Adrienne Blume
NICOSIA—Gulf Publishing Company's Eastern Mediterranean Gas Conference (EMGC) 2017, the world's primary event for discussing the forces shaping gas industry development in the Eastern Med, continued on March 15.
Dr. Ir. A. J. (Guus) Berkhout, founder and director of the Centre for Global Socio-Economic Change.
Forecasting prosperity to predict energy demand. Founder and Director of the Centre for Global Socio-Economic Change, Dr. Ir. A. J. (Guus) Berkhout started the day with a keynote address on energy's role in economic development in Eastern Med countries.
Dr. Berkhout started off by asking the audience, "What do you think if aliens came to planet earth? What would they say? Would they say we have a problem, or a challenge?" He then went on to enumerate on the segments of the world's population which do not have access to energy and clean water.
Dr. Berkhout outlined three key messages:
- The energy industry is a strategic partner in the realization of prosperity ambitions. Supply and demand is a circular energy-prosperity system. Demand feeds energy production, which feeds prosperity creation.
- Big data technology looks at systems and asks how they behave, conducts as many relevant measurements as possible to discover patterns in this behavior and constructs models based on this data.
- Whatever the energy industry does, be sure to respect the natural environment, or the world will turn against you.
Around 1800, a global population explosion led to an income explosion during the "age of enlightenment." Health care began to flourish. The energy curve is correlated with these expansions. Initially, the energy demands of this population expansion were covered by coal. In the early 1900s, however, oil and gas began to take over.
Dr. Berkhout then posed the question: "Despite criticism of fossil fuels, why do they remain so popular?" The answer, he said, is energy density. The energy value of oil is far greater than that of coal, nuclear power, solar panels and other forms of energy.
However, Dr. Berkhout speculated that if it were possible to push coal out of the energy mix and replace it with gas—which major companies are already realizing is an attractive choice because of environmental concerns—then the gas market would expand considerably. "The big winner is gas," he asserted.
Energy choices are driven by global prosperity, which varies widely by country and region. Annual GDP can be used to divide countries into various "clusters," or levels of prosperity and energy consumption.
"Prosperity is key to understanding the energy market," Dr. Berkhout said. "If you do forecasting about prosperity, then you have a way to understand the future demands of the energy market. What happens in rich clusters is totally different than what happens in poor clusters. More prosperity means more energy consumption."
"We think that the amount of energy needed in 2050 is at least double [what it is today]," Dr. Berkhout said. "Fossil fuels will be able to fulfill that need. It's our challenge to push the coal out of the mix."
He also shared several scenarios for prosperity forecasting in India, Nigeria and China, showing how their growing economic prosperity—or lack thereof—can be used to predict their future energy needs.
"Whatever is going to happen, the oil and gas companies must transform themselves into energy companies that sell energy mixes to the world. Not only oil and gas, but the total energy mix," Dr. Berkhout said.
Eye on Cyprus: Doing business on an island nation. George Pantelides, Partner and Head of Consulting Services at Deloitte, next offered strategies for overcoming the challenges of operating in Cyprus.
"One of the specific challenges that the oil and gas sector is facing, and one of the potential risks, is compliance with government regulations within regulatory frameworks," Mr. Pantelides said. "There are various gray areas in these frameworks."
"Also, the public perception of the industry is important. Public policies and regulatory frameworks have been affected by public expectations, and the expectation for oil and gas companies to commit to environmental care and contribute to the public standard of living."
Insufficient supply of qualified candidates is another challenge for the oil and gas industry. Financing and capital effectiveness are also concerns, especially with regard to the standard of operations and investment demands of the oil and gas sector.
Mr. Pantelides then discussed how the Cypriot government has created a dream of industrial prosperity and expansion on the island nation. "The local community has huge expectations because of the dream that was communicated to them," he said. "There is an interest by both the government officials and the local community to create an energy hub to support the upcoming activities."
However, Cyprus faces a number of challenges in its industrial expansion that it must "handle effectively" to meet government and public expectations. These challenges include evolving fiscal frameworks; a labor market that is well-educated, but characterized by lingering knowledge gaps in specific areas; insider threats; and the lack of a designated port for servicing the oil and gas industry.
The Cypriot government must establish integrated learning solutions and talent strategies for attracting, selecting and acquiring top energy industry talent, Mr. Pantelides said.
However, among Cyprus' advantages as a potential energy hub, the consulting head named the country's strategic geographic location; stable and reputable political and legal system; developed academic system; strong EU and Eurozone membership; advantageous legal and tax frameworks; and excellent business infrastructure and environment.
"I believe Cyprus is heading in the right direction," Mr. Pantelides said.
Boosting regional gas trade. The fourth session of EMGC 2017 focused on accelerating efforts to ramp up gas trade in the Eastern Med. Charles Ellinas, Chief Executive Officer of E-C Natural Hydrocarbons Co. Ltd., first spoke about the impact of global markets and prices on the Eastern Med.
"In the last two days, we've heard a lot about hope and optimism for the energy industry in the region," Mr. Ellinas said. "I would like to concentrate on realism." He touted Mr. Pantelides for outlining many of the challenges Cyprus faces in developing its energy sector.
"Gas cannot be developed unless it is sold," Mr. Ellinas stressed. "Before this resource can be produced, it needs to find buyers."
He noted that a gas glut in global markets is leading to low prices. Based on market research and data by major oil and gas players, such as BP, Mr. Ellinas believes that the world will face a long-term oil and gas glut. "This will mean sustained low prices," he said.
However, the CEO noted that gas is expected to overtake coal by 2030, with two-thirds of the supply increase coming from shale. LNG supplies are also expected to grow rapidly, accounting for roughly half of global gas trade by 2035.
Examining regional markets, Mr. Ellinas noted that Egypt expects to become self-sufficient in gas demand by 2019 and begin gas exports by 2020. A new major gas discovery onshore in the Nile Delta, with an estimated 15 Tcf–30 Tcf, is expected to be announced soon. More gas will likely be discovered in eni's Zohr field. Also, 12 new projects are in the works to deliver an additional 55 Bcmy–65 Bcmy of Egyptian gas by 2019.
With regard to the Turkish market, Mr. Ellinas noted that the country's energy mix and strategy have changed. It is boosting its use of coal/lignite, renewables, nuclear and LNG, but its overall dependence on gas is dropping. So far in 2017, Turkey's gas demand has fallen by 46 Bcm.
Turkey also has aspirations of becoming a major gas hub, but Mr. Ellinas does not believe this will happen. "You must have gas coming in and coming out," he said, adding that Turkey is unlikely to be able to achieve gas production and exports on a large scale.
In Europe, overall gas demand has decreased by 20% from 10 years ago. "It may have peaked already," Mr. Ellinas said. The CEO cited cheap coal and subsidized renewable energies for the drop in gas consumption. However, he noted that the depletion of indigenous resources in Europe will lead to greater import demand.
To this end, Russian gas deliveries to Europe are increasing due to low prices. US LNG has tried to infiltrate the European market, but has met with little success. As a result, some gas fields that could be developed to cater to European demand may not be utilized due to demand uncertainty and stagnancy, which could leave these reserves stranded, Mr. Ellinas said.
In conclusion, the CEO noted that the Eastern Med region is volatile, and that developing and exporting gas reserves is a challenge. FLNG may become a viable option for gas exports to Europe and Asian markets, however, particularly if Total is successful in drilling Cyprus' block 11 this summer.
Dr. Ellinas also noted that Eastern Med gas dynamics are changing quickly, as global markets and prices are undergoing long-term structural shifts. "The region must plan with realism and pragmatism," he asserted.
Eastern Med supplies to Europe. Senior Economic Officer at Cyprus' Ministry of Finance, Panayiotis Tilliros, briefly discussed the role of regional gas supplies in meeting European energy demand.
He noted that several geopolitical rivalries are ongoing around the world with respect to energy trading routes, which will shape gas trade into the future.
Europe's gas supply comes mainly from Russia, Africa, the Middle East and indigenous supplies. However, Eastern Med gas supplies can provide a "fifth corridor" for gas supply to the EU, the economist noted.
Options for gas ownership and export. Gina Cohen, Gas Consultant on the Eastern Mediterranean and one of EMGC's liveliest speakers at past conferences, next shared her perspective on energizing regional economic, business and political relationships.
Around the world, diverging views exist about what is happening with supply and demand. Ms. Cohen noted that Shell recently announced that it does not believe the world has too much LNG supply, and that any shipments that cannot find homes will end up in Europe.
On the other end of the spectrum, Vitol believes that a large glut of LNG supply exists. These polarized viewpoints may be due to the companies' differing business models, she noted.
Both Israel and Cyprus' domestic markets are too small to absorb their gas reserves, so they will require export markets. Turkey and Egypt face a different scenario, as both are net importers. Discovering and producing gas in the Eastern Med is only the first hurdle; how to monetize, distribute and cooperate regionally to utilize these resources are more complicated issues, Ms. Cohen said.
In Israel, there has been much debate about how to use the gas (domestically or for export) and how to price it. The country's Leviathan development, operated by Noble Energy, may ultimately "cannibalize" some of the Tamar field's contracts as it advances amid lower development costs, Ms. Cohen noted.
Leviathan's second development phase will send exports to either Egypt or Jordan—"whichever country signs a contract first."
Ms. Cohen also said that she does not believe the EastMed pipeline to Italy is financially viable, particularly with an approximate estimated cost of €5 B.
However, a proposed new pipeline through Turkey could span roughly 600 km and deliver 800 Mscfd–1,000 Mscfd of gas to the European market during its first phase. A second phase would see another 1,000 Mscfd of gas exports.
Israel is working to launch a third licensing round for its gas reserves, after several postponements. Ms. Cohen believes the delays were due to a lack of proposals. "We'll see, come July, how many proposals there are," she said.
The consultant also outlined several options for the monetization of Eastern Med gas reserves. One option is that countries keep their gas for their own use.
"Another option is that this gas can be used to help cement regional ties," Ms. Cohen said.
Or, gas reserves can lead to further regional conflict. "We could all be fighting and keeping the gas in the ground, and not achieving anything. Hopefully the companies and governments are mature enough to work together and use this gas to help cement regional ties," she said.
The future of the Eastern Med. Concluding the 2017 EMGC, Gerald Butt, Senior Correspondent for the Middle East for Petroleum Economist, interviewed CEO Charles Ellinas of E-C Natural Hydrocarbons Co. Ltd. on reinforcing efforts to resolve conflict and promote cooperation in the Eastern Med.
Mr. Butt posed the question: "If all of the region's geopolitical problems were swept away, what would that mean in terms of getting gas to market?"
"I'm not so sure it would have much of an effect," Mr. Ellinas answered. "It has been very difficult to find markets for the Aphrodite field, for example." He also noted that some companies have technological constraints, and a few unsuccessful wells have been drilled.
Mr. Butt then asked, "What would lead to ideal cooperation in the Eastern Med?"
Mr. Ellinas named agreed-upon Exclusive Economic Zones (EEZs) in every country as the main factor that would encourage cooperation. "The oil companies are quite capable of finding gas and oil fields and selling everything. The establishment [of EEZs] is the one thing that would help [regional cooperation]." It would also aid in potential disputes over pipeline construction and routing, the CEO noted.
Mr. Ellinas also said that he believes many are too optimistic about Eastern Med gas development, primarily in Cyprus.
"We need to have dreams, but we also need to be realists. If we are not realists, then we concentrate on things that are false, and we have wasted our time and missed our opportunities," Mr. Ellinas said. "But we must support the foreign companies working and exploring here, and watch what happens with their developments."
EMGC 2018 will be held in March of next year in Nicosia, Cyprus. For more coverage from EMGC 2017, please visit GasProcessingNews.com, HydrocarbonProcessing.com, and WorldOil.com.
Blume, Adrienne, Editor, Gas Processing and Executive Editor, Hydrocarbon Processing
