This article was published in the May 2017 edition of Executive Magazine.
There’s no shortage of headlines about Russian grand design for the Eastern Mediterranean. It predated Russia’s military intervention in Syria, but setting a foot in the region, via Syria, has only boosted these claims. It is generally believed Russian energy companies have set their eyes on East Med gas resources. These claims often stem from an unrealistic understanding of the strategic significance of these resources and the role they could play in weaning Europe off Russian gas. In reality, and despite all the talks, we have yet to see a Russian breakthrough in the upstream sector of the countries surrounding the Levant Basin.
Cyprus has recently concluded a successful licensing round, awarding exploration licenses to Eni, Total and ExxonMobil and its Qatari partner Qatar Petroleum. Russian companies did not participate in this round. In the previous round, Novatek and GPB Global Resources presented an offer together with Total but ultimately failed to win a license. In 2012-2013, at the height of Cyprus’ financial woes, it was reported that Cypriot officials were tempting the Russians with access to gas exploration in the country’s Exclusive Economic Zone in return for a second loan from Moscow. It was even rumored Gazprom would offer Cyprus a private bailout plan (The New York Times, March 19, 2013). But the Russians were not tempted.
Russia’s interest in Israel’s gas sector has been more palpable. It has made several attempts to enter the Israeli gas market, with no success so far. In 2012, Gazprom bid for a 30% stake in Leviathan. The Russian company reportedly submitted the highest bid but lost to Australia’s Woodside Petroleum (whose bid was ultimately aborted). In 2013, Gazprom signed a letter of intent with the Tamar partners to buy and export LNG through a floating facility. It never materialized. More recently, Russian President Vladimir Putin and Israeli Prime Minister Benjamin Netanyahu addressed the issue of Leviathan’s development in their latest meetings. The rationale being that a Russian involvement in the Israeli market would contribute to securing Israeli offshore drilling platforms and installations from cross-border threats, particularly those coming from Hezbollah. But, here too, we have yet to see concrete results. In part, maybe, because the United States would not welcome a move that would increase Russian influence in this part of the world. It would be interesting to follow the results of the first Israeli offshore licensing round and whether Russian companies will be placing bids, and more importantly, if they will be awarded contracts.
In Syria, in December 2013, the Russian State-controlled Soyuzneftegaz was awarded an exploration and production license in block 2, off the Syrian coast. In September 2015, its chairman Yuri Shafranik decided not to proceed with the project because of the risks involved, and announced that the project would be passed to another Russian energy company. On April 21 this year, Syrian President Bachar al-Assad was quoted as saying that his government has started signing deals with Russian oil and gas companies. No details have been disclosed.
In Lebanon, three Russian companies pre-qualified in 2013 for the first licensing round. All of them sought a non-operator role (and some of them partnered with western operators at the time), which came as a surprise for those expecting a more visible presence for Russian companies, and behind them, the Russian State. In the latest pre-qualification round, one of these companies, Lukoil, sought to modify its status and qualify as an operator for the tender. The attempt was unsuccessful.
The picture is different in Egypt, where Russian companies are more active, and are looking to expand their presence. Lukoil is involved in three upstream projects in Egypt. Rosneft agreed with ENI to buy a 30% stake in Zohr, the massive gas field discovered by the Italian company in 2015. And, Russian-owned LetterOne, which bought DEA, the oil and gas subsidiary of German utility RWE, in 2015, inherited a 35% stake in BP’s West Nile Delta project (and later farmed out part of its stake).
Generally speaking though, Russian energy companies have yet to match Russia’s growing political influence in the region. More significant, they have yet to reflect Russia’s supposed interest in East Med gas resources, as widely reported.
There are two ongoing licensing rounds in the region: The Israeli bid round will close on July 10, and the Lebanese on September 15. By the end of the year, we will see if Russian companies expressed interest, and – more importantly – if one or more of them is awarded a license. Where Russia will choose to set a foot, and who will award its companies a license, are both equally important questions.