By ADRIENNE BLUME
Managing Editor
NICOSIA, Cyprus -- During the Day 1 lunch presentation at EMGC 2015, Bill R. Alashqar, Managing Director of US Independents for GE Oil & Gas, shared his perspective on the power of networks globally and in the US. The "age of gas" outlook is not a foregone conclusion, although many complex pieces still need to fall into place, Alashqar said. "There is a strong need for more flexible global networks."
Global gas consumption is at 3,500 Bcm, which is 70% of the size of the oil market, Alashqar said. According to GE's global outlook, the gas market will grow to 4,800 Bcm by 2025.
"Natural gas could achieve a 28% share of global energy consumption. If we reach that, it will be slightly larger than combined share of coal and oil by 2035," the Director noted. Today's global gas supply comes 70% from conventional sources and approximately 14% from unconventional sources, although the proportion of unconventional sources is expected to increase to 20% by 2025, with shale output from the US and Canada.
Gas trade is dominated by pipeline transportation, with 89%, while LNG accounts for 10%, and the rest is delivered by truck. "Today, the leading country exporting natural gas is Qatar. By 2020, however, we think this will change, and Australia could take the lead," Alashqar said. Japan, meanwhile, remains the largest importer of gas.
"Why do we think gas consumption will increase by one third?" the Director asked.
Projects in Angola, Nigeria, Australia and, eventually, Mozambique will contribute to the increased trade of gas on a global level.
"Infrastructure networks are expanding around the world, there's shale gas in the US and Canada, and also
technology and innovation all contributing to energy resilience," Alashqar asserted.
The Director concluded his talk with a call to the industry to work together to improve economics and supply security to attract investments in different countries. Market structures must be in place to entice new investors to come in and spend money. Tax credits are also helpful, as is public education and attracting more people to work in the industry.
"There is a need to step up and enforce the public outreach, as well as education and training," Alashqar concluded.
Reducing costs for late-life assets. After lunch, Session 3 kicked off with a presentation on upstream asset optimization from Dr. Johannes Wiik, Partner at Deloitte. Dr. Wiik shared lessons learned from mature offshore regions and late-life assets. He also discussed asset optimization post-production.
At present, there is heavy focus on reducing OPEX and CAPEX, and on working with operators to achieve cost improvements. For late-life assets, companies must focus on the physical asset first, and then build core functions around it.
The optimum business model for late-life assets is dependent on several layers.
Sustainability and time sensitivity are key. If it is possible to lower the asset's cost base, then optimization and production can come later. In this way, OPEX can be sustainably reduced by 20%–50%.
Dr. Wiik named four areas for improvement: effectiveness, efficiency, contract and pricing models, and delivery models. "A key question to ask is: What is really benefiting your production, and what is the cost?" he noted.
People tend to work in silos, but by working across functions, engineers can better share and understand information to keep equipment running smoothly and sustainably.
On the CAPEX side, secondary targets can be examined if a well breaks down. Well CAPEX can be reduced by implementing drilling efficiency, rather than reevaluating the entire cost base, Dr. Wiik said.
Offshore safety and the Eastern Med. Next, Elfride Covarrubias Villegas, Business Development Manager for Italy and the Mediterranean for DNV GL Oil & Gas, discussed the potential impacts of the new EU offshore safety directive on the Eastern Med.
EU safety regulations for offshore oil platforms are needed because, as Villegas said, "Offshore accidents do not know boundaries." A serious accident on the level of the Deepwater Horizon oil spill would cause many problems for EU member states.
Stakeholder concerns and a slew of major well blowouts and gas leaks in the past decade have led to a loss of confidence in the industry, Villegas said. The EU offshore safety directive aims for the consistent implementation of best practices across all EU jurisdictions, the strengthening of EU response preparedness, and the increased independent verification of wells.
Overcoming regulatory hurdles. Session 4 delved into regulatory and legal matters, starting with a presentation from Gina Cohen (pictured at left, with panel at right), a prominent gas consultant for the Eastern Med, on Israel's upstream and downstream regulations. To achieve a sustainable and balanced regional gas market, Cohen recommends clearing up regulatory uncertainty and creating an investor-friendly climate.
There will be further play between Israel, Cyprus and Egypt with the recent signing of the MOU between Cyprus and Egypt for cooperation in oil and gas. At present, Egypt is the only anchor partner for Israel and Cyprus, Cohen said. What is happening on the regulatory front will have a strong impact on regional gas trade going forward.
Regulatory stability is important, but the Israeli antitrust commission, electricity regulators, and other entities are pressuring the Israeli government to make changes before the market is further developed.
Egypt is moving away from production-sharing contract to concession contracts. It is also moving toward less price regulation and less interference on how countries can sell gas into the country, Cohen said. Although John Burley from BG Egypt believes there is room for both Cyprus and Israeli gas in Egypt, Cohen does not believe this to be the case. She acknowledged that Israel hopes to reach the Egyptian gas market first, as does Cyprus.
Regulators need to address how much gas should go to the local market and how much gas should be exported. It is not legitimate for regulators to interfere with gas contracts or splitting up companies, as this will reduce market growth over the long term, Cohen asserted.
Constant changes in Israeli energy regulations and the structure of the energy industry have interfered with the ability to carry out business deals. Government administrations and organizations have initiated export controls, higher taxes, monopoly breakups and price controls, all of which have complicated the regulatory scenario, Cohen noted.
Under this complicated and muddled regulatory scenario, the only other company aside from Noble Energy that will come into Israel to develop gas will be one with a political agenda, rather than a business agenda, Cohen opined.
"Noble Energy, quite smartly, is saying that they are freezing investments in Israel until all of these issues are resolved," Cohen stated. To keep Israel in the gas game, issues that must be addressed in the near future include export taxes, export permits and price controls.
Call for regulatory cooperation. Closing out Day 1 of EMGC 2015, a panel discussion examined regulatory and legal issues for the entire Eastern Med. The panelists included moderator Cleopatra Kitti, Founder of KappaPhi; Antonis Paschalides, Senior Partner and the Head of the Energy Law Department at Antonis Paschalides & Co. LLC; Dr. Christodoulos Pelaghias, Managing Partner at Pelaghias LLC; and Etai Rappel, Director of Infrastructure Finance Ratings for Standard & Poor's Maalot.
Paschalides spoke about the implications on regional cooperation caused by national regulatory and legal issues. The failure to address these concerns will lead to the failure of the industry, he said. A balance is needed between public and private industry.
"It is not a crime for companies to make good profits, but it is also not a crime for countries to profit from their resources," Paschalides said. If companies and governments fail to reach agreement, then regional cooperation will fall apart, and Noble and Delek will need to sell off some assets to avoid being categorized as monopolies, he noted.
Pelaghias then spoke about the possibility of creating a regional cooperation council, which he dubbed the Eastern Mediterranean Energy Cooperation Council (EMECC). The EMECC could promote government-to-government dialogue and cooperation in energy matters; ensure the existence of a competitive and functioning petroleum industry; ensure that quality, health, safety, security and
environmental laws are upheld in a socially responsible manner; and promote sustainable growth, security and prosperity in the region.
The proposed EMECC could also help answer questions about the security of energy supply, regional security concerns, the development and
integration of regional energy infrastructure, energy efficiency and savings and other pressing concerns.
Closing out the panel discussion, Rappel talked about regulatory and legal frameworks from a country-risk assessment methodology. Of utmost importance are transparency, predictability, clarity (of
policy and the way it is expressed) and consistency.
Infrastructure
construction and operation is a long-term endeavor, so sudden changes can lead to increased uncertainty and a change in investment appetites.
"It's important that if government administrations or individual regulators change, there will be a defined and long-term
policy that goes forward" to negotiate and resolve disputes with a win-win view, Rappel said.
Tax considerations for Cyprus energy sector. Pantelides (pictured) discussed the tax and value-added tax (VAT) aspects of doing business in Cyprus. He asserted that Cyprus is an interesting location from which to operate because it is part of the EU and is strategically located at the center of the developing Eastern Med energy industry. The country's legal system is based on the UK's legal system, and it contains one of the best tax systems in the EU, according to Pantelides.