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Hello and welcome back to Energy Source, broadcasting from London. The weather worldwide has been extreme lately, with reports confirming that last month was the warmest June on record. Interestingly, warmer temperatures helped Europe avoid a gas crisis last winter, but it’s uncertain if luck will strike twice.
In today’s edition, we interview Mathios Rigas, CEO of Energean, an oil and gas company, who believes that Europe should explore the east Mediterranean for secure gas supplies. In Data Drill, we examine how major energy companies have been acquiring contracts for liquefied natural gas.
Thank you for reading. — Shotaro
Should we prioritize east Mediterranean gas? Despite Russia reducing its pipeline gas supply by over 80% since invading Ukraine, Europe managed to avoid severe shortages last winter thanks to warm weather and significant imports of liquefied natural gas. However, the continent will need to find alternatives for the approximately 150 billion cubic meters of Russian gas it used to receive, and continue importing gas from various sources worldwide.
While much attention has been given to increased LNG imports from the US, Europe should also consider sources closer to home, such as the east Mediterranean, according to Mathios Rigas, CEO of Energean, a London-listed oil and gas company. Rigas, whose company is involved in gas projects in the region, argues that Russian gas needs to be replaced with other sources.
“Some gas will come from the US, some from the North Sea, some from Algeria and Qatar. But the closest area with potential gas reserves that can supply the wider region is the east Mediterranean,” he says.
Over the past decade, major gas discoveries have been made in the eastern Mediterranean, particularly off the coasts of Israel and Egypt, with energy giants like Eni, Chevron, and TotalEnergies having interests in the gasfields. Currently, some gas from the region already reaches Europe in the form of LNG from Egypt. However, according to Rigas, the gas in the region remains largely untapped and could significantly contribute to Europe’s energy security.
“While it may not be able to completely replace the 150 billion cubic meters, it can certainly be a part of the solution Europe needs,” he adds.
Cyprus, which holds over 400 billion cubic meters of recoverable gas, also aims to become a new exporter. The country is exploring the possibility of a pipeline that would transport Israeli gas to Cyprus for liquefaction and exportation to Europe. According to Cypriot President Nikos Christodoulides, the region could eventually provide 25 billion cubic meters per year for export.
The geopolitical landscape has hindered the rapid development of gas resources in the region, particularly due to disputes over maritime boundaries between Cyprus and the Turkish-controlled northern Cyprus.
Rigas believes that the biggest obstacle has been the reluctance of European politicians to recognize the need for natural gas, despite the push for green energy. “The green transition is important, but it won’t happen overnight. Energy security is crucial, so we must utilize our own natural resources,” he says.
However, the question remains: How much east Mediterranean gas will actually reach Europe? According to a report from Columbia University’s School of International and Public Affairs, the region could have a surplus of 50 billion cubic meters per year by the early 2030s if development progresses aggressively. Yet, the availability of this gas to Europe is uncertain.
“Eastern Mediterranean countries, especially Egypt, have strong domestic demand that regional governments will prioritize,” the report states.
Furthermore, if the gas is transported as LNG, a highly tradeable commodity, it may be exported to the highest bidder, which might not necessarily be in Europe. A pipeline could resolve this issue, but a €6 billion project to transport east Mediterranean gas to the European market faces challenges due to regional politics and the long distances involved.
Moreover, with the expected surge in LNG supply from other sources like the US and Qatar over the next five years, Europe may not necessarily require gas from the east Mediterranean.
Rigas acknowledges this by saying, “We need multiple sources of gas. That’s why the east Mediterranean is important because it could be one of many.”
Data Drill
Big energy traders have been acquiring LNG contracts. According to data from S&P Global Commodity Insights, portfolio players like Shell, BP, Vitol, and Trafigura accounted for just over 50% of the signed global LNG purchase agreements of 103.2 million tonnes per annum from 2022 to June 2023. This trend has supported the advancement of new LNG projects in the US and Qatar, as these long-term purchase agreements secure financing for new and existing projects.
Interestingly, traders appear to be replacing Europe, which requires more LNG to fill the gap left by reduced Russian pipeline gas supply. However, European participation in long-term contracts was only 11.8% during the same period. But the outlook on long-term contracts may be shifting.
Power Points
Glencore plans to spin off its coal business, which is considered a bold move.
Austria’s OMV intends to continue importing Russian gas.
Asia’s chipmakers are struggling to transition to more sustainable practices.
Energy Source is written and edited by the FT Energy and Natural Resources team. You can reach us at [email protected] and follow us on Twitter at @FTEnergy. Catch up on previous editions of the newsletter here.
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