The Geopolitical Game That Could Transform Gas Markets

Yves here. Needless to say, the geology of the gas fields in the Eastern Mediterranean are above my pay grade. More specifically, it would be helpful to know how many of these gas field are claimed by more than one country; I recall from the 2015 Greece bailout negotiations that Greece and Turkey then had competing cliams. The development deal that is being moved forward involved Turkey, Greece, and Israel. This seems odd, or more accurately, prone to conflict, since Lebanon and Syria sit between Israel and Turkey on the Mediterranean. Recall that the first Gulf was triggered by Kuwait pulling more oil out of an oil field shared with Iraq than Iraq deemed proper, and Saddam though he got permission from the US to invade (this is not wild-headed speculation; it was reported in the Economist).

By Dr. Cyril Widdershoven, who holds several advisory positions with international think tanks in the Middle East and energy sectors in the Netherlands, the United Kingdom, and the United States and held several senior publishing positions in leading energy publications such as Afroil, Middle East Oil and Gas, and North Africa Oil and Gas Magazine Cairo, and he continues to oversee the Mediterranean Energy Political Risk Consultancy. Originally published at OilPrice

  • An apparent detente between the UAE and Turkey could be one of the most significant geopolitical developments in the region for decades
  • If Mohammed bin Zayed can succeed in exploiting Turkey’s economic crisis, the East Mediterranean natural gas fields could finally be exploited and sent to market
  • While this is a win-win situation for the UAE, it is unclear whether Erdogan will be willing to do what is necessary to ensure progress in the region

At a time when media and financial analysts are fully focused on oil futures, natural gas markets are moving again. East Mediterranean gas futures, in particular, seem to be looking up due to some ongoing regional developments. The unexpected but very successful visit of Abu Dhabi’s Crown Prince Mohammed bin Zayed to Turkey and Egypt may well have long-lasting consequences in the region. The multibillion agreements signed between Turkey and the UAE, especially the long-term investment agreements between the Turkish sovereign wealth fund and UAE corporations, such as Abu Dhabi Ports, seem to be an opening to a new era of cooperation in the region.

The overall optimism shown in Turkish and Abu Dhabi-based media sources, however, should be taken with a grain of salt as financial deals may not counter the ongoing power struggle between Turkey’s president Erdogan and Abu Dhabi’s Crown Prince Mohammed bin Zayed. Both nations are supporting political, military, and economic power projects in the East Mediterranean and MENA regions designed to increase their influence. Turkey’s president Erdogan will see the first visit of MBZ in 12 years as a major triumph. His regional power plays are still a bone of contention in Abu Dhabi, Cairo, and Athens. While Turkish media sources are very optimistic about the perceived thaw in relations, other regional players have been watching with anticipation to understand the real outcome of the meetings.

The move by MBZ is not linked to a major change in regional geopolitics but is based on geo-economics. When looking at the dire state of the Turkish economy, high inflation rates, and the ongoing plunge of the Turkish Lira, there is the real threat of Erdogan’s Empire being destabilized. MBZ is a master at identifying and understanding win-win situations. The move to open direct lines to Turkey, especially to Erdogan’s embattled AKP government, is a wise one. The Turkish economy needs cash desperately, foreign direct investments are not only needed to support the Lira exchange rate, but also fledgling AKP projects. Arab investors are more than willing to take part in the ongoing sell-off of Turkish assets. Large-scale energy, infrastructure, and financial assets are up for grabs, at much lower prices than one year ago. MBZ also knows that by investing in Turkey, Ankara’s links to others will be undermined.

MBZ’s trip to Turkey becomes increasingly interesting when you understand it as a coordinated effort of geo-economics and strategic military interests of the UAE, Egypt, Israel, and, most probably, Greece. Before flying to Turkey, discussions will have been held between MBZ and Egyptian President Sisi, Israeli players, and Greece. The UAE understood that it could act as a bridge between the two sides in the East Mediterranean by exploiting Turkey’s financial crisis. The UAE, and particularly Abu Dhabi’s Crown Prince, is behind the Abraham Agreements with Israel, is a major investor in Egypt, and is eager to invest in Greece and Cyprus. These factors mean MBZ has become one of the leading protagonists in the East Mediterranean.

Investments, security, and energy are all interlinked here, as all bi- and multi-lateral agreements are based on those issues. Abu Dhabi’s ADNOC, Mubadala, and even its defense companies are involved with Egypt, Israel, and Greece. The advantage for the UAE in cooperating with and supporting the East Med Gas Forum (EMGF), of which it wants to become a member, is clear. Not only could it open up new supra-regional energy projects, but it will also enhance the overall security situation significantly. Mubadala and AD Ports are now even involved in projects and discussions with Israeli counterparts. Mubadala’s acquisition of a 22%, $1 billion stake in the Israeli Tamar offshore gas field is just one example. It seems now that the MBZ move to meet up with Erdogan in Ankara should be assessed in line with supra-regional aspirations of the UAE, EMGF, and Abraham Agreements. By forging and strengthening the ongoing East Med alliance while opening up discussions and investments in Turkey, Abu Dhabi is not only opening a win-win road to success but could also mitigate Turkey’s aggressive regional aspirations. Looking at the bleak financial future of Turkey, Erdogan understands that he cannot afford to spurn the UAE’s advances.

For the EMGF members, especially Egypt, Israel, and Cyprus, the more direct and active involvement of Abu Dhabi in Turkey’s affairs is a potential advantage. The financial power of Emirati investment funds should not be underestimated, especially not in time of a financial market implosion as we are seeing in Ankara. All this could force Erdogan to take a less adversarial stance towards offshore East Mediterranean gas exploration. For both sides, it could be a real win-win situation. Part of the East Med offshore gas and LNG options have hit a brick wall, due to the energy transition and geopolitics. By taking out political risks, or mitigating a potential Greek-Egyptian confrontation with Turkey, investors and operators could be incentivized to return. For Ankara and EMGF this could even result in a future where Turkey becomes a prime market for LNG from the region.

Due to the Turkish military and political intervention, especially linked to the Muslim Brotherhood in Egypt, any energy relation between the countries was put on ice. Some analysts believe that MBZ and Erdogan have discussed the Muslim Brotherhood’s futures in recent days and that economics could persuade him to change his stance, Egypt and potentially even Israel could then follow MBZ in reengaging with Turkey. At the same time, the ongoing European Energy Crunch has opened up new LNG and pipeline gas markets, so Turkey really is just the cherry on the cake.

The first steps have been made by MBZ, but everything depends on Erdogan’s backers. Erdogan will have to remove support for Muslim Brotherhood parties in the region, soften up to Assad’s Syria, decrease Turkish military support for Qatar, and leave Libya’s future to the Libyans before a full-scale rapprochement can take place. One thing is clear, however, geoeconomics is becoming an increasingly important factor in the region.

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  1. paul

    Recall that the first Gulf was triggered by Kuwait pulling more oil out of an oil field shared with Iraq than Iraq deemed proper, and Saddam though he got permission from the US to invade (this is not wild-headed speculation; it was reported in the Economist).

    April Glaspie was the official, and the transcript is here


    GLASPIE: As you know, he directed the United States Administration to reject the suggestion of implementing trade sanctions.

    HUSSEIN: There is nothing left for us to buy from America. Only wheat. Because every time we want to buy something, they say it is forbidden. I am afraid that one day you will say, “You are going to make gunpowder out of wheat.”

    GLASPIE: I have a direct instruction from the President to seek better relations with Iraq.

    HUSSEIN: But how? We too have this desire. But matters are running contrary to this desire.

    1. Zephyrum

      Despite what the Russians say, the US is actually agreement-capable. We are capable of making agreements, changing agreements, and terminating agreements. We’re so good at this we don’t even need anyone else to participate in these actions.

        1. drumlin woodchuckles

          My memory is this .. . . that Kerry and Lavrov agreed on an agreement to keep US and Russian military forces and actions away from eachother in Syria. And then the US Air Force ( I think) bombed a site-full of Russian Advisors in Syria, demonstrating that Kerry ( and by extension US foreign policy) to set off-limits-areas for military actions had no reach, power or effect on military actions.

          So I think Lavrov meant that various parts of the US government had already delaminated into separate self-directing power centers to the point that the US government no longer existed as a Central Guiding Authority even capable of making its delaminated pieces follow a Centrally Set Policy.

          Indeed , Lavrov did not mean “non-Agreement-intended or meaning” . He literally meant not Agreement capable, as in ” not even capable, best of intentions aside”.

    2. Dave in Austin

      The NYT Montclair U transcript of the Hussein-Glaspie conversation at always seemed suspect to me. It says:

      “(HUSSEIN) And you know that our relations with the Emirates and Kuwait had been good. On top of all that, while we were busy at war, the state of Kuwait began to expand at the expense of our territory.
      You may say this is propaganda, but I would direct you to one document, the Military Patrol Line, which is the borderline endorsed by the Arab League in 1961 for military patrols not to cross the Iraq-Kuwait border.
      But go and look for yourselves. You will see the Kuwaiti border patrols, the Kuwaiti farms, the Kuwaiti oil installations — all built as closely as possible to this line to establish that land as Kuwaiti territory.”

      This is nonsense and not the Iraqi complaint. Both sides were allowed to build “close to the line”. But the Kuwaiti oil drilling near the neutral zones at the border is very different and it is at the core of the Iraqi complaint. If you look at a map of the Iraq-Kuwait border you will see two diamond-shaped sections called “the neutral ground”. In 1981 Kuwait purchased Sante Fe, a US company that pioneered “slant drilling”, a technique that places a drilling rig in one place then extracts oil from another by drilling the hole on an angle, not straight down. See: Kuwait was apparently extracting oil from both the neutral zone and Iraqi soil.

      After the invasion, Iraq took the captured American oil men to Baghdad and I’m sure got statements from them and got the records of the drilling. But I’ve never seen any press reports or Iraqi press statements on the subject. There are a number of other artifacts in the supposed Glaspie report that suggest it is either incomplete or a forgery. I woun’t go into that here but, in any case, the supposed statement claims Hussain never mentioned his primary complaint against Kuwait, which seems very unlikely.

  2. PlutoniumKun

    There is a usedful 5 minute video in the FT explaining the complexities of the claims dating from last year.

    Eastern Mediterannean gas deposits are extensive and complex as theoretically the entire region is potential oil/gas territory, but only has a few ‘hot spots’ of the type found in the Middle East or an extensive area of gas/oil rich rocks as in the continental areas of the US or Russia. This makes it far harder to accurately assess how much gas can be obtained

    Around 5 million years ago this part of the Mediterranean was opening up geologically and went through a series of wet/dry periods (due to tectonic changes). During the ‘wet’ period the nascient mediteranean was a very organic rich inland sea, enriched with organic rich material flowing in from numerous large and small rivers. These provided deep deposits of organic rich sedimentary rocks, which were then turned into wastelanes like the Aral Sea due to saline build up – this process occurred several times. But salt deposits are very impermeable, acting as an effective sheet over the oil/gas that forms when organic material is compressed and heated. Gas forms when the geological layer is pushed below 5,000 metres. Without an impermeable cap, it will dissapate. When the geology breaks up tectonically, you get voids overlain with salt, which is ideal for the collection of gas in commercial quantities (if you don’t have voids, you have to frack). So this process of natural boom and toxic bust (known as the Messinian salinity crisis) left a lot of hydrocarbons for exploitation.

    But because of the complex tectonic history of the area, these geologies are broken and somewhat random, as if a child had hammered away at a layered cake. This makes it very difficult to predict where the gas will be commercial. The only way to know for sure is to drill, and thats expensive. Hence the uncertainty about the nature and extent of gas in the area.

    The politics of gas are more complex than with oil. With oil, if you can pump it out of the ground, and pump it into a truck or ship and sell it. Gas is far more complex. Its usually only commercially viable if you can pipe it to someone who will guarantee you at least 20 years of steady purchases. So you need a guaranteed supply, a guaranteed buyer, and everyone on the path of the pipeline in agreement, with nobody around who might want to plant a bomb under said pipeline. LNG can bypass some of these problems, but its a very expensive process – its not really viable unless the gas is very cheap and plentiful and you are willing to accept a loss during periods of low gas prices, as its a fungible market item like oil, not something you lock into long term pricing like pipeline gas. And there is no way that off-shore LNG could compete commercially with Qatari LNG as the latter is much cheaper to produce.

    Hence most eastern Med gas is only likely to be commercially extracted if some country has the good fortune to find it within their accepted seas, as Egypt and Israel have (well, if you ignore the Palestinian claim). All the other gas is very messy. Hence this deal – which was only ever likely if Erdogan was weak and could be forced into a deal, as at present. The Syrians are also of course desperate for hard cash so would probably go along with whatever the Turks and UAE are happy with so long as they get some crumbs. But the need for absolute unanimity for a deal like this to make sense for many of the disputed areas makes it all very questionable whether the infrastructure will really be put into place. However, the deep pockets of the UAE could fund infrastructure that private money wouldn’t touch because of the risks involved.

    One thing the article doesn’t mention in detail is the Iranians/Qataris. They also hope to find some way to sell gas directly to Europe, but obviously the UAE won’t want to help this out. Perhaps they are hoping that control in the area could ensure that any pipeline to Europe will not connect further south and so benefit the Iranians. So there is a game of eleventy dimension chess going on – realistically I suspect that this deal would only result in fairly localised gas exploitation, not least because gas is so plentify and cheap now that even the Gulf states would be reluctant to throw too much money Erdogans way.

    1. Dave in Austin

      I second Ashes’ comment on Plutonium K. Great summary.

      All I’ll add is the magic word “Cyprus”- legally EU and controlled by a Greek majority; in actuality divided in 1968 into a Turkish north and a Greek south- a frozen conflict… which has an exclusive maritime zone- or zones- of its own.

      There are four gas pipeline routes into Europe, which desperately needs an assured supply: the route across the Med from North Africa; the routes through Russia via the Ukraine, Poland or NordStream under the Baltic; routes via Turkey or under the Black Sea; routes from the apparently large pool of gas under the eastern Med. The battle is over economics, politics, diversity-of-supply, security and LNG via tankers. If you ever played the board game “Rail Barons” as a kid 40 years ago you understand what is going on. Somebody could make some serious money making this complex geopolitical problem into the next “Settlers of Catan”.

  3. Samuel Conner

    The thought occurs that at some point natural gas may be more valuable as feedstock for nitrogen fertilizer than as fuel. Perhaps it would be better to leave current undeveloped deposits in the crust and accelerate transition to alternative electricity generation methods. Come back for it later if/when it is needed to deal with food insecurity.

  4. Susan the other

    Just speculating because some of the things I would think were most important are not mentioned. The most important being the intended market. My guess is the prime market is eastern Africa. This might also explain all the guerrilla warfare going on in Ethiopia and Somalia. Also, not a word on Yemen or Iran, or even KSA. According to the maps there are huge gas fields in the EM, accessible along the shores. The obvious market is the Med rim – but the Med rim pumps its own oil so that’s not very exporty. So logically, Africa. And therein lies the trap. For the environment, because every cubic foot of gas has to be paid for; industry must match the cost of servicing both development debt and imports, plus all that social progress – aka infrastructure. Does anyone in the Eastern Med Energy Consortium have a plan to keep CO2 levels down? Africa, in its industrialization, could contribute way more CO2 into the atmosphere than China did/does. So back to the proposition that pollution should be taken care of at the source. Where it is produced. At the well. Impossible? Let’s all talk about that one. There are trillions of dollars in profit to be made here.

  5. ptb

    Same old same-old, isn’t it? Turkey is the gateway to multiple potential overland routes to get hydrocarbon energy to the EU (Caspian countries including Iran, Azerbaijan, all the Arabian/Persian-Gulf countries, and Russia.). What all these potential transit partners fear is that the route through Turkey opens to someone other than them. The lowest common denominator solution acceptable to everyone is, as it has been, to keep the overland routes to EU mostly closed.

    Turkey itself managed to have a slight current account surplus as of late, though doubtful if it will last. But it does point to an angle on the massive devaluation other than a complete disaster — more like a wealth transfer from individuals, as in the pattern that’s played out repeatedly in Latin America. Local elites, and their EU and Persian Gulf based finance partners, who between them know what and when to buy, get to consolidate even more.

    Favorable pricing of energy supplies from Qatar or Russia (in exchange for favors TBD) would also give Turkey a price advantage in energy-intensive exports to EU, like agriculture, chemicals, and industrial materials. A big unknown in this gambit is the expected carbon adjustment tax by EU, but my guess is the EU industrial firms will exercise their influence in Brussels to limit it to a modest percentage.

  6. David

    The political struggle between the UAE and Turkey for soft power influence in Africa and Europe is one of the most under-reported stories of the decade. They have been building mosques, sending fundamentalist preachers and generally interfering all over the place for some time now. But ultimately the UAE is in a better situation than Turkey, and we are perhaps seeing Erdogan’s overdue recognition of the fact. Ottoman Empire 2.0 is not quite working out as planned.

    In answer to Yves’s question: poor Lebanon has been aware of this potential for some time, but the usual problems of factionalism and corruption have meant that they are losing out to the better organised (even the Cypriots). The UAE has been aggressively targeting Lebanon for some time now, in an attempt to reduce the Iranian influence, so probably they see investment in gas production here as a good way of keeping the Iranians out.

  7. jpr

    You do realize that the entire policy-making age citizenry of UAE (for grins, say, anyone above 35) could fit inside a couple of the larger Brazilian soccer stadiums. To talk of competion between this “gas station” of a country, as Tariq Ali describes it, with Turkey might be a bit of an unfair comparison. 90% of the people living within its borders are “guest workers” who have less rights than amateurs that descend on Vegas in weekends to ply the flesh trade (this comparison has been made by many others, search on youtube for ‘dubai vegas’):

  8. jpr

    Incidentally, murder of journalists outside its own borders isn’t limited to the House of Saud ruled “petro-monarchy”, the other statelets in the region are also “made men” in the international order–thanks to protection racket run by the Capo di tutti Capi (search for ‘arms sales’ to get some idea of the outlandish amount of protection these two bit states can and, in fact, have to buy):

    P.S. If this is what can happen to journalists outside their borders, it doesn’t take Oscar level talent imagination to figure out the secrets that are safely buried in the desert:

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