In energy trade, why can’t we all just get along?

Lack of trust and political will is holding back a saving of $127bn in energy projects.

Spending US$7 billion on 10 cross-border energy projects that save $127bn seems like a good deal. This proposition is even better when it also boosts economic growth in the Middle East and North Africa, eases unrest and reduces environmental damage. But will there be the political will to advance these projects?

The Arab Fund for Economic and Social Development identified its top 10 projects from many possible interconnections and revealed them at the 10th Arab Energy Conference in Abu Dhabi last month. These include seven electricity links costing a total of $3bn: from Libya to Egypt; between Yemen, Saudi Arabia, Egypt and Jordan; and from Kuwait to Iraq. Three gas import projects costing $2.8bn cover gas pipelines from Iraq to Kuwait and Libya to Egypt, and a liquefied natural gas import terminal in Bahrain.

Large resource holders such as Iraq and Libya would be able to receive better prices, while their neighbours would save on costly oil or imported LNG. Power plants would be used more efficiently and countries would not have to invest in excessive spare capacity. More carbon dioxide emissions than Saudi Arabia’s annual total would be saved by 2030.

The Bahrain LNG terminal is moving ahead – the only one that requires no particular cooperation from other countries, as Bahrain could buy LNG from anywhere from Qatar to Australia. The electricity interconnection between Egypt and Saudi Arabia may be ready by 2018.

But the projects that include Libya and Iraq are unsurprisingly making no progress, held up by chaos in one country and government bureaucracy in the other. Energy interconnections through the Mena region are poor compared to the integrated markets in Europe and North America. Energy-short countries such as Egypt, Jordan and Lebanon are not able to access resources from their neighbours, leading to high prices, power cuts and civil discontent.

Why has a regional energy market not developed? The only major cross-border gas pipeline in the Arabian Gulf – Dolphin from Qatar to the UAE and Oman – has been a success, but expansion has been held up by commercial and political disagreements. Earlier Qatari plans to export to Kuwait and Bahrain went nowhere in the face of Saudi disapproval.

For various internal and external political reasons, Iran does not send its abundant gas resources to its Arab neighbours. Even a gas pipeline to Iraq, with which Tehran is closely aligned, has been held up by the fighting against ISIL in Diyala. The Arab Gas Pipeline from Egypt to Jordan, Syria and Lebanon is triply cursed – defunct because of the shortage of Egyptian gas, sabotage in Sinai and civil war in Syria.

The electricity situation is better, but the interconnection that links all six GCC nations is still only used for emergency needs, not for routine power trading. Subsidies and unrealistically low energy prices in many Mena countries make them unattractive markets.

The GCC has sent aid in the form of fuel to Egypt and Yemen, but better energy links would bring more self-sustaining economic development. Although countries may be nervous about relying on their neighbours for essential supplies, it is an axiom that energy security is achieved by mutual interdependence more than attempts at self-sufficiency. Energy security is just one facet of a holistic security policy – preventing civil disturbance or even state failure in Libya, Egypt, Yemen or Iraq has a value beyond simple economic calculations.

Remaining a Balkanised set of energy islands is a bad strategy at a time of regional insecurity and gathering economic storm clouds. Mena requires both these hard links and the soft infrastructure of shared institutions, pan-regional corporations and common markets. Grasping this $127bn gift needs the trust and political will for neighbours to work together.

Robin Mills is the head of consulting at Manaar Energy and the author of The Myth of the Oil Crisis

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