Nobody understands the awesome power of nature better than insurers. Rebuilding businesses and livelihoods after major catastrophes is after all pretty much the industry’s day job. Yet the uncovering of a massive natural gas field in the Eastern Mediterranean at this point in our history reveals a more mischievous side to the creator, the consequences of which may be just as challenging to insurers as dealing with the aftermath of hurricanes and earthquakes.
Only in the last three years has the scale of the find beneath the seabed of the Levant Basin emerged. The US geological survey estimate of 120 trillion cubic feet of recoverable natural gas sounds a lot; and it is: the biggest discovery this century equivalent to roughly what the entire world consumes each year. Happy days one might think…if only the huge deposits were situated somewhere else.
Buried under nearly 2km of ocean and a further 4.5km of rock and sand, the gas reservoirs are just about the deepest you will find. Insurers still raw from the devastating costs of cleaning up the Deepwater Horizon oil spill in the Gulf of Mexico in 2010 are swallowing hard. Nineteen new wells are expected to be drilled in the next two years at costs reported to be $2 billion, potentially hitting oil in layers beneath the gas at depths greater than the Gulf. Only in May, Reuters reported that the lead exploration company Noble suspended drilling down at 6.5km because of high well pressure and after reaching the mechanical limits of the wellbore design.
No surprise therefore that environmental groups are also voicing concern, amongst them the World Wildlife Fund warning of the potential damage to the deep sea eco system. If the technological and environmental challenges were not enough, with the Levant Basin straddling not one but two of the oldest and most bitter conflict zones, the geopolitical impact of the gas discovery might have even more volatile implications and not just for insurers.
Over 40% of the subsea area is in Israeli waters. With injections into the economy projected to be $140 billion over three decades, an energy self sufficient Israel relying less on financial support of the US and regional supply from Egypt via the Sinai pipeline, will be arguably less constrained in its actions. For its many enemies the vast infrastructure being built to extract, pipe and process the gas will provide plentiful targets for sabotage and incursions, even if a way could be found for Israel to unfreeze relations with its neighbour Lebanon where sea boundaries are hotly contested.
To the north, where the basin lies in the waters of the divided island of Cyprus, the potential for political turmoil, even conflict, is just as acute. The leaders of the internationally recognised mainly Greek speaking Republic of Cyprus are working closely with an US/Israeli consortium to extract the gas. They have no plans to share their wealth with the Northern Cypriot population, recognised only by Turkey, who are already mapping out competing claims to undersea territory. With Israel-Turkey relations at a low point following the raid on the Gaza freedom flotilla two years ago, Western Governments and USA in particular are concerned that their key military, diplomatic and economic strategic alliances in the Eastern Mediterranean could unravel spectacularly.
That all said, there are grounds to be optimistic as well. It is easy to forget that the natural gas discoveries in the Levant Basin will surely generate economic prosperity and handled well, this might finance some reconciliation and conflict resolution in the Middle East and in the case of Cyprus, even reunification. Similarly for insurers, wrestling with all the technical, legal, environmental, reputational, contractual and political risks, it is nevertheless a significant opportunity to showcase the industry’s capability in addressing one of the most complex combinations of hazards that it is possible to imagine.