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How Can the United States Reshape the Energy Politics of Eastern Europe?

August 10, 2017
For thousands of years, the only oil that most people thought came out of the Mediterranean was meant for dipping bread in.  However, recently discovered natural gas fields off the coasts of Cyprus, Israel, and Egypt are dramatically changing the playing field.

These fields are in the exclusive economic zones of US allies and strategic partners such as Cyprus and Israel, where discoveries provide both key economic and diplomatic opportunities for the United States. The projected pipeline for this—the Eastern Mediterranean Pipeline—would involve Cyprus and Israel—along with Italy and Greece. The discoveries have fostered a crucial alliance in the Eastern Mediterranean between Cyprus, Israel, and Greece – the region’s three major democracies – and provide a host of opportunities for developing growth, peace and stability in the Eastern Mediterranean.

Two gas fields of particular importance, and which will be the focus of this piece, are the Leviathan field, which lies in Israel’s exclusive economic zone (EEZ), and the Aphrodite field, which lies in Cyprus’ EEZ. The Leviathan field contains approximately 22 trillion cubic feet of natural gas, while the Aphrodite gas field contains between 3.6 and 6 trillion cubic feet. [1] Based on US standards, this is a small amount - the Marcellus Shale field in Pennsylvania and West Virginia is estimated to contain 141 trillion cubic feet of natural gas. [2] These fields, however, are massive for European standards. US companies are seeing the huge potential, and are already leading the way in developing these resources. Noble Energy – an American company – currently holds the rights to drill in Cyprus’ EEZ. [3]

Image: Oil and natural gas fields in the Eastern Mediterranean Region. Source: Wikimedia Commons.Image: Oil and natural gas fields in the Eastern Mediterranean Region. Source: Wikimedia Commons.

Having established an economic presence, it is now crucial that the US maintain a strong diplomatic presence in the region. These findings will not only create a more peaceful, stable, and prosperous Eastern Mediterranean, but will also help wean Europe off of Russian gas. European energy markets have been dominated by Russia for decades. Current estimates state that Russian oil makes up almost one-third of total European energy consumption, accounting for over fifty billion euros (fifty-seven billion dollars). [4] Russian oil companies, most notably Rosneft and Lukoil, supply thirty-five percent of foreign oil to Europe alone. This number reaches near ninety percent in Eastern Europe. [5] Nations such as Ukraine, Belarus, Poland, and Hungary are totally dependent on Russia for their energy needs, and as we have seen over the past years, is creating a host of geopolitical problems in the region – particularly between the EU and Russia.

In 2002, Russian companies tried to gain control of oil refineries in Lithuania and Latvia, and when they refused, Moscow cut off its energy to both nations, leaving them in an energy crisis. In the crisis in Ukraine the world saw what Russian policies ultimately lead to. In 2006 and 2009, Russia forced Ukraine to sign extremely pro-Russian oil contracts, which included non-competitive high prices and a “take or pay” clause, which forced high minimums for energy. When these minimums were not met, Russia began a more aggressive campaign against the Ukraine, which led to the eventual invasion of Ukraine and the illegal annexation of Crimea by Russia. [6] It is clear that Russia’s policies are a continuous source of instability and tension in the region, bringing the US and EU into confrontation with Vladimir Putin’s Russia. History shows us that the more reliant countries are on Russia for their energy needs, the more Moscow feels that it can act with impunity. Diversifying Europe’s energy sources is therefore crucial in order to provide the EU with leverage, as all of the current pipelines in Europe run begin in Russia—as seen in the image below.

Image: "Existing and Planned Natural Gas Pipelines to Europe." Source: Wikimedia Commons.

Image: "Existing and Planned Natural Gas Pipelines to Europe." Source: Wikimedia Commons.

A primary example of what is possible is Poland. On June 8, Poland received its first shipment of liquefied natural gas from the United States. This gesture, while largely symbolic, was considered a “milestone,” by Polish diplomats. [7] This demonstrated that there are alternatives to Russian gas, and proved that American leadership and expertise can change the playing field. The boom of natural gas in the United States lowers the price of natural gas worldwide, which gives the Kremlin less negotiating power, as the energy supplied per year is relatively constant, but the cost fluctuates.

Recently President Trump spoke in Europe on the need to secure “[Poland’s] access to alternate sources of energy, so Poland and its neighbors are never again held hostage to a single supplier of energy.” [8] The instability in the region is created by the lack of diversity in the energy market as one power is able to control diplomacy, military, and energy with the turn of a tap. The emergence of these new natural gas resources in the region will allow a new supplier to combat the Russian monopoly on oil in Eastern Europe and allow for the growth of all parties involved.

The main problem with shipping natural gas, however, is that it must be cooled to a liquid form before it is shipped, which raises the price. Piped gas, which is not liquefied, is significantly cheaper, as it does not have the extra steps in the process. Thus, the Leviathan and Aphrodite fields could serve as a means of efficiently and safely supplying Europe with the natural gas that it needs once the East Mediterranean pipeline is complete. The timeline for the pipeline is still being discussed, but the parties believe it would be done no later than 2025. [9]

The United States is in a unique position to take advantage of this critical opportunity. Diplomatically, these energy findings are a significant building block in developing a more stable, prosperous and peaceful Eastern Mediterranean that is tied to the West. This policy would bring stability to not only the individual countries, but would strengthen American relationships in the region. Energy is also a game changer for the respective economies and potentially for European countries that need to diversify their sources of energy. Economically, it benefits American companies and strengthens our domestic economy. It is therefore imperative that the US supports these developments today.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


References

  [1]”Work starts on Leviathan field’s first phase.” Oil and Gas Journal, 2 Mar. 2017. Web. 16 July 2017. http://www.ogj.com/articles/2017/03/work-starts-on-leviathan-field-s-first-phase.html

  [2]”Annual Energy Outlook 2012 with Projections to 2035.” June 2012. Accessed July 8, 2017. https://www.eia.gov/outlooks/aeo/pdf/0383(2012).pdf.

  [3] “Cyprus approves BG Group as partner in offshore Aphrodite gas field.” Offshore Technology. January 19, 2016. Accessed July 16, 2017. http://www.offshore-technology.com/news/newscyprus-approves-bg-group-partner-offshore-aphrodite-gas-field-4787325.

  [4] A Study on Oil Dependency in the EU. Report. Econometrics, Cambridge. Cambridge University Press, 2016. Accessed July 5, 2017. https://www.camecon.com/wp-content/uploads/2016/11/Study-on-EU-oil-dependency-v1.4_Final.pdf

  [5] “Europe increasingly dependent on (Russian) oil imports.” EnergyPost.eu. 19 July 2016. Web. 16 July 2017.

  [6] Westphal, Kirsten. “Russian Energy Supplies to Europe.” SWP Comments. March 2014. Accessed July 12, 2017. https://www.swpberlin.org/fileadmin/contents/products/comments/2014C16_wep.pdf.

  [7] Gramer, Robbie. “First U.S. Natural Gas Shipped to Poland.” Foreign Policy. June 13, 2017. Accessed July 16, 2017. http://foreignpolicy.com/2017/06/08/first-u-s-natural-gas-shipped-to-poland/.

  [8] “Remarks by President Trump to the People of Poland.” The White House. July 07, 2017. Accessed July 16, 2017. https://www.whitehouse.gov/the-press-office/2017/07/06/remarks-president-trump-people-poland-july-6-2017.

  [9] “Mediterranean gas pipeline could be built by 2025.” Reuters. April 03, 2017. Accessed July 10, 2017. http://uk.reuters.com/article/energy-natgas-israel-idUKL5N1HB1V8.

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