Natural Gas Balance: A Future Oversupply? Integrating Geopolitical Analysis for the Mediterranean Case

Transcription

1 Natural Gas Balance: A Future Oversupply? Integrating Geopolitical Analysis for the Mediterranean Case by Sandro Furlan, Professor and Head of Relations with Foreign Universities, Eni Corporate University, Via S. Salvo, San Donato Milanese (MI) Phone: / sfurlan60@yahoo.com Elena Charisi, International Hellenic University Alumni Phone: / elenacharisi@gmail.com Abstract Recent important discoveries in natural gas worldwide have confirmed the key role that technology plays. From African off shore to Far East new important reserves have been discovered. The US unconventional gas added a strategic unexpected supply. On the other side, the consuption in Europe is tapping, China is not the running economy that used to be and even USA give signals of not extremely positive trend in economic(energy) growth(consumption).the question arise: should we expect a gas bubble in the next future? To answer to the question we should analyse the supply perspectives and the demand patterns. The geopolitical context plays and will play an important role in the definition of natural gas balance, including the LNG. An interesting case to analyse is the Mediterranean gas supply (Algeria, Egypt, Israel, Cyprus) and the geopolitical conditions that could depict a scenario of oversupply or not. Concerning the peculiar structure of the natural gas industry, we will account for the gas infrastructures frame in order to make evidence of obstacles to the security of supply.the paper is organised as follows: The introduction depict the framework that emcompass the issue we investigate. A litterature review allows to better define the state of the art concerning the energy consumption structure and the variables that better describe the consumption paths. Further we introduce the geopolitical context to make evidence of the reasons that could exacerbate or mitigate the gas consumption scenarios. The conventional forecasts will be integrated with the geopolitical variables that revealed to be more significant. The conclusions will reveal the complexity of the integration of geopolitical analysis into the gas consumption scenarios. 1 Introduction Natural gas is a rising star that is considered by many to play a crucial role in tomorrow s energy mix along with renewables. It is a low-cost energy source with huge unexploited and easily accessible reserves worldwide; that produces half of the carbon emissions of coal. If we consider that yet a large percentage of electricity today is generated by coal-fired power plants, natural gas has the opportunity to replace coal successfully, since it is the fastest, most efficient and least expensive way to reduce CO2 emissions, while providing a sustainable response to rising global energy demand. In other words, natural gas can provide backup to renewables when there are consumption peaks or no sunlight or wind.

2 As one of the most actively traded commodities in the world, natural gas price experiences wide swings in times of shortage or oversupply. Nowadays, we can observe, a natural gas glut due to an increase in recoverable conventional and unconventional reserves and an increase in global LNG supplies while demand growth weakens. This situation keeps global gas prices under pressure, and according to Moody s, global oversupply will reach at about 55 million tons in 2019 (Oil& Gas Journal Editors, 2017). However, many analysts support that in the longer term natural gas will transform into the most important energy source and point out that, low prices will lead to substantial growth of the fuel in the power and industrial sector especially after the imposition of price on carbon. These developments will make the natural gas more competitive in relation to coal, which is benefited from its low prices and the lack of regulatory restrictions on emissions. Demand is generally flat or low due to slow switch from other fuels, coal s low prices and energy efficiency improvements. More specifically in Europe, the economic crisis and the following slowdown led to low gas demand. On the other hand, in Asia, natural gas demand has increased because of robust economic growth in the region and Japan s decision to shut down its nuclear facilities after the Fukushima disaster in Japan since that year is the biggest consumer of LNG. In the future China and India are supposed to overtake Japan and become the largest consumers of LNG globally. Natural gas demand is expected by many analysts to grow significantly in the future, especially in the power sector due to the replacement of old coal-fired generation capacity with natural gas-fired generation. However, there are no clear estimations in the longer term because of the high competition between gas and other alternative sources such as coal, nuclear and renewables; economic slowdowns and decarbonization policies resulted from concerns over climate change. The latest natural gas discoveries in Eastern Mediterranean have the potential to alter the regional and global energy landscape. The transformation of Eastern Mediterranean to an important natural gas province will definitely affect the energy markets by creating new opportunities and challenges for all the countries and actors in the region. These discoveries, except of their significant economic implications- can provide local economies with big financial benefits, once gas become commercial- they also have geopolitical implications since can affect interstate relations in the region and pose new challenges to an already oversupplied gas market.

3 2 Mediterranean gas findings and geopolitical hurdles Recently, key developments in the gas markets are altering the status quo of global gas relations and restructuring the sector contributing to the integration of regional markets into a global gas market. The last economic crisis and the consequent drop in demand made the prices for LNG produced in the Middle East, Asia and Africa to decrease and LNG became more competitive and a real alternative option to gas imported via pipelines. The LNG boom, the build-up of inter-connective gas infrastructure in combination with the shale gas revolution in the US and the transformation of US from a net importer to the world s largest producer of gas caused shifts in the structure of the global energy trade. Finally, the aforementioned factors and the development of the spot market, mainly in the Europe, pointed out the necessity for more flexible contractual structures causing a decoupling of gas and oil prices; and an alteration of long-term contracts. Natural gas supply is increasing as a wave of fresh supply comes online but on the other hand demand is falling in the largest importing countries such as Japan and Korea. In the same time, other big markets such as China, India and other Middle Eastern countries are unable to absorb these new amounts that enter the market. According to future forecasts, LNG capacity will peak 45% through 2021, mainly coming from US and Australia, while on the demand side a slowdown in demand growth is expected. Gas demand will be 3.9 trillion cubic meters in 2021 compared with 3.6 trillion cubic meters in 2015 (IEA, 2016). Natural gas glut has as a consequence depressed spot and medium term prices and poses major challenges during the investment decision process since it put under risk the viability of important infrastructure projects. Although these projects might intensify the oversupply in the natural gas market, on the other hand, underinvestment will most likely lead to supply disruptions and price spikes in the longer term. Analysts, however, believe that it will take years for the global demand to catch up with supply pace and the oversupply will continue into 2020s even if new projects were postponed or reshape their output. The future of natural gas market is basically depending on factors such as demand in Asia region, oil prices, climate policies, global shale gas developments and LNG trade. LNG plays a crucial role in natural gas market, since it has the potential to plug supply and demand gas in international markets (Walker, 2016). Except of the aforementioned, geopolitics play a key role in shaping energy markets and determine developments in the sector. Natural resources have longed gained a strategic importance and have the ability to foster interstate cooperation or feed interstate disputes and geopolitical anxieties.

4 Recently, Mediterranean has become more unstable and prone-to crisis region with a strong presence of Sunni extremist groups such as ISIS, which has taken over several Iraqi and Syrian cities; the sectarian war between Sunni and Shia; the political unrest in Libya; the immigration issue; the political transition in Egypt after the Arab Spring; and a lagging economy in Europe. But Mediterranean was always a place characterized by political disputes and conflicts such as the Palestine problem and the dispute between Turkey and Cyprus. All the aforementioned impede the transformation of the region into a reliable natural gas hub. The creation of a Mediterranean gas hub could act as a key source and route for supplying gas to Europe or more distant markets and would benefit significantly all actors in the region in strategic and economic terms. Until now, proposals for pipelines and LNG schemes have emerged; they all face problems related to economics or international relations or both. Furthermore, there are other substantial hurdles to overcome, including lack of pricing transparency, as well as market culture and attitude to gas trading (Tagliapietra, 2013). I. The Geopolitical Context in the Mediterranean Region The Mediterranean Area (MA) entails several countries that display a great diversity in terms of population, GDP growth rates, economic and industrial development and, as a consequence a specific structure and trends in energy supply and consumption. Further, in the MA we can identify Oil & Gas Producing and Exporting Countries: some belong to OPEC, others are not part of the organization (free riders or associated in a way to the organizations). Recent important discoveries of natural gas in the region have increased the number of countries that are part of the producers and exporters (Egypt, Israel, and Cyprus) club ; and have the chance to change the energy context of the MA. To muddle the context from the geopolitical point of view, some belong to the Arab World 1, some to EU (Republic of Cyprus) and others have a peculiar role in the Middle East (Israel and Turkey). The paper focuses on a selected number of these countries in order to make evidence of their significance in terms of energy and geopolitics. Algeria, Egypt, Israel, Turkey and Cyprus are the countries under investigation by examining their old and new supply and consumption levels. There is no doubt that Libya, also, plays and will play a crucial role in the dynamic of gas supply (both NG and LNG), but its current situation constitutes it a war-torn country with territorial divisions and without a single internationally-recognized authority. This anarchic 1 The notion of Arab World is not identifying any official entity, organization or group. Here is just including the Arab speaking Countries and, among those, the MA Arab speaking Countries: Morocco, Algeria, Tunisia, Libya, Egypt, Syria, Jordan. The role of Palestinian Authority is part of an even more complex geopolitical crisis that is the Israeli-Palestinian conflict.

5 state cannot be part, for the moment, of any serious plan for the creation of gas hubs in the Mediterranean Sea. This does not mean that the countries that are under investigation in this paper benefit from a positive, favorable geopolitical condition: Algeria is far from being a stable state with a consolidate regime. Egypt, after the short unfortunate experience of the Muslim Brotherhood (MB) government, fell under the Army control driven by the General al- Sisi. Although, after the prevalence of General al-sisi, the influence of MB was limited drastically, Egypt is still considered the base of a number of extremist outlaw groups and one of the main targets of terrorist attacks. Israel lives under a long-lasting state of conflict on several fronts inside and outside of its borders. The unresolved Palestinian question, the civil war in Syria, and, to a further extend, the relations with Iran are exposing the country to new risks and threats. Turkey, as well, is facing old and new challenges from inside and outside: The PKK has not been defeated politically or militarily. Adding to that, the failed coup, that Turkish authorities blamed the Gülen Movement as the inspirer and organizer, has brought about drastic changes inside the Turkish society and institutions. Au undefined number of civil servants, army officers, judicial bodies and professors have been removed with the accusation of being part of the conspiracy. That happened, in the same time that Turkey s relations with Russia, US and other actors in the Middle East (the Gulf Monarchies, and in particular the Saudi s new leadership) have deteriorated considerably since the start of the civil war in Syria. The country now is going through major changes that aim to give more power to the President in order to re-establish the order and his authority according to the AKP philosophy after the recently political turbulence. The consolidation of Erdoğan s leadership and the levels of political stability in the country will profoundly affect the role that Turkey will play in the energy scenarios of the gas supply/demand equilibrium. Although, Cyprus is not suffering any military confrontation during the last decades, the Cyprus dispute and reunification question has not been resolved yet. At the same time, the important natural gas discoveries offshore the country are creating a new context in the region, both from an energy and a geopolitical point of view. This critical context is not in favor of the creation of a Mediterranean hub for gas and puts several geopolitical hurdles. Technical developments and economic rational, financial support and legal framework can be achieved but, the geopolitical environment is far from being in line with consensus needed to reach this goal.

6 The geopolitical conditions affect heavily the financial engagements needed to develop the infrastructure and technological support to develop a physical hub. Furthermore, from the 1970s with the first oil crisis, the world experienced the use of energy as an unconventional weapon to threat the enemies and achieve strategic goals. Embargoes and price wars changed energy s landscape and actors behavior in the markets. Today the playground is different: the actors are many more, the script has been modified but some aspects still persist. The idea to use energy to influence politics and to use politics to influence the energy sector did not die. To confirm that, we can have a look at the maps that depict the pipelines from producing to consuming countries and we will realize that some of them have more a political reason behind than an economic rationale. In this paper we approach the data on supply and structure of the demand in order to try to keep a rational method while considering the potential creation of a gas hub in the Mediterranean. Nevertheless, and this is the main message of this work, the geopolitical variable cannot be forgotten, and deserve to be clearly understood and examined in order to measure its impact on the quantitative variables of the equation. II. Natural Gas Discoveries and Geopolitics in the Mediterranean The Mediterranean, mainly the Eastern part, has become a hotspot for the oil & gas industry after significant natural gas findings in Israel, Cyprus and Egypt since 2009; leading many analysts to consider the region and its vast natural gas resources as a geopolitical game changer (Leigh, 2014) that has the potential to restructure the regional and global energy markets. The transformation of Eastern Mediterranean to a natural gas province will inevitably alter the geopolitical landscape, thus creating new opportunities and challenges for each actor in the region. The combined reserves of these three countries have the potential to create a new natural gas basin in the Mediterranean, and possible exports can improve region s position in the global energy landscape and international system, strengthen energy cooperation between Mediterranean countries and pave the way for a new era of political and economic stability in the region. In the last years, Egypt is struggling with energy shortages due to increased subsidized demand. The country was transformed from a major producer and exporter of natural gas to a net importer in 2016, because of government s policies to subsidized domestic consumption and its low payments or debts to foreign operators. With the development of recent discoveries and the continuing exploration for instance in Nile Delta, the market would achieve a surplus again.

7 Egypt is now back on track and is considered the largest and fastest growing natural gas market in the Africa thanks to its giant reserves in Zohr field. Except of the recent discoveries, the Egyptian government took actions to create a more investment-friendly climate by eliminating energy subsidies, having currency float and higher interest rates. Additionally, the increase of foreign exchange reserves; and the announcement of a $12 billion IMF loan definitely added credibility in country s program to overhaul its economy. Due to that rapid increase in demand, Egypt forced to divert its natural gas supply from exports to the domestic market and began importing LNG in 2015; and until now the country has been struggling to balance rapidly growing domestic demand due to increased population and natural gas subsidies. Although, the majority of new discoveries in Egypt are going to be consumed domestically, Egypt aspires to become the center of a regional Mediterranean natural gas hub since it has the infrastructure needed for exports and a massive consumer market; two characteristics that made it a vital partner for the development of region s natural gas sector. Egypt s situation is expected to change in the future mainly after the utilization of the supergiant Zohr Field, which was discovered by Eni SpA in August Until now, the Zohr Field is the largest discovery in the Eastern Mediterranean and holds up to 30 Tcf. If something like this happens will alter significantly the market structure and pricing of gas in the region. In Israel, Noble Energy has made some significant discoveries, namely Noa Field (1999), Dalit and Tamar (2009), Leviathan (2010) and Tanin (2011). Until now, the largest offshore discovery in the country is the Leviathan Field, located approximately 80 miles off the cost of Israel and situated in water that is more than 5,000 feet deep- which holds 18 Tcf in estimated recoverable resources. (EIA, 2013) Production from the Tamar Field begun in April 2013, and production from the Leviathan Field is expected to start in In addition to the discoveries in Israel, Noble Energy discovered the Aphrodite Field offshore of Cyprus in 2011, which is expected according to estimations to hold between 5 and 8 trillion cubic feet (Tfc) of natural gas reserves (Oil Daily, 2012). Government officials aspire to discover additional gas reserves between 30 and 40 Tcf, while in the same time, plan to develop the Aphrodite field and start exporting activities by However, government s aspirations are extremely challenging since Cyprus does not have the necessary infrastructure; a fact that makes it difficult and costly for the country to utilize gas for exports or even for domestic use.

8 The successful discoveries in the region spurred additional exploration. Syria and Lebanon hoped to launch exploration program, but the civil war and the political stalemate accordingly postponed these programs. Cooperation between involved states is a prerequisite for the development of the specific fields. For instance, recently natural gas findings have played an important role contributing to the improvement of bilateral relations between Greece and Israel. The prospect of development of Eastern Mediterranean resources brought together also Cyprus and Israel. Turkey from its part managed to finalize a deal with Israel in June 2016 that paved the way for a possible major natural gas deal since Turkish companies expressed interest for Israeli gas. Turkey aspires to enhance its role in the region and become an important energy player, more specifically a transit country between the East-West and the South-North axes. Although, Turkey is a big strategically located market that consumes large amount of natural gas every year, if the country wants to play an important role in the regional energy landscape, it should adapt its natural gas market laws in compliance with the principles of free market competition and liberal pricing policies while upgrading its storage and LNG capacity. 3 Future Demand Forecasts in the Mediterranean Natural gas consumption will rise at the pace of 1.5 percent per annum, according to IEA report, from 2015 through Although the Agency was expecting a higher demand the previous years, it adjusted its forecasts due to a general demand slowdown in the developed world due to renewables growth, energy efficiency improvements, decline in energy intensity of the world economy and cheap coal. However, natural gas is placed in a better position compared to oil and coal, and will expand its share modestly. The natural gas market is undergoing some major changes, notably new LNG supplies are coming online while demand growth in major consuming markets is weakening. The low natural gas prices may affect the development of new infrastructure projects; however they constitute LNG as more attractive than other options in areas where there is already existing gas infrastructure. Still, there is a high possibility that today s oversupply creates some challenges that in the near future will lead to shortages. Inevitable cost reductions and investment cuts in the sector pose serious risks to future s security of supply and bear out the bust-boom commodity cycle. Therefore, a price rally is extremely likely in the longer term.

9 Gas trade in the Mediterranean is greatly unbalanced, whereas in some countries such as Cyprus and Lebanon there is an absence of natural gas from their energy mix. Thus, it is normal to expect very different outlook and trends from country to country in the region. Some countries will be better supplied and will have the opportunity to choose between different suppliers; where others will continue to be dependent on a specific supplier. As regards natural gas demand, although, many analysts advocate that it is will grow significantly in the near future, there are no clear estimations in the longer term. This is mainly the result of mild temperatures during the winter; and the highly competitive market between gas and other alternative energy sources such as coal, nuclear and renewables. According to future projections, North Mediterranean countries consumption rates will continue to trend upward with modest increase though due to possible shutdowns of coal and nuclear plants. On the other hand, consumption in South and East Mediterranean countries is expected to experience increase by the largest margins. This trend will be mainly the result of a significant increase in GDP and population in these regions leading to rising electricity and overall gas consumption. To meet expected growth in demand, countries in the Eastern Mediterranean will need to produce or import additional natural gas supplies. Israel can be considered as a successful case that achieved to develop its offshore natural gas field and transform its energy profile in a short time frame by reducing its dependence on oil imports and achieving a high level of energy security for the next decades. Israel Primary Energy 2016: Consumption by fuel- Total: 26,4 in million tonnes equivalent Oil Natural Gas Coal Renewables Source: BP Statistical Review of World Energy, June 2017

10 As regards Europe, there are controversial opinions. From one hand, natural gas is projected to become the predominant fuel in the European energy mix. On the other hand, there is a gloomy picture for the years ahead as there is a gas market crisis, underinvestment on gas infrastructure, and uncertainty regarding the contradictual energy policies of the EU. The Roadmap 2050 strengthens this speculation, since there is a great incentive toward the decarbonization of the European economy and the role of gas is projected less important in the following years, which is considered as a transition energy source. Therefore, it is very normal to have different projections on future EU natural gas demand. One projection supports that Europe will need additional gas imports since its domestic production notable in Norwegian and Holland is declining considerably year after year. Europe is expected to absorb much of the excess LNG supply, since a large number of European countries have already constructed or are now constructing LNG import terminals such as Poland, Lithuania and Croatia. LNG imports will compete with Russian pipeline gas in order to replace coal in the European power sector. These developments will have imminent implications for European gas prices. In the eastern Mediterranean, Egypt s demand outlook projects substantial growth driven by the industry sector and gas-fired power generation. If we consider Egypt s future rapid population and GDP growth by 12 million and 4 percent respectively, required electricity consumption will lead to strong natural gas demand. However, in order to meet this increased demand Egypt has to support sector s growth by implementing stable energy policies and providing investors confidence and appropriate economic rewords. Additionally, if Egypt manages to shift its energy production from gas to renewables, more gas will be available for exports -mainly towards Europe and Middle East- generating extra revenue for the country.

11 Egypt Primary Energy 2016: Consumption by fuel- Total: 91,0 in million tonnes equivalent Oil Natural Gas Coal Hydro-electricity Renewables Source: BP Statistical Review of World Energy, June Egypt Natural Gas Consumption in billion cubic metres Source: BP Statistical Review of World Energy, June 2017 Israel after the recent discoveries of natural gas fields and their gradually development showed a rapid natural gas demand growth. However if we consider Israel s population size, exports of excess natural gas resources are feasible. With additional production volumes coming online from the Tamar field since 2013, natural gas consumption in Israel grew significantly from an annual average of 10 million cubic meters in 2001 to a peak of 7.98

12 Bcm in 2014 (CIA, The World Factbook). The domestic natural gas market is projected to grow and to take a predominant role in Israel s energy mix. 12 Israel Natural Gas Consumption in billion cubic metres Source: BP Statistical Review of World Energy, June 2017 In the north-african part of Mediterranean, Algeria holds the world s eleventh largest amountof proved natural gas reserves; according to Oil & Gas Journal the country had 159 Tcf of proved natural gas reserves. Though, its production has steadily declined over the last years as its largest field is depleting since its peak of 7.1 Tcf in 2008 (EIA, 2016). In 2014, Algeria s dry natural gas production in 2016 was 3.0 Tcf of which 1.5 Tcf was exported via pipelines (910 Bcf) and LNG tankers (578 Bcf) (EIA, 2016). The country s government officials announced several projects planned to come online in order to increase production levels, but all of them have been delayed. Furthermore, the government took actions in order to support renewables use and reduce natural gas consumption in the electricity; as natural gas, which is heavily subsidized, accounts for the majority of its power generation. However, even if Algeria increased the renewables share in its energy mix, natural gas consumption will continue to increase due to expected population and GDP growth for the foreseeable future.

13 Algeria Primary energy 2016: Consumption by fuel- Total: 55,1 in million tonnes equivalent Oil Natural Gas Coal Renewables Source: BP Statistical Review of World Energy, June Natural Gas Consumption in billion cubic metres Source: BP Statistical Review of World Energy, June 2017 As regards Cyprus, the country does not consume any natural gas, does not possess required infrastructure and is dependent on petroleum products imports. Cyprus plans to utilize natural gas from Aphrodite field in order to decrease its reliance on imports and boost its economy by

14 attracting foreign direct investment and by generating revenues through exports. Except of saving money and high levels of energy security, country s economy will not be anymore that exposed to oil price fluctuations. Lebanon hopes also to discover significant natural gas reserves that will provide the country with the necessary supplies to meet increasing domestic demand and enhance its energy security. Subsequently, Lebanon s Ministry of Energy and Water proposed a two-thirds increase of the natural gas share in country s energy mix by 2030 (EIA, 2013). The continuous interruptions in natural gas flows in the region led many times such as in the period between 2010 and 2011, to decreases in consumption. In this period, the interruptions in flows from Egypt via the Arab pipeline and the onset of unrest in Syria led to a 23-percent natural gas consumption drop in the region due to shortages. Therefore, although the energy demand is increasing rapidly in Eastern Mediterranean, the future of natural gas development depends on the turn of events in Syria, political and economic instability; and delimitation disputes. The cooperation of the countries in the region is more than necessary for the development and exploitation of their natural gas reserves. 4 Conclusion Natural gas has the potential to be transformed into the most important source of energy supply, since it is an abundant cleaner burning fossil fuel compared to other fuels, in the face of climate change concerns. Natural gas is becoming a freely traded and available commodity and is not considered anymore as a difficult to transport, geographical concentrated and controlled by energy monopolists and their affiliated states fuel. But according to Fatih Birol, even though the opening of the gas market and rising global gas trade the combined factors of cheap coal and continued strong renewable growth were blocking gas from expanding more rapidly in the power sector. (IEA, 2016) Through the years, the energy market is becoming more competitive since new environmental friendly technologies such as solar and batteries, are becoming cheaper and then more attractive. However, according to BP Energy outlook for 2017, oil and gas will retain the major share of the global energy supply out to 2035, but the balances will change since the half of the additional energy required will be provided by renewable, nuclear and hydroelectric power. In order natural gas to survive and become world s most important source in the upcoming years, actors in the market should cooperate for the financing of new infrastructure projects, including also traders and private financers.

15 As natural gas market becoming more flexible, competition between actors peaks since they struggle to secure contracts. In Europe, due to the high flexibility of its gas system and welldeveloped spot markets, intense competition will develop among actors in order to have access to the European markets or retain their market share. The previous years there was a clear indexation between oil and gas prices, however we can observe a decoupling. In the future we can expect that although oil prices will most probable stay flat or increase, the gas prices will go down due to oversupply and competition pressure. Most probable natural gas markets will remain oversupplied at least until 2020, since they will struggle to absorb the increased production amid the return of Japanese nuclear reactors, cheap coal and energy efficiency improvements. According to IEA, global gas demand will be 3.9 trillion cubic meters in 2021, while in 2015 was 3.6 trillion cubic meters (IEA, 2016). Though LNG exports will increase and LNG capacity will reach 45% through 2021, since a huge amount of export capacity is coming online mostly from the US and Australia, ramping up production and paving the way to prolonged low prices for natural gas. Consumption in Europe is projected to rise annually by 0.3% after years of a downward trend, mainly because of the replacement of coal plants in power sector. However the main determinant of the future of natural gas market and how fast it rebalances will be the consumption in Asia. If demand in Asian largest importers stalls, oversupply will extend into the 2020s as new supplies will need to find other markets, which markets in Middle East and Africa cannot absorb such high volumes of gas. China, India and ASEAN countries will probably emerge as key buyers, as new supplies will need to find other markets than Japan and Korea. However, in order to make more accurate forecast scenarios and consequently better decisions, the association of the data analysis with evaluation of the geopolitical context is imperative. Regional natural gas markets have different structures and performances and geopolitics influence them in different ways. Furthermore, the actors are not always the same and results can be quite divergent. Geopolitical analysis is an instrument that could lead to better understanding but still the degree of uncertainty remains high. Uncertainty strongly affects the financial side of the projects, since it makes the financial support more risky and possibly more costly. The geopolitical uncertainty is a result of many possible threats such as change of political regimes, change of government s strategy or lack of strategy and free-ride behaviors inside alliances. Specifically in the Mediterranean, the situation and relations among the regional actors are getting more and more complex. When we speak of actors, we should define them not only as States (with official, legal and recognized status), in fact other entities (i.e. international

16 energy companies or organizations) and more recently, self-defined states -that have no legal status- are playing crucial role in the international energy landscape. In the Mediterranean, there is a growing need for countries to engage in cooperation in order to deal successfully with energy issues and tackle subsequent security challenges. As Leigh (2014) notes Political will is needed to resolve conflicts and to bring about strategic realignments. Additionally, the fact that, world powers and other non-regional actors motivated by their personal strategic interests are trying to assert influence in the area, makes the situation more confusing, since the alignment of their interests and the establishment of a common strategy are extremely difficult. The aforementioned inevitably lead to delay in decisions, especially as regards the creation of a regional natural gas hub. We have seen that individual projects inside country s sovereign territories have strongly supported because they serve strategic interests such as more energy for national consumption (i.e. Egypt); security of supply or revenues generated from exports (i.e. Israel, Cyprus). What still remains a difficult obstacle to overcome is the capability to create a consensus around the hub concept that claims for a real cooperation among several actors. The combined natural gas reserves of Israel, Cyprus, Algeria and Egypt advocate the creation of a natural gas hub in the Mediterranean. For the creation of such a gas hub in the region, a robust interconnection system, LNG terminals and storage facilities must exist. But considering the capital intensity of such infrastructure projects, the current pricing and the political dynamics in the region create serious challenges for such immense investments. Regional actors should respond to these challenges by providing rational and clear solutions and taking imminent actions. The only way to achieve their goals is through cooperation. Therefore, countries should engage diplomatically and cooperate towards the creation of the appropriate infrastructure by pulling aside their personal near-term geopolitical interests and consider the longer-term benefits. 5 Bibliography 1. BP (2017) BP Energy Outlook 2017 Edition. Available from: < 2. Brown, S.P.A. & Yucel, M.K. (2008) What Drives Natural Gas Prices?. The Energy Journal, Vol. 29, No.2., pp [2 July 2017] 3. Bryza, M. (2014) Istrael-Turkey Pipeline Can Fix Eastern Mediterranean. Bloomberg View, 20 January Available from:

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