Gas: Cyprus, Israel and Egypt
Israel has lost momentum in developing its gas as a result of the ongoing anti-trust investigation, Egypt is creating momentum by paying off its debt to the gas companies and through its hydrocarbon policies, and Cyprus is trying to create momentum amid challenges.
And yet what Israel and Egypt do influences greatly Cyprus strategy and opportunities, now in the limelight.
Anti-trust issues in Israel and implications
The latest news is that the Antitrust Authority director general Professor David Gilo will not make a decision on the Leviathan and Tamar gas fields until April, after the new government is formed. In fact it has been reported that a deadline of April 23 has been set for the sides to reach a deal.
Leviathan is one of the world’s largest offshore gas finds to be made in the last decade, with an estimated 622 billion cubic metres (bcm) of reserves.
Noble Energy and Delek own 85% of Leviathan and also control Tamar, a situation which Dr Gilo considers to be a monopoly. Production had been expected to begin in 2018 following a first phase investment of around $6.5 billion. Tamar was discovered in 2009 and started producing two years ago, with reserves estimated at 280bcm.
In the meanwhile, Noble Energy announced on February 20 reduced investment plans for 2015. Further investments in the expansion of Tamar, as well as the initial development of Leviathan, have been suspended until regulatory issues are resolved. There is no mention of any significant investment plans in Cyprus.
The CEO of Noble Energy, Mike Stover, confirmed that the company’s disputes with Israel’s antitrust regulators have forced Noble to stall most of its investments this year in the region.
However, the understanding now in Israel is that Netanyahu’s re-election will clear the way, including regulatory hurdles, to develop Leviathan, in recognition of its utmost national and geopolitical importance.
This was confirmed at the EMGC conference in Nicosia earlier this month where Noble said that it has made great progress with the Israeli government during the first half of March to create a framework to overcome persistent regulatory hurdles.
In the meanwhile, Egypt’s readiness to accept Israeli gas was confirmed on March 18, with the Tamar Project partners signing a contract with Dolphinus Holdings Ltd in Egypt for the export of a minimum of 5bcm gas during the next 3 years.
Developments in Egypt
Despite the fact that Egypt’s proven gas reserves are about 77tcf, Egypt is now importing LNG to cover the shortfall in its domestic energy needs. Two reasons are the low gas purchase prices and lack of payments to the gas producers, who as a result stopped developing new gas fields.
Since last year the government adopted more pro-active hydrocarbon policies and started paying off its debts. Egypt plans to repay its $3.1 billion debt to international energy companies operating in the country by mid-2016.
In addition, Egypt has now increased the purchase price of gas from $2.65 per mmBTU to a range $3.95-$4.88. These prices are substantially less than Egypt would most likely need to pay for imports of liquefied natural gas, including gas from Cyprus.
This new approach has been met positively by the IOCs who are making substantial investment commitments and increase gas production. ENI, BP, BG and Dana Gas have announced plans for major investments in new gas projects over the next 5 years.
In addition, Egypt signed multiple new exploration deals in recent weeks, which include ENI, BP, Shell and Total, and is planning another licensing round for offshore blocks soon. These deals demonstrate that Egypt’s energy policies are working, to the extent that the Egyptian Minister of Energy announced earlier this month that by 2020, Egypt would no longer need to import gas.
Egypt has two highly underutilised LNG plants, one at Idku with capacity of 7.2 million tonnes LNG per year, operated by BG, and the other at Damietta with capacity of 5 million tonnes, operated by Union Fenosa Gas, a joint venture between Spain’s Gas Natural and Italy’s ENI. Damietta is idle, but Idku is used partly and currently receives gas for three to four days every month, enough to keep running.
An MoU was signed in 2014 between the Leviathan gas field partners and BG to supply 7bcm annually for 15 years via an underwater pipeline for liquefaction at BG’s Idku LNG plant.
This is equivalent of just over 70% of the plant’s capacity.
BG is also in discussions with BP to obtain gas annually from BP’s nearby North Alexandria gas field, expected to come on stream in 2017. This would utilise most of the remaining capacity of the Idku LNG plant.
In addition, the partners in Israel’s Tamar gas field signed a letter of intent to export up to 4.7bcm gas annually for 15 years to the Damietta LNG plant in Egypt operated by Union Fenosa. This, again, is close to 70% of the plant’s capacity.
Even though Egypt is willing to approve these potential deals, the potential delays in the development of Leviathan have led Egypt to explore alternative possibilities such as importing natural gas from Cyprus.
Impact on Cyprus
Egypt and Cyprus recently signed an MoU launching talks over the possibility of an energy cooperation that would involve gas from Aphrodite exported by pipeline for liquefaction at Egypt’s two partly used LNG plants at Idku and Damietta.
This would be a good outcome for Cyprus, but it is not without risks. If the deals with Leviathan, Tamar and BP are successful, there may not be sufficient capacity left to also take Aphrodite gas. In addition, due to a glut of LNG expected to last for the rest of this decade, global gas prices have fallen to very low levels, with LNG delivered to Europe and Asia at about $7 per mmBTU.
This may make such a project uneconomical at least for the time being. The cost, excluding profits, of transporting Aphrodite gas to Idku, liquefying it, shipping to Europe and regasifying it may be of the order of $11 per mmBTU. And it may be some time before global gas prices go up. Selling gas to Egypt for domestic use, if that was commercially possible, would be for a limited period to 2020, by which time Egypt expects to become self-sufficient.
This will not help development of Aphrodite which needs to sell all of its reserves to attract project finance.
Noble is expected to formally present its Development Plan for Aphrodite to Cyprus’ government and declare commerciality by next month, just in time before the expiration of the extension to its contract. Even though the preferred option is export of gas to Egypt, Noble will not exclude other export options.
Given the above, this would be wise. Other options include export to Europe, and particularly to Southeast Europe, and should be seriously considered in the development of Aphrodite.
By Charles Ellinas
Source: http://in-cyprus.com/gas-cyprus-israel-and-egypt/
