Wednesday, December 14, 2016

The Future of East Med Gas? First Find It - EUROIL / LINKED IN

December 14, 2016
Gary Lakes, Energy Journalist

Slotting East Mediterranean natural gas into the international, and particularly, the European energy market has been a topic of debate since the beginning of this decade. Starting with the discovery of the giant Leviathan field in the Israeli offshore in late 2010 and encouraged further by the discovery of the smaller Aphrodite field offshore Cyprus, the monetization of East Med gas is a subject that has swung to and fro throughout a series of events over the course of the last six years.

LNG, FLNG, pipelines, partners, best markets, pricing, current demand, future demand, competition, costs, energy security, geopolitics, domestic politics and other factors have been tossed into the discussion over how the new frontier in the East Mediterranean might establish itself as a key energy hub and create wealth for the region.

It is a debate that has been long and drawn out and at times pedantic, and which until recently had slipped into limbo as Israel wrestled with regulatory issues, and as exploration drilling came to a standstill in both Israel and Cyprus. Egypt and Lebanon are characters in the East Med drama too, but as Cairo strained to meet pressing energy demand, Egypt became a gas importer in 2015 and Lebanon’s 2013 plans to launch an offshore exploration program languished in the quagmire of domestic politics.

That changed with the discovery by Eni of the giant Zohr field in Egypt’s deep water Shorouk Block in August 2015. Just a few kilometers from the Cypriot maritime border, Zohr caught the imagination of the whole region. Zohr, at 30 trillion cubic feet, is the fourth largest gas field ever discovered and it was found in a geologic stratum – a carbonite build-up – that was considered to be high risk.

But Zohr was a discovery whose time had come and it signals that 2017 could mark the year that East Med gas finally makes progress.

Having solved its regulatory problems, Israel recently tendered 24 blocks for hydrocarbon exploration. While there is bound to be more pulling of hair and gnashing of teeth to come, Israel will award new exploration licenses during 2017 and seismic work will likely begin before the end of next year.

For its part, Lebanon found itself a new president and is working on the formation of a government that will put its licensing round back in motion.

France’s Total will drill in Cyprus Block 11, which is adjacent to Egypt’s Shorouk Block, during the first half of 2017 – if it can find a port on the island to use as a logistics base. Cyprus will in late 2016 or early 2017 award three blocks that were tendered earlier this year as a result of the Zohr discovery. Eni plans to return to the Cyprus offshore during the second half of 2017 to resume a drilling program in Blocks 2, 3 and 9 that was suspended in 2014 after drilling two dry holes in Block 9. The Italian major has bid on all three of the tendered Cyprus blocks, signifying its interest in the island’s resource prospects. Total has partnered with Eni in bidding on two of the Cyprus blocks.

Houston’s Noble Energy and its Israeli partners will make a final investment decision on developing phase one of Leviathan based on contracts to ship gas to Jordan and to some Israeli firms. There might also be a deal arranged between Israel and Turkey to someday send gas to Turkey, but a greater possibility lies with the option of a commercial agreement to transport gas by pipeline to Egypt, where it would be processed and exported at the Shell-operated LNG plant at Idku.

Cyprus, too, is hoping to arrange a commercial agreement to send Aphrodite gas to Idku. Noble, operator of Aphrodite and nearby Leviathan, is rumored to have a plan to send Leviathan gas to Egypt via a facility that will be positioned over the Cypriot resource. There is a likely chance of such a deal happening as Shell holds a 35% share in the Aphrodite field. And while there will be no advance with the East Med Gas Pipeline project – which proposes to transport the region’s gas to mainland Greece via a 16 bcm/year capacity, 1,800 kilometer pipeline – it will continue to make its presence known, but its viability depends on the quantity of gas that has yet to be discovered in the East Med.

That is the point. Until now, East Med gas for export consists of the 22 tcf Leviathan field and the 4.5 tcf Aphrodite field. Serious exploration has yet to happen in most of the East Mediterranean although 122 tcf of gas is estimated to exist in the Levant Basin by the USGS. While Noble has drilled numerous wells in the Israeli offshore and made important discoveries, it is barred from taking part in the new licensing round. Only four wells have been drilled in Cyprus and only one of those was a discovery well (Aphrodite). The best thing that can happen for Israel, Cyprus – and Lebanon – in the coming year is for drilling to begin in earnest in their respective exclusives economic zones (EEZs).

Speaking last week at an energy conference in Cyprus entitled ‘The Future of Eastern Mediterranean Gas,’ Alessandro Barberis, Managing Director of Eni Cyprus Ltd, made a rare and practical suggestion: “Let’s first find the gas, see how much we have found, discuss the commercial terms and see if they are viable or not.”

Eni did not achieve the status of the energy company that it has today by being irrational.

“One thing to consider is a phased approach,” Barberis told the gathering on Nicosia’s Green Line. “Because if Cyprus after the next drilling campaign should have a total of 20-30 tcf, some of the discussions taking place today may no longer be valid. This is the approach that oil companies have, otherwise there would be no reason to invest at all.”

Barberis said the development of the East Mediterranean would evolve according to the amount of resources that are discovered. “If we find a lot, an LNG plant in Cyprus would be viable, and from there we can take the routes we want. If we find a few ‘tcfs’ there are other solutions: it can go to Egypt, through the Zohr platform and save a lot of money on building a 200-kilometer pipeline. If we find more fields, there could be a synergy from fields linked together that can reach a threshold that can drive your final choice.”

Eni is keen to get back to drilling in the Cyprus offshore, Barberis said, because a lot will depend on what happens in the Cyprus offshore. “If Cyprus finds gas in its own EEZ, the game will change quite a lot,” he said. “That is why we have to run and deliver results as soon as possible – this is the momentum. You have to disclose to all the involved parties how much gas there is to talk about and how much this gas can contribute to the East Med area.”

Barberis said he is glad that Total will soon drill in Cyprus Block 11 because it is near Zohr and the well will tell if the geological play at Zohr is working in Cypriot waters. “This will be a great message for all the other future drillings that are planned for the area,” he said.

Eni plans to produce 2.7 billion cubic feet per day at Zohr by 2019 and is trying to keep its capital investment below $12 billion, he said. It is also looking to the LNG plant at Damietta, in which it holds a 40% stake, as a means of sending gas to European markets. And he disagreed with analysts who said it would be uneconomic to send Cypriot gas to Egypt. “I’m not so sure,” he said.

Eni was awarded Blocks 2, 3 and 9 in Cyprus’ second licensing round and Total holds the license to Block 11. The third round offered Blocks 6, 8 and 10. It will take at least until 2020 to conduct suitably proper explorations in those fields and perhaps longer to arrive at a monetization plan that will suit the East Med.

A version of this story has appeared in Europe Oil & Gas Monitor (Euroil), published by NewsBase.