ENI’s giant discovery
ENI has announced the discovery of a new, supergiant, gas field in the Mediterranean Sea offshore Egypt, confirmed also by Egypt’s petroleum ministry.
It is estimated that the field, in 1450m water depth over an area of 100 km2 at the Zohr Prospect in the Shorouk Block, may hold up to 30 tcf (about 850 bcm) of lean gas, making it the biggest offshore gas field discovery in the Mediterranean ever. It has the potential to become one of the world’s largest natural gas finds, given that ENI has identified that Zohr may have additional deeper hydrocarbon structures. ENI wholly owns the Shorouk licence.
To put it in context, Leviathan, the next biggest gas field in the Mediterranean, holds 22 tcf of gas. In addition, this single gas field has the potential to increase Egypt’s proven gas reserves by about 50%, given that these currently stand close to 60 tcf. When these quantities are confirmed Egypt will have more gas than Norway. Also, 30 tcf is equivalent to about 5.5 billion barrels of oil. This discovery will create renewed interest in exploration drilling offshore Egypt. As ENI’s CEO said “this is a historic discovery” and “Egypt has still great potential”.
Implications on Egypt
ENI will now embark on an appraisal drilling programme to confirm quantities accurately. Given current acute shortages of gas in Egypt the government will be pressing ENI to move into production as soon as possible. This could be as early as 2020 by utilising synergies with existing infrastructures. ENI has a ready-made market in Egypt and it is also 50% owner of the Damietta LNG plant, currently lying idle due to lack of gas. An additional incentive for ENI is that in July, Egypt increased the price of gas it will pay to ENI, for gas from new discoveries, to a minimum of $4 and a maximum $5.88 per mmBTU, from $2.65 now. ENI has already confirmed that it will start appraisal soon and will place this project on a fast development track.
Assuming that the gas production and exports are phased over a 30 year period, ENI could be producing an average of 30 bcm per year. These quantities are sufficient to cover the additional domestic gas needs of Egypt for many years to come, but also to provide gas to take up the full capacities of the two LNG plants at Damietta and Idku, about 17 bcm per year, with possible future expansions. This discovery has the potential to completely transform the energy industry in Egypt and give a much needed boost to its economy.
In hindsight, Egypt’s decision to limit LNG import deals to 3-5 year periods on the expectation that it will become self-sufficient in gas by 2020, looks prophetic. Egypt will benefit massively from this discovery, not only by not needing to import expensive LNG for its continuously rising energy demand, but also through much needed revenues from LNG exports.
Implications for Cyprus and Israel
This huge gas discovery is bound to have major implications for the much discussed potential gas export projects from Israel and Cyprus to Egypt. Given that these have not progressed, and there are still question marks for both, they may now not happen at all. Gas from Zohr is expected to be substantially cheaper than imported gas from either Israel or Cyprus, without the need for cross-EEZ border pipelines. This new discovery may be the final nail in the coffin for both projects.
With a solution of the Cyprus problem looking possible, both Israel should now consider other options, including potential exports to Turkey and Europe through a pipeline through Cyprus’ EEZ. And if the political situation between Israel and Turkey does not allow this, they should reconsider the option of an LNG plant in Cyprus. With the quantities of both Leviathan and Aphrodite gas to be exported and timing of such a project, i.e. LNG exports by 2022 at the earliest, it becomes viable. In any case, with Egypt, and regional markets, now possibly out of bounds, these may be the only two serious export options left for Israel and Cyprus.
The old oil industry adage that you should take your opportunities when they appear is proving to be right yet again. Opportunities in the oil and gas sector come and go fast. Take too long to react and they go away.
It is disappointing to note that with the option of exporting gas to Egypt now looking less likely, Cyprus does not have a Plan B for the development of Aphrodite, such as exports to Europe, through CNG, or FLNG.
All export options are detailed in Noble’s Development Plan. As a result, more time will be lost yet again going back to the drawing board to reconsider other options. And with dwindling options, time may not be on its side.
It is disappointing to note that with the option of exporting gas to Egypt now looking less likely, Cyprus does not have a Plan B for the development of Aphrodite, such as exports to Europe, through CNG, or FLNG.
All export options are detailed in Noble’s Development Plan. As a result, more time will be lost yet again going back to the drawing board to reconsider other options. And with dwindling options, time may not be on its side.
An additional setback for Cyprus is that, with the huge call on its resources to deal with such a discovery, and its hands full, there is a risk that ENI may decide not to proceed further with the exploration of Blocks 2, 3 and 9 in Cyprus once its commitments are completed, given the disappointing results so far. ENI is known to be looking into divesting some of its peripheral businesses. Its strategy is to concentrate on assets and mature hydrocarbon provinces.
East Med potential
However, as the Shorouk Block is bordering Cyprus’ Blocks 10 and 11, such a huge discovery reinforces the potential for the presence of significant gas quantities in the East Med and in Cyprus EEZ. But to discover these, Cyprus needs to go back to exploration drilling. With Total’s and ENI’s commitment to do so not assured, Cyprus needs to consider, and carefully prepare the ground and timing, to go for a new licensing round. This, however, may now become the task of a new federal government.
Source: http://in-cyprus.com/enis-giant-discovery/
