Greece’s Resource Blessing Comes with Hurdles

Can international arbitration and mediation with its neighbors help Greece turn its energy challenges into opportunities in the Eastern Mediterranean?

The Leviathan natural gas field, in the Mediterranean Sea, off the coast of Haifa, Jan. 31, 2019. Marc Israel Sellem/Reuters

The discovery of natural gas resources since 2009 in the Eastern Mediterranean has enhanced the region’s strategic energy significance and raised the possibility of multilateral cooperation and economic development. Greece’s continental shelf and Exclusive Economic Zone (EEZ) are part of the Levantine Basin, which, according to a 2010 U.S. geological survey, could hold as much as 120 trillion cubic feet of recoverable gas. Thus, Greece’s seabed could contain considerable oil and gas deposits.

This reality has prompted the country to proceed with a round of international licensing in 2014 and a “concession upon request” round in 2017 for the exploration and development of maritime blocks in the Ionian Sea and the Greek island of Crete. Both calls attracted international and national energy companies. The awarding of licenses in 2018 to the consortium of French company Total, America’s Exxon Mobil, and Hellenic Petroleum for hydrocarbon exploration and production in two offshore blocks in the west and southwest of Crete is considered a major milestone.

From a hydrocarbon exploration point of view, offshore Crete represents a frontier area. Existing petroleum geological systems have not been tested and no wells have been drilled so far in the area. Offshore Crete faces two major challenges—a combination of complex geological history and ultra-deep waters exceeding three thousand meters in most of the area. Geologic similarities with Egypt’s Zohr gas field, however, raise prospects for significant hydrocarbon discoveries by the consortium of the three companies (French Total, American Exxon Mobil, and Hellenic Petroleum), which are considered qualified enough to conduct successful deep-water exploration because of their advanced expertise and robust financial magnitude.

Greece has also awarded several concession licenses in the Ionian Sea to international energy companies. For example, the concession in the Gulf of Patraikos was awarded to the consortium of Hellenic Petroleum and Italy’s Edison; another in West Corfu was awarded to Total, Hellenic Petroleum, and Edison; and, the onshore blocks in the Aitoloakarnania and Ioannina regions were awarded to Spain’s Repsol and Greece’s Energean. This is all part of Greece’s vision to exploit its energy resources to get tangible benefits for its national economy and local communities, as well as upgrade its regional energy standing.

Greece has emerged as a new energy player in the Eastern Mediterranean that looks eager to develop its own indigenous and regional gas resources and holds a special value as a gateway for regional gas supplies to Europe. Key challenges remain, however, such as the complex geology and the high cost of exploration and drilling activities in deep and ultra-deep waters throughout Greece, as well as differences over maritime delimitation boundaries with neighboring Turkey in the Aegean and Libyan seas. The settling of competing maritime claims between Greece and Turkey, either through mediation, judicial settlement or arbitration, is a priority for Athens.

Greece’s Partnerships in the Region
Greece’s energy footprint is expanding considerably in the Eastern Mediterranean from its current areas of operation to energy fields in Israel, Egypt, and elsewhere in the region. Greek Energean company contributes to the sustainable development of energy resources in Israel. The company owns and operates the Israeli Karish and Tanin gas fields, which hold an estimated 2.1 trillion cubic feet of gas and 41 million barrels of light hydrocarbon liquids. The first flow of gas into Israel’s market is expected in the first quarter of 2021 and is intended to meet rapidly growing domestic demand as well as supply neighboring countries. The fields’ gas discoveries are planned to be linked to Energean’s Floating, Production, Storage and Offloading (FPSO) vessel, which is considered to be a significant regional piece of infrastructure because it replaces high-cost undersea pipelines. In addition, Israel awarded Energean five new offshore exploration licenses within its EEZ.

Interestingly, the Greek energy company acquired from Italian company Edison already-producing assets in Egypt like the deep-water North Thekah concession, which lies close to the Egyptian giant Zohr field and the Israeli Tamar and Leviathan gas fields. Discussions have also been held between Energean and the Palestinian Authority on developing the Gaza Marine gas field that is estimated to hold around 1 trillion cubic feet of gas. These discussions are currently stalled due to political differences between Palestine and Israel. However, the solid relationship between Energean and both the Israeli and Palestinian sides makes the company a suitable partner when political circumstances become ripe.

Greece is pursuing a multidimensional strategy that centers not only on developing its native energy resources, but also on fully exploring its potential to become a European gateway for regional gas through the execution of infrastructure projects to transport gas. These infrastructure projects include the Trans-Adriatic (TAP) and Eastern Mediterranean Gas pipelines. The latter has been approved in an official agreement between Israel, Greece, and Cyprus in January 2020. The pipeline will stretch for almost 1,900 kilometers from Israel’s and Cyprus’s gas reserves and will reach Otranto in Italy, via Crete and mainland Greece. A study on the project shows that the link is feasible, even though it presents technical challenges due to laying the pipeline in deep and ultra-deep waters, while the estimated cost of its construction could reach 6.2 billion euros ($7.36 billion).

The pipeline’s near-term economic outlook is challenging if one bases the project on today’s spot market and not in the context of a long-term liquefied natural gas export option. To highlight the latter perspective, Energean company signed an interim agreement with the Greek operator of the pipeline to funnel 2 billion cubic meters of gas annually to Greece from fields it owns in Israel. Concurrently, Greece is developing its single liquified natural gas (LNG) terminal along with a floating storage regasification unit (FSRU) in order to increase the resilience of the regional distribution systems and to lower consumer costs through extended competition. The Revithoussa LNG onshore terminal located southwest of Athens has been upgraded twice to manage bigger LNG volumes and maintain increased LNG gasification capacity with the aim of turning Greece into a natural gas hub and reinforcing security of the gas supply for the country and the extended region.

The terminal already receives American LNG shipments, highlighting the prospect of Greece becoming a bigger LNG importer than pipe-gas importer in accordance with the ongoing transformation of global LNG markets. Moreover, the swift construction of the offshore FSRU in the city of Alexandroupolis in northeast Greece for the transfer of LNG to the Balkans and Southeast Europe has attracted U.S. and European support because it enhances the diversification of Europe’s energy resources and the funneling of American LNG to the wider region. These infrastructure projects can enhance regional cooperation, alter the energy map of Europe, and render Greece a regional energy hub.

 The Significance of Regional Partnerships
Developing energy infrastructure, drilling operations, and production is time-consuming and financially prohibitive when there are competing claims over energy resources between countries. Therefore, energy exploration and development in the Eastern Mediterranean must be a cooperative enterprise rather than a zero-sum game.  Based on this reality, Greece cooperates with countries in the region for the development and transportation of energy resources, and is an integral part of the Greece–Egypt–Cyprus and Greece–Israel–Cyprus tripartite partnerships and the Eastern Mediterranean Gas Forum.

The tripartite partnership between Cyprus, Egypt, and Greece was inaugurated with the signing of the Cairo Declaration in November 2014, and it focuses on energy cooperation that is developed through high-level political and technical meetings. Communiques that come out of political meetings continuously emphasize that the delimitation of maritime zones between the three countries should be based on the UN Convention on the Law of the Sea (UNCLOS), and stress the importance of respecting Greek sovereign rights and Cypriot jurisdiction over their respective EEZs. They also call on Turkey to cease all seismic survey activities within Cypriot maritime zones.

The Greece–Israel–Cyprus tripartite partnership, known as the “Energy Triangle,” commenced in 2013 with the signing of an Energy Memorandum of Understanding (MoU). The energy partnership focuses on the protection of critical energy infrastructure in the Eastern Mediterranean, energy cooperation, and the execution of the 2,000-mega-watt EuroAsia Interconnector, which will create an electricity highway from Israel and Cyprus to Greece through which Europe will receive electricity produced by Israeli and Cypriot gas resources. Six trilateral summits have been conducted so far at the prime ministerial level and the last summit attracted U.S. participation as observer. The Greece–Israel–Cyprus partnership has over the years broadened its scope from energy to security and economic development issues.

Driven by a broad regional commitment to enhanced security and energy cooperation, the Eastern Mediterranean Gas Forum was established in Cairo in 2019. Founding members include Greece, Egypt, Israel, Jordan, Palestine, Italy, and Cyprus. The forum is practically a regional cooperation platform of dialogue between governments and aims to become an avenue of communication between states and the energy industry, as well as a clearing house for ideas and plans for mutually beneficial energy development in the region. The strategic gains of each country’s membership in the forum are multifold, ranging from Israeli presence in a regional forum comprised of Arab countries to Egypt’s renewed Arab leadership role, as well as Greece’s engagement in a multilateral coalition-building that favors joint development of energy infrastructure and dialogue in resolving EEZ disputes in the Eastern Mediterranean. It is noteworthy that France and the United States have submitted formal requests to join the forum; the U.S. request seems to be driven by its interest to protect regional energy infrastructure owned or operated by American companies and is in line with the Eastern Mediterranean Security and Energy Act of 2019 passed by Congress and signed into law by the president.

The Eastern Mediterranean Security and Energy Partnership Act of 2019, also known as the East Med Act, acknowledges that the recent discovery of what may be the region’s largest natural gas field off the Egyptian coast, as well as the newest discoveries of natural gas off the coast of Cyprus, could represent a significant and positive development for the Eastern Mediterranean and the Middle East, enhancing the region’s strategic energy significance.

The Act specifies that the United States along with Israel, Greece, and Cyprus oppose any action in the Eastern Mediterranean and the Aegean Seas that could challenge stability, violate international law, or undermine good neighborly relations, and in a joint declaration on March 21, 2019, they agreed to “defend against external malign influences in the Eastern Mediterranean and the broader Middle East”.

This is an important segment of the unfolding American energy strategy in the Eastern Mediterranean that is based on three pillars. First, support of energy exploration activities to enhance U.S. interests by providing potential alternatives to Russian gas for U.S. allies and partners. Second, support of the trilateral dialogue on energy cooperation between Israel, Greece, and Cyprus, as well as the encouragement of U.S. companies to make investments in energy infrastructure projects. Third, rejection of interference by other countries in Cyprus’s EEZ and Greece’s airspace, and support of security cooperation with regional countries, not only for the protection of critical infrastructure from unauthorized intrusion or terrorism, but also for the maintenance of stability.

Overall, Washington seems to realize that the security of partners and allies in the Eastern Mediterranean region is critical to the security of the United States. To this end, when it comes to Greece, Washington is committed to maintaining a vigorous naval presence in the naval facility at Souda Bay in the Greek island of Crete, continuing the deployment of the unmanned aerial vehicle MQ-9 Reaper to the Larissa Air Force base in northern Greece, and conducting U.S. army helicopter training in central Greece.

Avenues of Settlement for Greece–Turkey Tensions
As a result of large gas discoveries in the Eastern Mediterranean, political tensions caused by competing EEZ claims between littoral countries like Greece and Turkey harm regional energy cooperation. The region has experienced two major developments over the past year that have had an impact on regional energy dynamics. The first is the signing of an MoU between Turkey and Libya on the demarcation of maritime boundaries in the Mediterranean, and the second is the conducting of drilling operations by the Turkish Yavuz and Fatih vessels within Cyprus’ EEZ and naval violations in part of the southeastern Aegean Sea.

Both developments disregard the presence of Greek islands in maritime areas, including the islands of Crete and Kastelorizo, and violate their right to generate maritime zones as stipulated in Article 121 of the United Nations Convention on the Law of the Sea (UNCLOS). According to the UNCLOS, a coastal state can exercise sovereign rights such as fishing, research, and exploration within its continental shelf up to 200 nautical miles from its shores. The Turkey–Libya MoU ignores the sovereign rights not only of Greece, but also of Cyprus and Egypt. Despite the declared Turkish position that islands in the Eastern Mediterranean should carry no weight in the determination of maritime boundaries, the MoU cites Turkish islands and rocks as base points for the delimitation of maritime areas based on the “equidistance line”, and ignores the geographical fact that Turkey and Libya have neither overlapping maritime zones nor shared  boundaries. The motives behind Turkey’s signing of the MoU with Libya lies in breaking its regional energy isolation and making legal claims over maritime areas that the Eastern Mediterranean’s energy infrastructure, like the Eastern Mediterranean Gas Pipeline, will have to cross.

Turkey’s oil and gas exploration drive extends from the west of Cyprus to the southeast of the Greek island of Crete and the offshore waters of Libya. Turkey consistently adopts “gunboat diplomacy” in pursuit of its energy and foreign policy goals by employing naval power to imply the threat of war should its claims not be accepted.

This was particularly evident with ‘Blue Homeland 2019’, the largest ever Turkish naval exercise, which deployed over 100 military ships and thousands of soldiers in an area that extended from the Black Sea to the Aegean Sea and the Eastern Mediterranean regions. A Navigational Telex, an advisory to ships, was issued by Ankara during the naval exercise, blocking off maritime areas in the southeast Aegean including the continental shelf of the Greek islands of Kastelorizo and Rhodes, as well as the Cyprus EEZ. The naval exercise, like others that preceded it, combined power projection with naval diplomacy and competition over energy geopolitics and demonstrated Ankara’s politico-military regional agenda for the coming years.

It is in this context that Greece moves diplomatically at the European and international levels to denounce Turkey’s illegal actions in Greek maritime areas and to seek resolution for delimitation issues with Turkey in accordance with the international Law of the Sea. Specifically, Greece as a member of the European Union (EU) has been instrumental in discussions that led to the European Council’s adoption of a framework of restrictive measures on Turkey because of its unauthorized drilling activities in the Eastern Mediterranean. European-level discussions have also led the European Council to acknowledge that the Turkey–Libya MoU infringes upon the sovereign rights of third states, does not comply with the Law of the Sea, and cannot produce any legal consequences for those third states. Concurrently, Greece sent two letters to the UN secretary-general and the presidency of the Security Council in December 2019 pointing out that Turkey and Libya should abstain from any act that might violate Greece’s sovereign rights and escalate regional tensions.

In fact, Greece has traditionally stood solidly for dialogue with Turkey to settle bilateral differences. Sixty rounds of exploratory talks have already taken place between the two countries since 1999 with the aim of reaching an agreed settlement over the delimitation of the respective continental shelf and territorial waters. The Greek position on the delimitation of maritime boundaries adopts the contractual provisions of the UNCLOS, which concede a coastal state’s exclusive rights on its continental shelf to an area that extends to a minimum width of 200 nautical miles, on the condition that the distance between its coast and that of another state permits this. Article 121 of the UNCLOS also determines that islands have a right to territorial sea, contiguous zones, EEZ, and continental shelf in line with provisions applied in mainland areas. Greece stands solidly behind the delimitation of maritime areas on the principle of equidistance/median line as outlined in the UNCLOS. These provisions are part of customary law that is also binding for states that are not signatory to the UNCLOS like Turkey.

Ankara has repeatedly rejected the adoption of the provisions of international   law to settle its maritime differences with Greece on the basis of the equidistance/medium line principle, and it pursues a self-contradictory strategy that is translated into selective enforcement of the UNCLOS. Practically, on the one hand, Turkey rejects provisions for the delimitation of maritime areas with Greece. But on the other hand, Ankara has made EEZ delimitation agreements with its neighbors in the Black Sea on the basis of the equidistance/medium line principle as stipulated by international law.

Thus, the lack of common ground in the context of bilateral exploratory talks between Greece and Turkey paves the way for exploring other avenues for a possible settlement of differences such as mediation, arbitration, or judicial settlement. Mediation can prove to be an important tool in resolving Greek–Turkish maritime disputes that partly impede the unlocking of the Eastern Mediterranean’s energy potential. Major powers like the United States and the European Union are effective mediators because they hold vast experience in conflict resolution. In addition, both the United States and the EU have solid motives to offer mediation over the delimitation of maritime areas between Greece and Turkey. For the United States, it is in its national security interests to promote and maintain energy security among its allies. For the EU, the settlement of maritime differences between Greece and Turkey can lead to regional stability and enhance the European strategy to diversify energy resources.

Judicial settlement is another avenue for the settlement of maritime differences between Greece and Turkey. The International Court of Justice (ICJ) is the leading UN judicial entity that produces binding rulings in disputes between states that have agreed to appeal to the Court. The ICJ has extensive experience in settling interstate differences over delimitation of the continental shelf between states, such as the delimitation of the maritime boundary in the Gulf of Maine Area in 1981, the demarcation of the Black Sea in 2007, and the North Sea continental shelf cases in 1969. Greece appealed unilaterally to the ICJ in 1976 because of Turkish violations in the Greek continental shelf, but no ruling has been issued because Turkey invoked non-recognition of the court’s mandatory jurisdiction. Nowadays, prospects of appealing to the ICJ have been renewed because the accession of Turkey to the EU is tied to settling Greek-Turkish differences over the continental shelf.

Another option to settle competing maritime claims between Greece and Turkey is an appeal before the International Tribunal for the Law of the Sea (ITLOS). The tribunal has jurisdiction over any maritime dispute that is generated by the interpretation and enforcement of UNCLOS. The tribunal accepts appeals by states that are parties to the convention of the Law of the Sea, like Greece, and states that are not parties to the convention, like Turkey, but only after there is an agreement conferring the jurisdiction of the tribunal. Again, the case can be referred to appeal before the tribunal only if the two countries agree.

Another avenue is arbitration before the Permanent Court of Arbitration (PCA), which offers dispute resolution between states over maritime zones and navigational rights. The PCA has served as registry for thirteen arbitrations under the 1982 UNCLOS, including the “Philippines arbitration case vs China over the South China Sea”, which can serve as a model for the settlement of competing maritime claims between Greece and Turkey. Greece can formally lodge its arbitration case unilaterally before the PCA under the UNCLOS.  The advantage of appealing to the PCA is that findings are legally binding; the disadvantage is that UNCLOS has no enforcement body, and Turkey is expected to ignore any ruling that will not satisfy its interests.

Unquestionably, Greece is a uniquely positioned country to not only develop indigenous and regional gas fields in the East Mediterranean, but also to transport energy from the Eastern Mediterranean to Europe. To this end, Greece is pursuing active diplomacy and coalition building, which has lit the engines of energy cooperation, demonstrating that regional mechanisms and partnerships are not mere talking shops, but are instead designers of a grand energy strategy.