The importance of the Southeastern Med hydrocarbons to the EU

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Taking into account the growing hydrocarbon demand worldwide and the decreasing indigenous production in Europe, it will require huge efforts and substantial investments of the suppliers to mobilize these fuels in time. Besides, when assessing supply options, it has to be kept in mind that competition for supply will become far stiffer especially from North America, China and the emerging economies of South-East Asia. The vulnerability of the EU to energy supply risks is a fact but this could be no more! If the most conservative data is taken into account in regard to the hydrocarbon reserves existing in the EEZs of Israel, Cyprus and Greece and the rest that lie within the Southeastern Mediterranean, for the first time ever in European Energy History, the EU could be guaranteed an uninterrupted supply of a traditional energy source. The challenge ahead for the EU is to manage these new variables in the equation of the Southeastern Mediterranean region with ultimate responsibility and Europeanism so as to guarantee and improve the prospects, economic and social, of its citizens. Moreover, these hydrocarbon discoveries are bound to serve as a catalyst toward greater cooperation amongst the participating countries. The joint exploitation between these countries and the launching of joint projects has the potential to change the whole political and economic scene of the entire region to the better.

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www.pytheas.net The importance of the Southeastern Mediterranean hydrocarbons to the EU September 2013 Pytheas Market Focus ® By Harris A. Samaras

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Copyright © 2013 Pytheas Limited 10 September 2013 2 Pytheas Market Focus ® About the Conference The "East Mediterranean Oil Gas Conference" was held between 10 and 11 September 2013 in Paphos Cyprus at the Intercontinental Aphrodite Hills Resort Hotel. The Conference was organized by the ITE Group under the auspices of the Minister of Finance of the Republic of Cyprus Mr. Harris Georgiades who opened the Conference. Harris A. Samaras Chairman Group CEO of Pytheas was a speaker at the Conference. Herewith is his speech with the title “The Importance of the Southeastern Mediterranean Hydrocarbons to the EU”. About the Author – Harris A. Samaras An Economist and presently the Chairman Group CEO of Pytheas an international investment banking organization Harris has also worked with the Bank of America Group Thomson Financial BankWatch and Moody’s Investors Service. His expertise lies primarily in the areas of investment and corporate banking private equity and finance risk management corporate restructuring and business development. His research and extensive publications in these areas range across practice rather than theory economic and business thought entrepreneurship and geopolitics. He has been an adviser to various governments central banks financial institutions and other corporates and has been a member of the board of directors of multinational organizations.

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Copyright © 2013 Pytheas Limited 10 September 2013 3 Pytheas Market Focus ® I will not bore the distinguished audience with figures and data or with statements that have been repeated over the past few years numerous times. I am sure that we all here agree that by 2015 a substantial fuel gap emerges between demand and supply coming from European production or imported from outside Europe. For the depending on imports European energy industry the sufficient hydrocarbon reserves available in the medium to long run are in countries which are NOT so accessible in terms of transmission distances or exist in fields that are increasingly difficult to develop with the consequence of rising production and transport costs. Taking into account the growing hydrocarbon demand worldwide and the decreasing indigenous production in Europe it will require huge efforts and substantial investments of the suppliers to mobilize these fuels in time. Besides when assessing supply options it has to be kept in mind that competition for supply will become far stiffer especially from North America China and the emerging economies of South-East Asia. Moreover the Israelis the Cypriots the Greeks the Lebanese the Syrian may find out very soon that the billions of dollars of hydrocarbon reserves that lie within their territories may no longer be worth exploiting if they do not take immediate action. As technologies evolve in the rapid pace that they do and as environmental impact always plays a secondary role to our energy-starving globe fuel such is shale gas and other may in the next few decades supersede all. The annual NG consumption of the EU amounts to about 500 bcm. Almost half of it is imported from Russia 160 bcm from Algeria and 90 bcm from Libya. By 2020 the demand for natural gas in Europe will increase by another 225 bcm. The total energy deficit Oil Gas of the EU will therefore reach 845 bcm. These EU requirements for NG can neither be satisfied by Russia – which has 44 tcm of NG resources and an annual production of 600 bcm – as 2/3 of its reserves and production are allocated for domestic uses nor by Algeria and Libya as their reserves amount to only 6.2 tcm. The vulnerability of the EU to energy supply risks is a fact but this could be no more If the most conservative data is taken into account in regard to the hydrocarbon reserves existing in the EEZs of Israel Cyprus and Greece and the rest that lie within the Southeastern Mediterranean for the first time ever in European Energy History the EU could be guaranteed an uninterrupted supply of a traditional energy source. What makes these findings a remarkable opportunity for the EU is that Greece and Cyprus are EU-member states and Israel an honest and trustworthy ally. A third energy corridor for the EU of the EU The EU will no longer be a hostage to fluctuating market prices of sources that are exogenous and to other countries that may also be volatile or even against its own interests. Additionally the related derived opportunities created in terms of EU potential competitiveness gains EU growth and jobs and investment momentum are immense. The challenge ahead for the EU is to manage these new variables in the equation of the Southeastern Mediterranean region with ultimate responsibility and Europeanism so as to guarantee and improve the prospects economic and social of its citizens. Moreover these hydrocarbon discoveries are bound to serve as a catalyst toward greater cooperation amongst the participating countries. The joint exploitation between these countries and the launching of joint projects has the potential to change the whole political and economic scene of the entire region to the better. The different phases of the Project further surveying and exploration exploitation through CNG LNG and the East Med pipeline require joint and parallel coordination and action between Israel Cyprus Greece and the EU. The challenges are ample engineering and construction related management and time related economic and geopolitical security related.

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Copyright © 2013 Pytheas Limited 10 September 2013 4 Pytheas Market Focus ® But of all these challenges the biggest hurdles are the geopolitical and security ones Only very recently: We watched in awe the European Union the International Monetary Fund and the international media blaming Cyprus’ banking practices as the main cause of the crisis… and made sure that the economy of Cyprus was ruined in just a weekend We watched in awe manic European Union politicians arguing that Cyprus is harboring criminal money that Cyprus is an offshore tax haven and a money-laundering center We watched in awe the Eurogroup President spreading terror to Cyprus and the markets worldwide when he stated that the Cyprus “deal” is the new template... We watched in awe a totalitarian EU “stealing” the deposits of its Cypriot-EU citizens… We watched in awe a Cypriot government the previous Cypriot government unable to react to at least 4-year market warnings confused and contradicting itself in the name of political cost and personal interests… triggering the Cyprus financial meltdown… We watched in awe the Cypriot opposition most parties included including the political parties composing the current Cypriot government maintaining a selective criticism approach again in the name of political cost and personal interests… triggering the Cyprus financial meltdown… We watched in awe the powerful Cypriot trade unions taking an uneducated and anachronistic stance on the whole matter despite the educated fact that they triggered contributed and still contribute negatively to the crisis… We watched in awe the magical appearance of numerous experts arguing with absolute and unqualified certainty about all aspects of the economy and the Cyprus financial crisis… none of whom – at least those that I watched heard and read about and I did plenty – predicting or cautioning on time and time was more than a decade ago that the Cyprus economy would have to change or sink All of the above political parties and governments trade unions and the so-called experts continue up until today to blame each other… first they blame the opposition then they blame the foreigners… never themselves… like in a permanently-worn-campaign-shell… Worse of all these are more than less the same people that are currently managing the fate of the Cyprus hydrocarbons Not the qualified experts not the technocrats not the scientists but these same politicians and their “click” the same political leadership that caused the Cyprus financial holocaust Note that as per the above whatever applies to Cyprus also very well applies to Greece… Spoke a bit longer than I probably should about Cyprus’ and EU’s inefficiencies and inabilities but only because both investors and governments within this room and the EU should all work towards eliminating these obstacles of inefficiency obstacles that if not removed would only bring one result: Failure Failure to all The Southeastern Mediterranean Hydrocarbons we all know all of us here know could validly become the most important energy corridor in EU’s history. The hydrocarbon reserves that lie within Israel Cyprus and Greece could satisfy Europe’s energy needs for decades to come… And I do not exclude Lebanon Syria Egypt and Libya it is just that their geopolitical situation is unfortunately a bit more complex. As I had previously highlighted of all the challenges the geopolitical and security ones encumber the biggest hurdle. Evidently a new order is emerging as a result of three major

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Copyright © 2013 Pytheas Limited 10 September 2013 5 Pytheas Market Focus ® events: a The redrawing of the region’s hydrocarbon map with the discovery of substantial hydrocarbon deposits in the Israeli and Cypriot exclusive economic zones b Turkey’s adoption of a hostile neo-Ottoman ideology to guide it in the 21st century and c the “Arab Spring”. At the mid-point of this political shift Israel Cyprus and Greece have remained the principal states in the region that are friendly to the “Free World”. We all know that the decades-long alliance between Turkey and Israel remains in shambles and U.S. diplomats are working overtime to fix whats broken... Mr. Erdogan has led Turkey since 2002 as head of the Justice and Development Party which is rooted in Islam. Backed by a roaring economy Mr. Erdogan has set vaulting ambitions to expand Turkeys leadership of the Arab world and strengthen economic and political ties to the East and predominantly with Iran even while preserving the nations valuable security relationship with the U.S. But these goals often work against one another. Turkeys ties to the U.S. have been strained by its feud with Israel which has sent the Obama administration into an unsuccessful scramble to make peace between two U.S. allies who used to be friends… Turkey sees its economic future in the East having left the issue of European Union membership in its rearview mirror. Since the AKP won re-election handily about more than a year ago Mr. Erdogan feels hes in the drivers seat with an enormous amount of political capital at his disposal. As revealed in a Wiki Leaks document about a year ago Mr. Erdogans foreign minister Ahmet Davutoglu talked about Turks as the "New Ottomans" the dominant player in the region. U.S. officials “understand” that Mr. Erdogan still remains bitter about Israels May 2010 commando attack on a flotilla organized by activists in Turkey to bring aid to the Gaza Strip. But it is harder for U.S. officials to accept the way Mr. Erdogan has escalated his conditions for normalizing relations with Israel now demanding an end to the blockade of Gaza. U.S. officials are nervous about what they see as a populist campaign to build an international reputation on the back of anti-Israel rhetoric. Already considered the most popular politician in the Arab world Mr. Erdogan thrilled crowds during his last trips to Egypt Tunisia and Libya when he stated that Israel was "the Wests spoiled child." Turkey had become outspoken in its opposition to Syrian President Bashar Assads violent crackdown on antigovernment demonstrators at the beginning of the Syrian conflict after begging Mr. Obama on July before last to delay calling for Mr. Assad to step down. But though Mr. Erdogan has denounced Mr. Assads crackdown as "savage" he had tried to avoid disrupting Turkeys valuable trade and investment ties to Syria not as far as the White House would had then preferred.... U.S. officials claim they stay in close touch with Turkey in part to avoid surprises. About two years ago for example Pentagon officials were alarmed to learn that Turkey had conducted military exercises with China with no advance notice raising questions about its plans with NATO… The U.S. has reached out to Turkey during the Erdogan era and received very little in return starting with Ankara forbidding the U.S. Armys Third Infantry Division to enter Iraq overland through Turkey. Had that force worked its way south toward Baghdad in 2003 history might well have played out differently in terms of the strength of the Iraqi insurgency and its capacity to generate years of unrest and kill thousands of U.S. troops. With no one willing to call Mr. Erdogan to account his Fundamental Islamist regime regularly bashes the press narrows the parameters of civil liberties at home and defends terrorists such as Hamas abroad. For a change and with respect when Turkey talks about flexing its muscles in the Mediterranean the U.S. should remind Ankara that the U.S. has interests in the region and that the Sixth Fleet is still in business. And Congress once and for all should remind Turkey that there is no statute of limitations on genocides. With Ankara so keen on seeking

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Copyright © 2013 Pytheas Limited 10 September 2013 6 Pytheas Market Focus ® apologies its time we heard Turkey offer apologies for the massacres of a million or more Armenians a million or more Greeks hundreds of thousands of Assyrians during and after World War I as well as an offer of reparation payments for the families of the victims. Turkey seems to think the U.S. no longer matters that its own destiny as regional superpower is assured and that no one can challenge its moralistic stance as Turkey sits grandly in judgment of all its neighbors. Whether the U.S. can succeed in influencing Turkish behavior remains to be seen. But the days of going to the diplomatic table with a basket of carrots and no sticks must end. Turkey has redirected its strategic thinking away from the United States and the Free World. The notion that Turkey will only go "so far" and will feel compelled at the end of the day to return to the Free Worlds fold reflects wishful thinking… In December 2010 Turkey reacted furiously after Israel and Cyprus signed an agreement demarcating the border of their endorsed by international law maritime exclusive economic zones. In mid September 2011 Cyprus with a consortium consisting of Noble Energy Inc. of U.S. interests and Delek Group Ltd. of Israeli interests commenced exploration drilling. In violation of international law Turkey has followed its verbal threats by sending a number of naval vessels – frigates corvettes gun-boats – accompanying the “Koca Piri Reis” a "research vessel" into the Exclusive Economic Zone EEZ of Cyprus. At the same time there has been an increase in air activity of the Turkish air force south of Cyprus and air and naval exercises of the Turkish forces. Even as we speak the Turkish “Barbaros Hayrettin Pasa” another research vessel is on its way to Cyprus territorial waters... Despite firm responses to the Turkish threats and allegations by the United States European Union member states and the EU Commission with clear statements by all aforementioned bodies that Cyprus is in full compliance with international law and norms and has every justification to exercise its sovereign right Turkey threatens that it will go ahead with exploration and possible exploitation or extraction activities within the exclusive economic zone of Cyprus… the exclusive economic zone of a member of the European Union... and Turkey is a candidate for membership to the Union… A combination of Islamist rule a neo-Ottoman ideology and Turkey’s attempt to return as the region’s hegemon opposes the U.S.’s and Free World’s goal of a democratic and peaceful region. It threatens America’s allies — Greece Cyprus Israel and EU member Bulgaria which has complained of Turkey’s control over both supplies and prices of the natural gas it transits to the EU… We have the pleasure and honor today to have with us his Excellency the US Ambassador to Cyprus Mr. John M Koenig and I cordially greet him. Your Excellency looking forward to your comments on the whole matter we know that amongst other you will state that the hydrocarbons of Cyprus are for all Cypriots and for all legal Cypriots they should be: Greeks Turks Armenians Maronites and so forth But would the U.S. if it were in Cyprus’ position share its wealth with a nation that raped and murdered Americans and illegally occupied 37 of American soil A nation that systematically and intentionally alters the morphological and anthropological characteristics of the Island defying UN and EU Commission resolutions Would you be able to trust such nation It’s been extensively discussed in press and media lately that there could be an exchange of the ghost city of Famagusta with a pipeline from Cyprus to Turkey… The city of Famagusta a shame and disgrace to all of us claiming to be part of the Free World… Does anyone in this room truly believe that such a pipe route via Turkey would promote EU stability and EU energy security Isn’t it more than likely that Europe will become a hostage to a country that is itself unstable and a bully to all its neighbors How does Israel feel about

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Copyright © 2013 Pytheas Limited 10 September 2013 7 Pytheas Market Focus ® it Could they ever trust their natural gas to be running through a pipe that is controlled by the government of a nation that officially calls them all these foul names And no I am neither a fanatic Mr. Ambassador nor an enemy of the United States of America. On the contrary I am a friend and a citizen of the world of the free world I believe and preach that nationalism is a disease that spreads polarization and ignorance. How could any Cypriot Israeli or Greek entrust the future of his children to somebody that is a bully one that defies and disrespects international law that deprives its own citizens of basic human rights and fundamental freedoms Most of us are here because we know that the hydrocarbon reserves in the Southeastern Mediterranean are plenty and they must be a multiple of what it has been at times published. Now Questions and considerations about an Israel-Cyprus-Greece pipeline the “East Med Pipeline” are secondary and premature at this stage. Considerations of a pipeline via Turkey are simply catastrophic for Europe and anyhow a wishful thinking that is impossible to materialize those that deliberately push for such a route at current geopolitical conditions they must be considered enemies of Europe. Delays incompetence and non-incorporation of a Greek Energy Plan an appropriate legal infrastructure that will encourage investors to speed up the process for the exploitation of the hydrocarbons that lie within the EEZ of Greece are the least inexcusable and Greece must be “urged” and assisted to deal with this issue of utmost importance that is missing from the European energy puzzle promptly and efficiently. Delays of further reinforcement of a tangible and substantial Israel-Cyprus-Greece Energy Security Trilateral “Pact” – with the addition and support of a proactive on the matter EU and U.S. as and each and every other member of the Free World – will only create more tension and instability in the Region and not only. The hydrocarbons discovered in Cyprus are not just a Cyprus issue the hydrocarbons that are scientifically estimated to exist in Greece are not just a Greek issue as are not the hydrocarbons that are discovered and lie within Israel just an Israeli issue. They are issues of primary importance for the whole of the European Union the U.S. and the Free World that should be tackled jointly by all within international law. One of the norms that the latest and still going Global Financial Crisis has taught us is that a stable EU means a stable U.S. and vice versa Likewise an East Med Energy Corridor that would avoid non-EU countries would guarantee an uninterrupted energy supply source for the EU of the EU Thank you for your patience and time

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Copyright © 2013 Pytheas Limited 10 September 2013 8 Pytheas Market Focus ® Additional notes on EU Energy Security As the EU is becoming increasingly dependent on imported hydrocarbons the vast majority of its member states are largely or completely dependent on a single natural gas supplier. Moreover the EU is becoming increasingly exposed to the effects of price volatility and price rises on international energy markets and their consequences of the progressive concentration of hydrocarbon reserves in few hands. It therefore remains important for the EU to promote diversity with regard to source supplier transport route and transport method. Projects should be developed to bring natural gas from new regions to set up new gas hubs in South and Southeastern Europe to make better use and limit the currently expensive need of strategic storage possibilities the considerable planned new investments in new storage and pipeline capacity that would be needed to ensure a higher degree of security will have to be balanced against the costs this will imply for the consumers and to facilitate the construction of new liquid natural gas terminals. To limit EUs external vulnerability to imported hydrocarbons and promote growth and jobs thereby providing secure and affordable energy to consumers Europe has to transform itself into a highly energy efficient and low CO2 energy economy thus limiting the use of oil and increase the use of NG which is cleaner leading to lower emissions of greenhouse gases and local pollutants igniting a new industrial revolution accelerating the change to low carbon growth and over a reasonable period time dramatically increasing the amount of local low emission energy that Europe produces and uses. The challenge is to do it in a way that maximizes the potential competitiveness gains for Europe and limits the potential costs. The Southeastern Mediterranean hydrocarbons provide a solution to all of the above Without this Project the EU’s objectives in other areas including the Lisbon Strategy for growth and jobs and the Millennium Development Goals will also be more difficult to achieve... 1. The EU should upgrade its role and involvement in the hydrocarbon efforts of Cyprus Greece and Israel to assist and ensure that an appropriate framework and solid plan are in place so that exploitation commences as quickly as possible. 2. The EU should use its regional and global leverage to ensure that geopolitical challenges are resolved within international law and that the Southeastern Mediterranean hydrocarbons become a tool for reconciliation and regional stability. 3. The East Med Energy Corridor should be included in the EU’s Energy Policy and dealt as such. For the first time ever the EU is given the opportunity to avoid dependence of energy supply on politically and economically volatile countries and regions such are Ukraine Turkey Eurasia and the Middle East Europe is confronted with a unique challenge and a remarkable opportunity and the need for EU action is stronger than ever

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Copyright © 2013 Pytheas Limited 10 September 2013 9 Pytheas Market Focus ® See also other related publications by Pytheas Chronologically ► Cyprus facts and European Union totalitarianism and horror April 2013 ► Cyprus – Is the European Union opening Pandora’s Box March 2013 ► The failure of the Greek State engendered a disillusioned society May 2012 ► Southeastern Mediterranean Hydrocarbons – A new energy corridor for the EU April 2012 ► Cretan Gas Fields – A new perspective for Greece’s hydrocarbon resources March 2012 ► The Economic and Geopolitical importance of Eastern Mediterranean gas fields for Greece and the EU January 2012 ► Cyprus Hydrocarbons – A Presentation January 2012 ► Cyprus – A country “ruled” by benighted labor union leaders December 2011 ► Cyprus – A country in denial and a scandalous political leadership December 2011 ► Cyprus – Finally energy security for the EU in the pipeline November 2011 ► Turkey unveiled and the dawn of a new energy opportunity for the EU October 2011 ► The U.S. debt crisis the U.S. and EU leaders and their power games August 2011 ► Could the Greek Financial Crisis lead to the end of the EU as we know it June 2011 ► Cyprus – Why the C.O.L.A. must be abolished immediately March 2011 ► Cyprus must change or suffer February 2011 ► Investing in Cyprus an EU bridge to the world of business February 2011 ► Cyprus – The economy calls for immediate action December 2010 ► Cyprus – Real estate and construction industries optimistic despite the slowdown October 2010 ► The long overdue emergency loan for Greece is announced. Is it enough April 2010 ► Greece must change or sink December 2009 ► Twenty years after the collapse of “communism” the global financial crisis pushes emerging European markets to the brink of collapse November 2009 ► Laissez-faire the “Freer Market Global Economy” the investment banks and the policymakers... August 2009 ► Greece unlikely to escape its worst financial crisis of modern times July 2009 ► The US economy is in trouble February 2008 Disclaimer The above notes have been compiled to assist you however actions taken as a result of this document are at the discretion of the reader and not PYTHEAS or Harris A. Samaras. All rights reserved. The material in this publication may not be copied stored or transmitted without the prior permission of the publishers. Short extracts may be quoted provided the source is fully acknowledged.

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