A Commercial Perspective on

Dynamic and Geopolitical

changes in the East
Mediterranean Region

Adam Hedayat, Sea NG Corporation

Euro Med E&P Summit
Cyprus, 25 September 2012

Topics we will introduce this afternoon:

Review of regional issues and concerns

Review of the characteristics of countries in the
East Mediterranean Region

Recent political developments

Key dynamics in the region
Geopolitical risks and impact on investments
Macro and regional assessments

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Supply-demand Geography

Macro Geopolitical Issues

Global competition for strategic bases

Global race to secure natural resources (oil & gas)
By end of Bush presidency, continued focus of USA-led NATO

policy on European region and the south (Middle East and Africa)

Natural gas becoming more strategic

USA friendship with the State of Israel and difficult counterbalance in the relationship with Middle Eastern countries

EU members desire for diversification of natural gas sources

Global powers geopolitics spillover creating regional tensions,

with global implications (Syria, Cyprus/Turkey, Israel/Iran, etc.)

Emergence new cold war era in absence of balance of power

Role of media and importance of multi-information sources
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Mediterranean Natural Gas Market

Libya
OVERVIEW

Population 6.7 million / 1.77 million sq. km

GDP $71 billion (2011)
46 billion barrels of proven reserves
Natural gas reserves of 52 TCF
Export revenue is primarily oil and gas
Most tribal country in the M.E.
140 tribes, clans, intertribal alliances
42 years, control by peoples committees
Failure in creating supra national ideology
No credit rating by any of the rating agencies

MAJOR EVENTS

New experimentation with democracy

National Transition Council
Elections of pro-western figures
CONCERNS

Reopening of investment opportunities

Ability of a new government to unite the different

tribes in a beneficial way

Militia groups competing for resources and power
Emergence of Tahloob, attacking pro-western
targets/interests

Egypt
OVERVIEW

Population 85 million in one million sq. km

GDP $232 billion (2011)
90% Muslims, 10% Coptic Christians
Oil and gas mostly locally utilized / LNG export
Natural gas reserves of 78 TCF (2010)
External revenue is primarily from tourism,
Suez Canal, agriculture, and some industry
Credit rating: B1 (S&P), BB- Negative(Fitch)

MAJOR EVENTS

1952 revolution
Peace with Israel in 1979
Mubaraks era - 1981 to 2011
Revolution of 25 Jan 2011 (Social media fueled)
Control by Supreme Council of the Armed Forces
Election of M. Morsi Muslim Brethren on June 30th
Removal of SCAF in August
Not yet a constitution or Parliament

CONCERNS

Long-term gas supply for export

Election results and long term democratic outlook
Unclear domestic and foreign policy orientation
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Israel
OVERVIEW

Population 7.6 million / 20,700 sq. km

76% Jewish and 24% non Jewish
$245 billion (2011)
$100 billion in new gas development
Credit Rating: A+ (S&P) A (Fitch)

MAJOR EVENTS

Regional major wars (1956, 67 & 73)

Peace between Egypt and Israel in 1979
Annexation of Golan heights in 1981
Peace treaty with Jordan in 1994
Gas imports from Egypt by P/L
Natural gas finds game changer for region

Tamar 9 TCF
Leviathan 18 TCF

New alliance and cooperation with Cyprus

CONCERNS

Israeli-Iranian tension and provocations

Arab Spring and in-stability in the region
Demographics and identity of the Jewish State
Security risk on gas infrastructure
Tension with Turkey
Recent heightened military presence in the Golan
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Lebanon
OVERVIEW

Population 4.1 million / 10,452 sq. km

GDP $42 billion (2011)
Religion is Sunni/Shiite Islam and Maronite
Export revenue mostly from food products, and
tobacco
Tourism is major source of revenue
Credit rating: B (S&P) (Fitch

MAJOR EVENTS

Result of French mandate to remove from Syria

Influx of Palestinian refugees from Jordan in 1970
Civil war 1975 1990
Israeli invasion in 1978, 82 - Left Lebanon in 2000
Hezbollah emerged as a resistant militia
Existential alliance between Hezbollah, Syria, and
Iran
New gas find (25 TCF)

CONCERNS

Conflict with Israel regarding the EEZ

Porous borders and smuggling weapons to rebels in

Syria. Hariri support of rebels.

Spill over from the conflict in Syria

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Syria
OVERVIEW

Population 22 million / 185,180 sq. km

74% Sunni, 12% Alawites and 9% Christians
Net importer of oil. 8.4 TCF gas reserves
GDP $65 billion (2011)
Credit rating: Unrated by the four rating agencies

MAJOR EVENTS

Independence from France in 1946

Many military coups
Formation of UAR in 1958 with Egypt for 3 years
Occupation of Golan Heights by Israel in 1967
BAATH Party leads / Opposition is now legal
Modest economic reform suffered from recent
political unrest and violence
Fractured opposition is not ready to take control
Referendum on a new constitution on Feb 26th
permitting multi party political system
Recent elections re-insulated Assads secular policy

CONCERNS

The impact of recent violence on the long term

stability and investment environment

Future role of Tartus naval base used by Russia
Possible foreign intervention and regional risks
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Turkey
OVERVIEW

Population 73 million / 779,452 sq. km

GDP $763 billion (2011)
Control over Black Sea entrance
Net importer of oil & gas and hence
encouragement of exploration, and becoming a hub
Credit rating: BB (S&P) BB+ (Fitch)

MAJOR EVENTS

Modern Turkey established in 1923 by Ataturk

Strong military with four coups d'tat since 1960
Economic recovery as of 2000 under Ali Babacan
Secular regime until Erdogans election in 2002 and
2007
Breakdown in the relationship with Israel in 2010

CONCERNS

Vision for foreign policy of active neutrality and

desire of Zero problems with neighbors is not

working
Influence on ongoing discussions to unify Cyprus
Cypriot offshore discoveries, EEZ demarcation, and
emerging new alliance between Cyprus and Israel
Growing support for opposition of Erdogan (only
18% support his foreign policy)
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Greece
OVERVIEW

Population 11 million / 131,985 sq. km

GDP $312 billion (2011)
Russian gas in the North and LNG in the South
Liberalization of natural gas and other assets
Potential $15 billion in hydrocarbon revenue in
next 10 years
Potential buyer of Cypriot and Israeli natural gas
Credit Rating : SD (S&P) CCC (Fitch)

MAJOR EVENTS

Historical tensions with Turkey

In 1967, military officers seized power and forced

the king to flee the country.

Democratic elections and abolished monarchy in
1974
Recent EU member (2001)
In 2010, the prospect of a Greek default on EU
debt emerged. Financial and fiscal policy issues
Change in Government in Nov. 2011

CONCERNS

Impact of the austerity measures and public

reaction (Troika discussions)

Long term impact on the European Union

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Cyprus
OVERVIEW

Population 1.12 million / 9,251 sq. km

GDP $16 billion (2011 est.)
Greek Cypriots (77%), Turkish Cypriots (18%), other

(5%)
Most revenue is from service sector, tourism,
financial services and real estate
Strong relationships with Russia, USA, and the EU
Credit Rating : BB Neg., (S&P) BB+ Negative (Fitch)

MAJOR EVENTS

Independence from Britain in 1960

1974 Turkish invasion and partitioning of the island
EU State as of 2004, Euro zone member since 2008
Coalition government led by the AKEL party
Complete demarcation of EEZ with Egypt and Israel
Role in Levant Basin (3.4 TCM / 1.7 billion barrels of
recoverable oil)
Discovery by Noble in Block 12 (5-8 TCF)

CONCERNS

Conflict with Turkey reg. the EEZ and reunification

Recent gas find shifts gas supply equation
Bailout / financial support (Troika vs. Russia vs. China)
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Key Dynamics in the Region

Short distance from gas supply to regional gas

consumers
Power
Industry

Lack of stability in certain regimes

Financial problems of customers and suppliers

Emergence of new discoveries

New players in the region

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Potential Investment Risks

Good news:

Geology is getting better all the time

More discoveries and self sufficiency

Despite woes of EU, gas supply market at doorstep

Bad news:

Unmaking of the old Middle East

New regimes will take time to settle down
New finds could be subject to territorial disputes
Difficult to finance projects under current circumstances
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Macro and Regional Assessments I

Continuation of the rivalry of powers for security of

natural resources in the region

Many years for the new experience with democracy

New sources of energy from Cyprus, Israel and
Lebanon.

Tunisia and Egypt: Oil & Gas business as usual

Libya: a new political regime with western foundation
Oil & gas business will be mostly developed by western
companies
Concern of possible retribution from tribal forces that were
aligned with Gaddafi
Concern of more than 500 armed militia groups competing for
resources and power
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Macro and Regional Assessments II

Israel: emergence of new gas wealth and less

reliance on imported energy

New alliance with Cyprus and Greece

Natural gas contracted to the highest bidder

Lebanon: settlement of conflict with Israel regarding

the EEZ is likely through the UN

Syria: the cold war-style showdown

USA-led NATO interests versus Russia/China/Iran will continue
in Syria

Cyprus: integrated energy plan to optimize the

medium and long-term usage of natural gas.
Emerging alliance with Israel in energy fields
Importance of Cyprus to the EU
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Market Entry Opportunity?

Is it a good time to get in?

Development horizon is long-term

Major project financing will be challenging or await

renewed stability

Initial project feasibility depends now more than ever

on stakeholder credibility/balance sheet

Developing projects will requires patience, diligence,

and sensitivity to shifting local issues and needs

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Conclusion

Weather we like it or not, geopolitics has major

impacts on the developments in the East
Mediterranean region

Regional issues could have global impacts and vice

versa

It is very important to convince the politicians of

the right solution and let them enroll the public

It is easier to get it done right in the first time

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Sea NG Contact

Sea NG Corporation
Suite 750, 101-6th Avenue SW
Calgary, Alberta, T2P 3P4, Canada
www.sea-ng.com

Adam Hedayat,

Vice President Mediterranean,

Middle East & Africa
ahedayat@sea-ng.com
Tel: +1-403-444-7448

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