there’s a great deal happening right now.

C.P.: There is also a talk about an interim solution, or interim plan, that the Cypriots were looking at. But I’m not sure if that’s going to happen either because of the low oil prices and the rest of it. This was supposed to bridge the gap between the time when Aphrodite was going to come online.

G.L.: You haven’t heard much about this for quite some time. I mean, they need to discuss things, but I just don’t know the status of that. It seems as if they don’t divulge anything because they signed confidentiality agreements. But with the price of oil low now, it doesn’t seem that electricity should be so difficult to…

C.P.: But everything is on hold, doesn’t it, at the end of the day? Perhaps the only thing that has some potential is this underwater electrical power line. You saw that, it was part of the agreement that was signed when Mr. Netanyahu visited Cyprus. There is apparently a plan to connect Israel to Cyprus and Greece with an electrical power line, which I guess would be operated by gas, I mean the electricity would be generated by gas at some point, and  you could make better use of transport of energy that way. Isn’t that cheaper? Rather than piping gas, you connect the sockets.

G.L.: I haven’t seen actual estimates of the cost on that.

C.P.: But it got to be cheaper than dropping a pipeline, right?

G.L.: You mean with reference to the East Med gas pipeline? Yes, I think so.

C.P.: Connecting A to B, any A to B – isn’t that cheaper to drop a cable, than to drop a pipeline?

G.L.: I don’t know the exact cost of that but I think it would be. But also that project, it’s the EuroAsia Interconnector, and that’s been around for quite a few years now. And it seems as if there’s actually surveying the seabed to see if they can plan a route for that. And it’s on the EU list of projects of common interest. So we will see. By 2017 a lot of things could begin to happen. And we won’t know until they do, because the authorities are pretty guarded about what they’re saying, and also the companies are very guarded too. They I don’t want to jinx their…

C.P.: The new player, the new kid on the block are the Russians – they’ve taken some concessions in Syria. Are they the new kid, or the old kid back?

G.L.: I don’t know if the word “kid” applies in either way. What would be interesting to see is if Lebanon could get itself together and actually finish that licensing round that was launched in February 2013.

C.P.: I heard some comments regarding Turkey and the Southern Corridor. There were certainly some understanding at some level between SHELL and GAZPROM – there had to be. Because SHELL was involved in a big way in Turkey with TPAO and the rest of it, and GAZPROM was supplying a lot of gas to Turkey and so on. So there had to be some, at least, basic understanding, not a conflictual situation, to avoid any…

G.L.: I don’t know if anything…

C.P.: You certainly know this business, you’ve been reporting of his business for thirty years. So if anybody can sense things, it would be you.

G.L.: Well, right, SHELL has been active in Turkey’s exploration. I don’t know if GAZPROM has been active in exploration in Turkey.

C.P.: Not the exploration. I mean the marketing, and the transport, and all of that stuff.

G.L.: Oh yes, of course. Turkey gets around 60% of its gas supplies from GAZPROM.

C.P.: The person who suggested it that there was a tacit sort of understanding, a gentlemen’s agreement. Because these huge companies don’t want to tangle on each other’s hair.  

G.L.: It wouldn’t be surprising.

C.P.: The extrapolation of that is that these huge companies do have geopolitical views and strategies and so on, which affect the direction that the events take in a deep sort of way.

G.L.: And also the Iraq thing, if oil was the motivating factor there. Yes, certainly.

K.K.: The conclusion I draw from this discussion is that Cyprus is muddling through, which is a habit they….

C.P..: …and in deeper waters that it knows….

K.K.: It’s one of the things that the British left here in Cyprus. The legacy of imperialism is the British concept of muddling through, because it doesn’t seem to be any, correct me if I’m wrong Gary, but there doesn’t seem to be any coordination or strategic planning. It all seems to be….

C.P.: And this brings us to the theme we’ve been getting in a number of our discussions.  You need a proper settlement, therefore, between the parties of Cyprus to avoid deadlock in these things and be able to work out some of the details, some of the planning. You need a positive sort of attitude and that’s a key element.

K.K.: This isn’t a discussion about the settlement, but I asked the question: is the proposed bi-communal bi-zonal federation the appropriate model for procuring a coherent energy security strategy, or a coherent national security strategy?

C.P.: Some people say that it’s better. I think it all comes down to the fact that if the good will is there, and the positive attitude of everybody is there, you can get a positive result. If some people have hidden agendas, the more complicated a structure is, the more some of these things come to the surface and create problems. So it’s really an attitudinal kind of approach, if you will. But certainly the more complicated a government structure is, it’s more prone to corruption. We’ve been through this many times. All the various interests are finding their way through and expressing themselves, and so on. There are two sides to the argument.

K.K.: There’s another dimension that must be mentioned here. Again, if we take the Annan Plan as our precedent that envisaged “demilitarization” of a post-settlement Cyprus, and if “de-militarization”, in inverted commas, is on the cards now in a post-settlements scenario, then how is the Republic of Cyprus, or its successor, going to protect its energy infrastructure? These questions really should be the matter of public discussion and debate.

C.P.: I think it’s all about definitions though, because what do they mean by “de-militarization”? What military are they going to get rid of? Does that include the Coast Guard? Does that include the special police forces? Probably we have no way of knowing, since everything is behind closed doors. But one would expect that they are discussing some of these things. What would hope that they are these things.

K.K.: Can I ask Gary a question? Generally speaking, how are energy infrastructures generally protected and to what extent is there a cooperation between the state and the private sector, in the energy industry in particular?

G.L.: I guess it would depend on the circumstances of a country you are operating in.  In a Gulf, I would imagine, there would be patrol boats and the rest of that. Here, in the East Med, I don’t see how you could possibly demilitarize, considering the situation in the area as it is. You would have to rely on someone else to protect you. It’s not practical. Certainly, the Israelis are not going to favor anything like that. And if they’ve got an interest in this area, even to include Block 12, it’s going to be a problem. Right now there is a rig out there for Leviathan and Tamar, and there is nothing out there in Block 12, as far as I know. As things begin to develop, we will see.

C.P.: But once the Israelis develop Leviathan, they’ve got to put some facilities out there, right? At the very least the pumping and the storage facilities, if not an fLNG.

G.L.: No, it won’t be an fLNG. I think there will a floating storage and production platform of some type, and from there they will run pipelines to the shore, depending on which direction they will go.

K.K.: We are less than two hundred miles from the carnage in Syria. That is what people really have to wake up to. This is an exceptionally dangerous part of the world.

C.P.: Some of the danger is that if ISIS or anybody else gets to the coast, they might develop a sort of a coastal attack facility, then there is a major problem.

K.K.: I’m thinking here of the terrorist attack in Algeria, if I remember correctly, a year or two ago, on the energy infrastructure there, and that highlights that you need not only offshore energy defense, but you need an onshore mechanisms in place as well. These are subjects that really ought to be at the forefront of people’s concern here in Cyprus.

G.L.: We’ll see how this develops. I think that Cyprus is going to need its coast guard. Who the members of that are going to be? I would imagine Cypriot citizens would be involved in that. Hopefully that is how it will turn out. Cyprus should take care of their own defense, but certainly as a small place it will need the help of others.

K.K.: I would suggest that before a settlement they should come up with an energy security strategy, and a national security strategy, because if they can’t work it out before the settlement, they won’t be able to do it after it. And that should be a part of the settlement put forward to the population – the citizens in any referendum – so they know what is on the cards. Otherwise, everybody will be walking into a cloud of darkness (is there such thing as a cloud of darkness?).

C.P.: There certainly is. Or dark clouds. I mean overall you would see some sort of future positive development, economically and so on in the Eastern Med.  There were suggestions that the pieces could be there, that there could be cooperation between Cyprus, Israel and Egypt, or is it too outlandish?

G.L.: No, I think it’s very possible. A week ago we had Netanyahu and Tsipras, and Anastasiadis meeting here in Nicosia. That was the first of that trilateral meeting.

C.P.: But there is another trilateral with Egypt, and another one with Jordan, Cyprus and Greece – apparently it’s in the work.

G.L.: It would be great to see a meeting here in Nicosia of Egypt, Israel, Greece and Cyprus, if they are eventually energy deals between Israel and Egypt, Cyprus and Egypt…

C.P.: …. and Turkey, eventually.

K.K.: It has to be democratic Turkey.

C.P.: No preconditions. I don’t know. Is being democratic a precondition of economic cooperation?

K.K.:  Well Egypt is not fully democratic, we have to admit that.

G.L.: I think there is a chance for good times ahead for some sort of positive developments. But there are a number of hurdles to get through: the regulatory issues…

C.P.: What’s happening in Israel with regard to that?

G.L.:  They seem to have made peace to some extent; I don’t think it’s entirely resolved. I think we will learn more with time. I think the Netanyahu’s government has promised that it will push the development in the gas fields

C.P.: But now it’s in the Supreme Court, I think, right?

G.L.: I don’t know, I’m sorry. It seems like there is a lot of issues there. But it does seem they are going to have to make some decisions. NOBLE is keen to move on with that. They’ve got letters of intent signed not only with Idku, but also with the Damietta LNG plant. There’s a private Egyptian firm called Dolphinus Holdings that want to import Israeli gas. There’s the prospect of selling it to Jordan State Electricity Company. So it’s in their interest to get all that sorted out and to start selling gas, and making some money from it.

K.K.: The other day I was reading through some of the declassified emails of Hillary Clinton during her tenure as Secretary of State. They’ve been released, or some of them have been released on the website of the State Department. Everybody should try and read some, they are very interesting reading. But I caught one email – these are all declassified, so I’m not spelling any secrets here – one of those declassified emails spoke of the possibility of a free trade area springing up in the eastern Mediterranean, which would encompass Greece, Turkey, Cyprus and Israel. These were the ideas, it seems, that were swirling around the state department or Washington in 2011. Is there any mileage in that proposal from the standpoint today?

G.L.: I don’t know, but what has to happen – peace has to break out in the East Med.

K.K.: Since 2011 nothing but war has broken in the Eastern Mediterranean, and Syria in particular.

C.P.: As a journalist – is it on an up-turn, or is it on a down-turn?

G.L.: That’s a tricky question.

C.P.: You have presumably traced this before.

G.L.: You looked at the things that are going on in the Middle East and you would say, well, you know, one of these days this is just going to blow up. But you never really imagined how it would, but it looks like it’s…

C.P.: It’s blown up?                                  

G.L.: Some people say it’s going to get worse before it gets worse. So there really is a chance of that – that it could get really very bad. If you are talking about Turkey, the situation with the Kurds is very serious, and the problem in the cities of southeast Turkey, now some of them are almost under siege. It’s such a complicated interwoven tangle of alliances and enemies in the region. It’s the Kurds who are making advances against ISIS, yet Turkey is opposed to including the Kurds in the Syrian negotiations. You’ve got all these different interests. You remember how Lebanon was during the civil war. It’s like that, only on a massive scale. And who knows how they will ultimately deal with ISIS.

K.K.: Is Turkey, as it is being alleged by some, assisting ISIS in relation to the distribution of oil or gas?

G.L.:  It’s been alleged – it’s all I can say at this point.

C.P.: But can you trust the footage that’s being thrown on the media, all those tankers waiting to cross into Turkey? It could be anywhere.

G.L.: Yeah, but if reputable news agencies are going to broadcast that, you would think that they would have checked that out.  The US coalition, the British and the French are involved in that, aren’t they, they are sort of ratcheting things up a bit, and going after tankers and the facilities. The other day I think the Syrians sent a letter to the UN, accusing US coalition of actually hitting infrastructure that was pretty vital to the oil industry there.

C.P.: I was looking for a positive note-end. Is there anything like that on the horizon?

G.L.: If we can get companies drilling here…

C.P.: But certainly with the price of oil being so low, it doesn’t really work in that direction.

G.L.: NOBLE’s cut back on its own money and wants to put in investment, yet I think the fact that there’s a regional market here will (inaudible) its interest to develop that market, especially if it has got this large resource. Egypt’s desperate for gas, and so it’s going to be working to develop its own resources, and hopefully buy those from Israel and Cyprus.

C.P.:  Is oil and gas still going to be interchangeable?

G.L.: I think this whole oil market price flux is going to evolve in time, because I don’t think the prices are going stay reasonably low for a while, and because…

C.P.: Iran is coming online…

G.L.: Yes, they plan to produce quite a lot. Iraq wants to up its production. If Libya should ever come to its senses, they had a capacity of 1.6 million a day, they’re down to about 300,000, maybe. Syria was producing about 380,000 BPD before the war began. There is a lot of wars. Wars in Sudan have stopped oil production there, practically. It’s politics.

C.P.: From an oil-business point of view you want a bunch of wars, or is it too cynical, perhaps?

G.L.:  Saudi Arabia’s producing more than 10 million a day and so it wants market share. This strategy is supposedly working, but I don’t really if I understand this strategy. What is the point of this? It’s to drive producers with high costs out of the market, but so essentially it was directed towards American SHELL producers. But you can drive them out for now, but they can come back as soon as the price goes back up a bit. When it gets to that point where it’s profitable to produce, then their back on, so then you’ve got more oil coming on the market, and so what is that going to do? Is that going to cause the price to go down again? I wouldn’t be surprised if you see this sort of rolling line across the price scale.

K.K.: What the conflict in Syria has really underlined is that this part of the world, the Eastern Mediterranean, is in the eye of so many great powers: you’ve got the British, the French, the Americans, the Russians, the Chinese are hovering in the background as well. And Cyprus, I need to emphasize this again, less than 200 miles from Syria. And it’s inevitably going to be affected by developments over there, and that’s something that all of us need to be on our guard for.

G.L.: And that is why also you need a security system here, definitely.

C.P.: We’ll end on the note that we are the Time Square of the Eastern Med. Thank you Gary, thank you very much.


See: Hydrocarbon Developments in the Eastern Mediterranean

See: Cyprus, Israel, Lebanon, Egypt – Energy Developments in the East Mediterranean

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