Accelerating Mediterranean Integration Through Energy

As Mediterranean countries look to chart a path forward in the wake of the multiple crises that have upended economies, accelerating regional integration becomes more critical than ever. Increased trade flows, two-way investments, and mobility across the Northern, Southern and Eastern Mediterranean countries would be major drivers of a sustainable recovery. And while there are multiple entry points for pursuing this agenda, few are more important at this juncture than energy. 

Currently, trade within the Mediterranean region is valued as under $1 trillion annually, which is barely a third of the trade between the Mediterranean and the rest of the world. This stands in contrast to other prospering regions, where countries’ biggest trading partners are often their regional neighbors. 

With this limited envelope, currently about a third of regional trade is in energy. 

Tapping the potential for further economic integration between the Southern shore of the Mediterranean and the Europe block could be a game changer when it comes to energy. Such a transition would help Europe wean itself away from heavy dependence on Russian supplies, while helping advance climate goals. It would also help increase opportunities and prosperity for the people of the Middle East & North Africa (MENA), with wider knock-on effects for stability in the region. 

Fossil fuels are still the main source of energy for Europe. Petroleum products represent roughly one third of the total, followed by natural gas at approximately 24%, and coal and other solid fossil fuels at 10%. The war in Ukraine has been a shock to European and global energy markets, forcing a dramatic reappraisal of European energy security. In the short term, expanding oil and gas exports from the southern and eastern Mediterranean can help Europe realign its energy provisioning away from Russia, especially as gas supplies are being cut. Algeria is already Europe’s third-largest supplier of natural gas, and there is potential for more, either piped or by LNG, from the southern and Eastern Mediterranean. 

In the medium and longer term, Europe’s transition to renewable energy could be increasingly bound to a vigorous development of clean energy production in MENA. The EU has established ambitious climate and energy policy targets: reducing greenhouse emissions by 2030 by more than half vis-à-vis 1990 levels and achieving carbon neutrality by 2050. This growing demand for clean energy represents an important spur to the development of the untapped potential for renewable sources in MENA, like solar and wind energy as well as hydrogen, where the sun-drenched southern side of the Mediterranean has a competitive advantage. Indeed, Low-carbon hydrogen is now seen as an important component of EU decarbonisation plans. As suggested above, it complements the established EU’s external energy policy, and by virtue of its proximity, the Eastern Mediterranean region can position itself as a credible supplier of low-carbon hydrogen for Europe. Energy cooperation in this region has focused on natural gas development in recent years but synergies could be possible if this cooperation extended to hydrogen development – both for exports and domestic decarbonization. 

Many countries have recognized this multi-source potential and are acting on it. In 2021, Greece, Israel, Cyprus started formal cooperation around the construction of the EuroAsia “Interconnectors,” undersea cables meant to bring renewable electricity from Israel as early as 2025. 

Egypt and Greece are exploring a similar project, and Italy is working out similar plans with both Tunisia and Algeria. The ELMED project interconnecting Tunisia and Italy is at an advanced preparation stage. In the Western Mediterranean, Morocco and Spain are already trading energy (gas and electricity). The recent signing during COP27 of the Sustainable Electricity Trade (SET) MoU by Morocco, Spain, Portugal, France and Germany to promote cross-border trade corporate green energy further highlights the acceleration of the mediterranean integration in the energy sector. 

The move towards renewables in MENA is accelerating. Morocco, for instance, aims to have 80% of its total electricity generation capacity from renewables by 2050. This trend, boosted by European investment deals for clean energy production in the region has the potential to not only increase GDP in the MENA countries involved, but also provide much needed jobs. 

The current challenge of furnishing Europe with adequate and increasingly, clean energy supplies creates a unique opportunity to draw the countries of the MENA region into a nexus of trade, growth, and peace, while at the same time pushing forward the transition to renewable energy. It is a win-win opportunity that we must not let slip away.

Source : World Bank