In light of the extraordinary impact of the Covid-19 pandemic and resulting lockdown measures on the energy system, global demand for gas has fallen substantially. Similarly oil demand has also been depressed since March 2020.
According to the International Energy Agency's Global Gas Security Demand 2020 report, demand is expected to fall this year by three per cent, or 120 billion cubic metres, its largest annual drop on record. Most of the decline in gas consumption took place in mature markets across Europe, North America and Asia. The report confirmed that these markets account for over 80 per cent of the predicted decline in global natural gas demand for 2020.
While regional countries and others, such as the US, have been competing for new energy sources and natural gas reserves in the Eastern Mediterranean, the consequences of a prolonged pandemic will be disastrous for regional economies. The importance of gas was highlighted in figures released by the US Geological Survey which estimates that the Levant Basin – the waters of Cyprus, Egypt, Israel, Lebanon and Palestine – contains 122.4 trillion cubic feet of technically recoverable gas.
Given the huge potential to provide economic growth, mitigate climate change and reduce dependence on Russian gas supplies, regional countries have resorted to a combination of military manoeuvres and diplomacy to secure their interests. Since 2006 some have intensified their exploration and drilling activities. Greece and Egypt, for example, signed a maritime deal last August setting out their respective exclusive economic zones for the exploitation of resources such as oil and gas. Similarly, in November 2019, Turkey signed a highly contested maritime border demarcation deal with Libya. This landmark agreement has been described as an attempt to rewrite the exclusive economic zones of the Mediterranean and give Turkey a significant say in transnational gas exploration and pipeline construction.
On the other hand, significant gas discoveries have been made in major gas fields like Egypt's Zohr and Israel's Tamar. However, the ability of both countries to exploit these fields has been seriously constrained by the pandemic. One gas analyst at GlobalData explained last month that, "Major gas fields including Zohr and Tamar have constrained production in light of diminished domestic demand and an unfavourable LNG (liquefied natural gas) market."
This comment echoes the view held by the IEA in its Gas 2020 report that global gas demand in 2020 is set to fall by twice the amount lost after the 2008 financial crisis. Of course, when compared with oil, natural gas has so far experienced a less severe impact but it is far from immune from the current crisis.
In spite of an expected gradual recovery in 2021, the Covid-19 crisis will have a long-lasting impact on gas production in the Eastern Mediterranean region. Predictably, the coronavirus will further depress new investment drive prices as producers compete for market shares. Already, in April this year ExxonMobil postponed drilling in Cyprus until September 2021, and in May the European multinationals Eni and Total followed suit.
In light of the ongoing pandemic, energy companies will be forced to review their business plans and activities. It is clear that in the short term, the key gas producers in the region like BP, Eni, Shell and Total will continue to face lower gas prices and gas production curtailments due to the severe impact of the pandemic. In the long term, the ability of regional governments to attract international investors and make the Eastern Mediterranean an energy haven will depend on how much they are prepared to invest in exploration and drilling.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.