Monday, December 30, 2013

The race is on to exploit off-shore energy around Israel, Syria, Lebanon, and Cyprus -- and Moscow is crashing the party | Foreign Policy

PUTINOLOGY

Putin’s Mediterranean Move

The race is on to exploit off-shore energy around Israel, Syria, Lebanon, and Cyprus -- and Moscow is crashing the party.


On Christmas Day, Russian state-owned gas company Soyuzneftegaz inked a $90 million, 25-year deal with Damascus to start exploring for the first time some of Syria's offshore energy resources. On the surface, it represents another show of support from Russia for the beleaguered regime of Bashar al Assad. But the deal also fits into a larger pattern of Russian energy adventurism in one of the world's newest frontiers for oil and gas development. If the investments there work out as planned, they could help cement Russia's eroding hold over Europe's energy supply -- and help boost Moscow's standing as a global power on the rise.
At a time when the whole post-war architecture of the Eastern Mediterranean is crumbling, from the breakdown of Egypt's relations with Israel to tensions in the U.S.-Turkish relationship, Moscow seems to spy an opportunity to reassert itself in a region where it once loomed large, get a grip on a potentially big alternative to Russian energy, and make it easier to flex its military muscles. 
"They can kill two birds with one stone," Jeff Mankoff, Deputy Director of the Russia and Eurasia Program at the Center for Strategic and International Studies, said of the Russians. "They want to be in the Eastern Mediterranean, and if they can get the added bonus of bolstering this relationship with Syria, that's two for the price of one."
Israel, Lebanon, Cyprus, and now Syria are all agog over the seemingly vast reserves of natural gas discovered offshore; the U.S. geological survey estimates there could be as much as 120 trillion cubic feet of natural gas in the Levant basin, bigger than any single gas play in the U.S.
Israel, long plagued by energy poverty, dreams of turning its offshore finds into energy independence and export earnings. That's especially important now that Egypt cut off its gas exports to Israel. 
Cyprus has visions of becoming a regional energy hub, exporting gas to Europe and Asia, but never-ending tensions between the Greek south and the Turkish north cast a pall of uncertainty over gas exploration. Cypriot gas plans also bring Turkey, the champion of north Cyprus, and Russia, Cyprus's main backer, into conflict. 
Lebanon, for its part, eyes a potential economic boost by tapping hydrocarbons for the first time. Now Syria, undismayed by the ongoing civil war, is hoping to tap offshore gas resources to limit its own reliance on imported gas and boost revenues that have been hammered by the war and sanctions. Much of the country's on-shore production is in the east, and is either held by rebels or in contested areas.
Granted, turning those potential energy resources into actual production will be an uphill task. Economically recoverable reserves are likely only a fraction of the total gas trapped under the seabed. Offshore energy development is a lot more expensive and time-consuming that drilling for gas on land. Even once the gas is produced, the entire region will need massive infrastructure investments to ship it by pipeline to Europe, or liquefy it and ship to Asia. Gas development requires closer cooperation by neighboring countries, something in short supply.
Looming behind all those challenges is the region's sketchy security environment, which has only deteriorated since the beginning of the Arab Spring -- most notably in Syria, but also in Lebanon. 
Turkey has threatened Cyprus with warships and aircraft in a bid to dissuade it from drilling in disputed waters. Cyprus, which doesn't have any money or sailors, is spending precious cash to beef up its navy. Israel is buying a pair of German frigates to protect its own gas fields. For the third year in a row, the U.S., Israel, and Greece carried out naval exercises, including practicing to repel attacks on offshore gas platforms.
Why does energy-rich Russia need to dive into these troubled waters? After all, Russia is the world's second-largest gas producer. It's own fields in Western Siberia hold five times the gas resources as the Levant Basin.
The answer appears to be two-fold. First, Russia's traditional domination of European energy supplies is slowly coming under threat. There's  the advent of shale gas and rising volumes of liquefied gas; there are alternative sources of supply such as the Caspian; and there's the prospect of the Eastern Mediterranean turning into a spigot for southern and eastern Europe.Hungary, for one, has already talked up the prospect of using Israeli gas to substitute for reliance on Russia.
That explains why Russian firms such as Gazprom, Rosneft, and Novatek have been angling for a piece of the action in the Mediterranean. Russia's offered billions of dollars in bailouts to Cyprus in exchange for gas. Russian firms are lining up to bid on Lebanese gas concessions. And Gazprom scored a big victory earlier this year in securing the exclusive rights to export liquefied gas from Israel's Tamar field. Russia is keen to increase its share of the global LNG business, which is especially key to meeting Asia's rising demand for natural gas.
Grabbing access to Mediterranean gas would be a way for Moscow to try and maintain its energy hold over Europe, akin to Russian purchases of gas-distribution assets throughout southern and eastern Europe. At the same time, Russian involvement gives Moscow the ability to dictate the pace of some development in the region; some observers suspect Russian bids for Mediterranean resources are meant to slow down, not accelerate, the development of new sources of gas.
 "The Russians aren't hurting for gas that they can send to Europe. They just need to make sure that other people aren't increasing supply in a way that competes with them," Mankoff said.
But more broadly, Russia's rush into the Mediterranean seems part of Vladmir Putin's plan to give Russia the kind of global, geopolitical heft that the Soviet Union had. During the Cold War, Soviet influence extended beyond the Middle East and well into the Mediterranean.
Indeed, the high point by some measures of Soviet naval prowess was the famous Fifth squadron that shadowed the U.S. Navy in the Mediterranean during the early 1970s. For centuries, Russian and Soviet leaders have seen the Eastern Mediterranean as a natural extension of the Black Sea, waters dominated by the Soviet and Russian navies.
Building closer energy and trade ties with key countries in the region, especially Cyprus, Israel, and Greece, gives Russia a way back in to an area it considers within its sphere of influence. That is already happening: During the Syrian civil war, Russian naval deployments to the region have reached levels last seen in Soviet times, with more than a dozen warships on station. 
Some experts see closer Russian cooperation with Cyprus over gas as a way to bolster potential naval capabilities in the region; Russian requests for air basing in addition to naval basing on Cyprus have caused a minor furor on the island. Finding an alternative naval base would be crucial for Russia's Mediterranean plans; its last overseas naval base is in Syria, right near the offshore blocks earmarked for exploration.
And the benefits go two ways. By building closer energy ties with Russia, countries such as Israel, Cyprus, and Greece win a big backer in their disputes with Turkey and other neighbors. Indeed, after Turkish threats over Cypriot gas exploration, Russia dispatched an aircraft carrier to the region. Local reports suggest that Russia offered security assurances to Israel in a private meeting last month between Putin and Israeli Prime Minister Benyamin Netanyahu. 
"Given the environment the Israelis are in, they are more willing to work with the Russians. Since the relationship with Turkey has gone so pear shaped, they need other partners to work with," Mankoff noted. "They think if they can get Russia involved, that gives Russia a stake in their security."
- See more at: http://www.foreignpolicy.com/articles/2013/12/27/putin_s_mediterranean_move#sthash.HFM3iAwC.dpuf


Link to source: http://www.foreignpolicy.com/articles/2013/12/27/putin_s_mediterranean_move

Friday, December 27, 2013

Leviathan grows as Woodside's enigma | The Sydney Morning Herald

Leviathan grows as Woodside's enigma

Leviathan's growth makes the project more complicated for Woodside.
Leviathan's growth makes the project more complicated for Woodside.
Australian companies heading offshore rarely have a smooth run. Remember BHP, when it blew a massive hole in its balance sheet with the ill-fated $3.2 billion purchase of Magma Copper?
Then there is Brambles, which had for decades owned half of its global pallet operations, but only recently, after years of drifting, began to show signs it is master of its own destiny.
Against this backdrop, for shareholders of Woodside Petroleum, the slow progress with its planned $US1.5 billion buy into a big gas play in Israel, the Leviathan project, should come as little surprise. Even so, if it comes off, it will rank as one of the largest single investment decisions by an Australian company.
When Woodside disclosed the move just over a year ago, the reaction was muted. Like several energy outfits, Woodside has been exploring for oil and gas internationally for a while, but with limited success. So, pumping a big lick of money into a defined project would never be the cheap option. But it would offer a faster path to development returns.
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Yet progress has been slow so far, and buying into a region with the political undercurrents of the Middle East was never going to be smooth sailing. When Woodside bought in, the partners were looking to access its expertise in liquefied natural gas projects.
Even though Israel is close enough to regional markets such as Turkey and Egypt to be able to pipe gas economically, a year ago relations between these countries were fraught. Hence the open door to Woodside, since the project would need access to more distant markets if it was to proceed.
What a difference a year makes.
Now, Israel's relations with Egypt have warmed up following a change of government, as have relations with Turkey, so that pipeline options are back on the table.
In the process, the prospective role for Woodside may have dwindled, leading to recent talk in Israel that Woodside will walk. That may be premature, although finalising any Woodside participation has slipped back until some time in the first half of 2014.
Along with sorting out the scale, and the priorities, of the proposed development, another stumbling block has been the tax regime for gas exports, which will not be sorted out for another month or two.
Given the lack of information from Woodside - which appears to be largely due to the unsettled state of the partners, coupled with the time it is taking for the government to resolve issues relating to the venture - shareholders are becoming twitchy over the status of its proposed participation.
Analysts argue Leviathan is really ''a long-dated growth option''.
''With one year having passed since the initial farm-in, the fact that there appears progress on Israeli fiscal terms could be seen by some investors as a slight positive,'' was the way RBC Capital Markets put it in a recent note. However, ''investors are increasingly eager for more clarity around plans for Leviathan''.
In this regard, recent comments by the main shareholder, Noble Energy, which has a 40 per cent stake, that a staged development is on the cards was the first clear information about what is going on. Included in these options is piping the gas, which will lift prospective returns as well as throw up a range of development options.
For Woodside, the issue now is whether it will take part in the entire project, including any pipeline, or be limited to the proposed liquefied natural gas portion only.
Complicating any decision is the 20 per cent increase in the size of the known resource which, with the improved economics from any pipeline exports, could force Woodside to pay more to buy in - as much as $US3 billion, or twice the initial amount for a 30 per cent share, on some estimates.
Already, Turkey is looking at taking an estimated 3 billion cubic feet a year in a 15-year contract. Given that this contract alone would cover the estimated $US2.5 billion cost of building a pipeline, the reason for pushing up the price for Woodside's participation is straightforward.
With the Leviathan partners now talking about ''multiple phases'' in the project, and given the low-cost upfront option of regional supplies, this provides a handy way to tap cash flow to fund expansions while boosting project economics.
Domestic sales will flow first, then regional sales via pipelines and ultimately floating LNG, presumably tapping Shell technology, which Woodside is accessing as part of its own development options for the giant Browse project off the coast of Western Australia.
''All parties are … engaged in negotiations and are targeting a structure that allows us to recognise the increased value that we see coming forth from Leviathan,'' Noble told analysts in this month.
Woodside shareholders can only take these comments on faith because there has been no fleshing out of the impact of the changed project dynamics on the company's proposed participation.
That said, Woodside has said it will only pursue participation if there is upside for its shareholders - a ''compelling value case'' given the size of the proposed investment.
This is a clear case of seeing is believing.


Read more: http://www.smh.com.au/business/leviathan-grows-as-woodsides-enigma-20131227-2zzo1.html#ixzz2ohFSzlao



Link to source: http://www.smh.com.au/business/leviathan-grows-as-woodsides-enigma-20131227-2zzo1.html

Monday, December 23, 2013

Cyprus Expands Energy Middle Man Role With Egyptian Talks | Forbes

Cyprus Expands Energy Middle Man Role With Egyptian Talks
20/12/2013
Christopher Coats


A little over a year since first announcing an energy partnership with Cairo, Cyprus moved to clarify the two countries’ new collaboration with talks last week. However, while a new agreement is expected to spur technology sharing, sales and joint exploration, both sides of the effort face obstacles ahead.

According to Egyptian press reports, the talks yielded an agreement to share information about any offshore discoveries within 10km of the two countries’ maritime borders. The agreement builds on earlier efforts to establish technology sharing and the possibility of establishing a downstream role in Egypt for Cypriot reserves, including refining and Liquified Natural Gas options.

Cyprus has explored their own LNG options with proposals for a domestic facility that would deal with both their own reserves and possibly those from Israel, though the project’s high cost remains an obstacle for the cash-strapped country. As reported last year, Egypt may view this partnership as potential path into a regional energy boom they’ve been locked out of until now. The Eastern Mediterranean’s substantial offshore promise has brought about promises for exploration and production action over the last few years, but only Cyprus and Israel have made real progress towards exploiting the reserves and a lucrative export market. Efforts by Lebanon to launch their own exploration and production efforts have been delayed again and again due to a lack of political consensus on licensing.

While the new talks offer a point of entry for Egypt into the broader regional energy scene, they do not appear to include an option for Cairo to import Israeli gas by way of Cyprus. Despite earlier reports suggesting that Cyprus could play a role in establishing a trade route between Israel – who recently decided to reserve 40 percent of their gas for exports – and Egypt, the country’s leadership does not appear to be interested.

Instead, Cairo has insisted that purchases will come only from Cyprus. This approach is complicated by the fact that Cyprus does not expect to see its first gas for several years, while Israel’s offshore extraction has already begun. While Egypt has not yet ruled out direct purchases from Israel, the two countries have had recent difficulties when it comes to energy trade.

Once the provider of a third of Israel’s natural gas, Egyptian eastbound exports were halted following the collapse of the Mubarak government due to a rash of pipeline attacks and allegations of corruption surrounding long term sales. Now facing a daunting $6 billion energy sector debt, as well as substantial domestic shortages, Egypt has been forced to explore new import options, with neighboring Israel being the most obvious choice. However, it is still unclear whether such a deal would be politically feasible.

Link to source: http://www.forbes.com/sites/christophercoats/2013/12/20/cyprus-expands-energy-middle-man-role-with-egyptian-talks/?utm_source=followingweekly&utm_medium=email&utm_campaign=20131223

Friday, December 20, 2013

Options widen for Woodside's Leviathan partners | The Sydney Morning Herald

Options widen for Woodside's Leviathan partners

Partners in the giant Leviathan export gas project in Israel, which includes Woodside Petroleum, are considering a staged development program, initially piping gas to regional buyers before shipping the gas further afield.
Recent speculation has centred solely on piping gas to regional buyers such as Turkey, with no plans to supply the gas further, which would undercut Woodside's interest in buying into the project.
A year ago, Woodside signed a memorandum of understanding to take a 30 per cent stake in the venture for $US1.5 billion.
Since then, there have been legal challenges coupled with a change in development options, in favour of piping the gas, rather than refrigerating it for export.
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In an analyst briefing on Wednesday, Noble Energy, which holds a 39.66 per cent stake in the project, said the partners were seeking to incorporate ''optionality'' into the project so that some gas would be piped to nearby markets such as Turkey and possibly Egypt, along with smaller prospective markets Cyprus and Jordan.
Noble also told analysts the size of the Leviathan deposit has expanded to an estimated 19 trillion cubic feet of gas, up from 16.7 tcf project earlier.
Progress in developing the field has been delayed for several months pending the resolution of regulatory issues such as the export policy and anti-trust issues.
''All parties are … targeting a structure that allows us to recognise the increased value that we see coming forth from Leviathan,'' Noble vice-president Keith Elliott told analysts.
''We've discovered nearly 40 tcf of gas, and we have roughly 19 tcf of that gas that's available for export to both regional and extra-regional markets. We see exports reaching 2 bcf a day in capacity in the next decade. And we continue to explore.''
The giant Leviathan prospect will be developed ''in multiple phases to service both the domestic and export markets'', analysts were told.
Initially, Leviathan will supply an estimated 800 million feet of gas a day for the Israeli domestic and regional markets. That will be followed by a liquefied natural gas phase. Initial production is expected in the second half of 2017.
The news came as there was renewed speculation that Woodside would not pursue the negotiations to buy into Leviathan, since the original plans to refrigerate the gas for export were pursued when relations between Israel and Turkey were strained. That has changed, more recently, which has opened the door for gas to be piped to Turkey.

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Woodside's Leviathan partners push for 'optionality'

Partners in the giant Leviathan export gas project in Israel, which includes Woodside Petroleum, are considering a phased development, initially piping gas to regional buyers before moving to ship the gas further afield.
Recent speculation has centred on piping gas to regional buyers such as Turkey, which could see Woodside not pursue plans to participate in the venture.
A year ago, Woodside signed a memorandum of understanding to take a 30 per cent stake in the venture for $US1.5 billion ($1.7 billion).
Since then, there have been some legal challenges coupled with a change in development options, in favour of piping the gas, rather than refrigerating it for export, which is the reason why Woodside is keen to buy into the project.
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In an analyst briefing Wednesday, Noble Energy, which holds a 39.66 per cent stake in the project, said the partners are seeking to incorporate  ''optionality'' into the development plans, so that some production could be piped to nearby markets, such as to Turkey and possibly Egypt, with smaller prospective markets in both Cyprus and Jordan.
Noble also told analysts the size of the deposit has expanded to an estimated 19 trillion cubic feet up from 16.7 tcf project earlier.
Progress in developing the field has been delayed in recent months pending the resolution of regulatory issues such as export policy and anti-trust issues.
''All parties are actively and sincerely engaged in negotiations and are targeting a structure that allows us to recognize the increased value that we see coming forth from Leviathan,'' Noble vice president Keith Elliott told analysts.
''We've discovered nearly 40 Tcf of gas, and we have roughly 19 Tcf of that gas that's available for export to both regional and extra-regional markets.
''We see exports reaching 2 Bcf a day in capacity in the next decade. And we continue to explore.''
Noble told analysts the giant Leviathan prospect will be developed ''in multiple phases to service both the domestic and export markets''.
''And we're currently working with our regulators and with our sales customers to refine the market demand, to solidify export and domestic sales contracts and then to secure the regulatory approvals necessary,'' Elliott said.
Initially, Leviathan will supply an estimated 800 million feet of gas a day for the Israeli domestic and nearby regional markets, analysts were told.
That will be followed by a liquified natural gas phase.
''Our current view is that of a floating LNG project ... of 1.6 Bcf a day FPSO.''
Initial production is expected in the second half of 2017, analysts were told.


Read more: http://www.smh.com.au/business/mining-and-resources/woodsides-leviathan-partners-push-for-optionality-20131219-2zmt5.html#ixzz2nzeLJRDR | 
Read more: http://www.smh.com.au/business/options-widen-for-woodsides-leviathan-partners-20131219-2znu6.html#ixzz2nzcMgRj2


Link to source: http://www.smh.com.au/business/options-widen-for-woodsides-leviathan-partners-20131219-2znu6.html & http://www.smh.com.au/business/mining-and-resources/woodsides-leviathan-partners-push-for-optionality-20131219-2zmt5.html