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Building on Egypt’s hydrocarbon push, BP has announced its intent to begin output in early 2017 at its Alexandria concession, putting it ahead of schedule, offering some momentum to the country’s wide-ranging energy push.
According to media reports, the British company announced that the offshore concession will produce about 450 million cubic feet per day when it begins to produce in 2017, reaching 1.2 billion cubic feet per day by the end of 2019.
The BP news comes on the heels of a burst of positive energy news for Egypt after several years of industry struggles. In recent years, Egypt has faced substantial challenges to meeting its energy needs as political and financial instability have threatened local production and made it difficult to afford costly imports without accruing large foreign debts. While small discoveries have provided Cairo with some momentum towards attracting the interest and investment necessary to move towards its energy goals, significant discoveries have allowed a burst of confidence about the country’s energy environment and ability to overcome any doubt among potential investors.
Chief among these was the discovery of a “super giant” field by Eni earlier this year that could be home to up to 30 trillion cubic feet of natural gas, making it the biggest field in the Mediterranean, according to a Bloomberg report. The discovery spurred ENI CEO Claudio Descalzi to suggest its development could transform Egypt in the years ahead. According to a Bloomberg report, the successful development of the field could help Cairo meet its domestic demand first before considering entering the export market.
In addition to addressing the country’s domestic demand, the discoveries have boosted the country’s chance of establishing itself as a leading energy player in the Eastern Mediterranean region. If successful, the discoveries could put Egypt on par with Israel and Cyprus, who have made the most progress in recent years towards developing a new-found access to offshore discoveries in the region.
The Prime Minister of Israel Netanyahu and the Infrastructure and Energy Minister Steinitz met in Jerusalem Eni’s CEO, Claudio Descalzi. During the meeting, Eni’s CEO illustrated the importance of synergies resulting from a joint potential development of natural gas in the Easter Mediterranean by sharing future resources as well as export and transportation infrastructures of Israel, Cyprus and Egypt.
Steinitz, along with ministry director-general Shaul Meridor, met with Eni CEO Claudio Descalzi, to discuss various opportunities available in the Israeli gas sector.
Energy and Water Minister Yuval Steinitz and Eni CEO Claudio Descalzi meeting Thursday at the Energy Ministry in Jerusalem. (photo credit:COURTESY NATIONAL INFRASTRUCTURES, ENERGY AND WATER MINISTERY)
In a meeting with the CEO of Italian energy giant Eni in Jerusalem on Thursday, National Infrastructure, Energy and Water Minister Yuval Steinitz suggested that the firm consider investing in two yet-to-be-developed Israeli gas reservoirs, Karish and Tanin.
Steinitz, along with ministry director-general Shaul Meridor, met with Eni CEO Claudio Descalzi, to discuss various opportunities available in the Israeli gas sector. While encouraging the Italian company to think about investing in Karish and Tanin, the minister also encouraged the firm to weigh the idea of exploring for new reservoirs in Israel's economic waters, his office said.
Assuming Israel's disputed natural gas outline – a long negotiated settlement between the government and the country's gas companies – is implemented, the Delek Group and Noble Energy will be required to sell the Karish and Tanin reservoirs to a third party.
While Eni is not yet involved in the Israeli gas sector, the company is no stranger to Eastern Mediterranean hydrocarbons.
Last month, the Italian firm announced that it had identified the Mediterranean’s largest known gas field off the Egyptian coast, the 849-billion-cubic-meter) Zohr field. If the estimates prove correct, the field would be significantly larger than the approximately 621 b.cu.m. Leviathan, Israel’s biggest.
During an exclusive interview with The Jerusalem Post on Monday, Steinitz suggested that the upcoming Eni visit might be “further testimony that international energy companies are interested in Israel” as part of their overall interest in the eastern Mediterranean basin.
“It’s quite clear that there might be very close cooperation between Israel, Egypt, Cyprus, Jordan and, maybe also in the future, Greece and Turkey,” he said. “If you want to be part of it, you have to be involved also somehow in Israel.”
At Thursday's meeting, Meridor delivered a presentation for Eni company executives indicating the estimated potential for discovery of large natural gas fields in Israel's economic waters, as well as the advantages of regional cooperation, the Energy Ministry said. The meeting participants discussed the regional gas markets, as well as possibilities to connect gas discoveries in Israel, Egypt and Cyprus, for potential joint export to the Western European market, the ministry added.
Last week, as reported by Natural Gas Europe, an Israeli commentator indicated that Russian President Vladimir Putin is interested in Gazprom taking part in the Leviathan gas project. Gazprom had previously signed an MOU with the Tamar partners however this never materialized. Following the recent deployment of Russian fighter jets in Syria however, Russian forces are now much closer to Israeli borders as well as to its strategic energy facilities. As more than 50% of Israel's power generation is based on natural gas from only one field, Tamar, and neither strategic gas storage nor LNG terminals are available, Israel's energy security is severely compromised. It is no wonder that Israeli Energy Minister Yuval Steinitz said a few weeks ago that if one of those facilities were to stop operations due to technical malfunctions, natural disaster or terrorist attack, Israel would suffer from acute power shortages and power outages that could continue for weeks, possibly even months. It is because of this Mr. Putin's assurances to the Israeli PM that if Gazprom were to be a partner in the Leviathan field, he would be able to stop extremist groups from attacking Israeli natural gas infrastructure, since "no one messes with us," could be interpreted as a threat.
Oded Eran is a Senior Researcher at the Institute for National Security Studies (INSS) in Tel Aviv, specializing in energy and water among other subjects. He is also the former Israeli Ambassador to Jordan and the EU. In light of Russia's new stance, Natural Gas Europe spoke with Mr. Eran.
NGE: How do we have to treat Mr. Putin's new initiative to involve Gazprom in the Israeli natural gas industry?
OE: One mustn’t accept this as a threat. I don’t think it sounds as a threat. It is a Russian attempt to say that beyond the economic interest we can add another positive consideration. However from clear strategic circumstances Israel shouldn’t consider that proposal. The interest of the Russians in [Israeli] gas is well known. I think that Israel's response to the proposal to secure Israeli gas facilities should be "no, thank you, we'll manage ourselves." I would make a distinction between Putin's proposal that if it would be accepted, will entangle us with the Americans and Europeans, and therefore, to say the least, will not be accepted. However if Israel will not have other options [to develop its natural gas assets] it will have to consider an engagement with a Russian entity for the development of Leviathan.
NGE: How does Russian involvement in the Syrian civil war affect the Middle Eastern natural gas industry?
OE: At the moment I don’t see direct influence. Syria isn’t an influential player neither in the development of the Israeli natural gas industry nor in regional cooperation. The Russians are still interested in the Israeli gas, however, more from geo-strategic [reasons] than from the economic perspective. I also don’t see the direct linkage to Russian-American interests.
NGE: What are the current export options faced by Delek Group and Noble Energy?
OE: Gas prices are Brent linked. Although oil prices fell I don’t rule out the possibility that they will recover. However current price levels and continuation in prices fall, decrease the capability of developing Israeli gas assets, because the infrastructure is quite expensive. Therefore the realistic options are either a commitment by the government to increase local consumption or building less expensive export infrastructure, i.e export through a pipeline. Therefore the options range is narrowed to big consumers as Egypt and Turkey.
NGE: What are the prospects of exporting Israeli gas to Turkey?
OE: The economic potential it there, however besides it there is a political risk that has been exacerbated since Turkey changed its policy towards Israel in 2009. That change was accelerated following the Mavi Marmara incident in May 2010 (an incident in which Israeli commandos intercepted and took control over a Turkish boat, the Mavi Marmara, which tried to break the Israeli blockade of the Gaza Strip. About 10 Turkish citizens lost their lives in the incident and the issues stemming from that incident were never resolved between the two sides). Therefore the economic potential is there, and the political problem can be overcome by [issuing] a political risk insurance. In light of the discovery of Zohr field in Egyptian economic waters the significance of the Turkish customer [for Israeli gas] increases.
NGE: That is a threat to Russian gas export to Turkey, and militarily Russia is now closer than ever to the Israeli gas fields and the pipeline path to Turkey.
OE: Export to Turkey is not directly linked to the situation in Syria. That is linked to the problem the Leviathan consortium is facing: what are the export markets available to them. There was an Egyptian option as a buyer, for local Egyptian consumption, however that option has now shortened following the latest [natural gas] discoveries in Egyptian economic waters. Egypt still needs a transition period [till the discoveries will be operational], however Leviathan field is yet to be developed and therefore the length of time Egypt will need gas supply from external sources is shortened further.
Turkey then remains the biggest regional consumer with economic viability as export market for Israeli gas even considering huge investments in infrastructure. Therefore the Turkish customer is a standalone [customer]. Turkey's purchase of Israeli gas depends on its willingness to decrease its dependence upon Russian gas, diversify its gas sources and add more gas suppliers. Therefore there is only very indirect implication to the Russian intervention in Syria.
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Cyprus Opportunity obtains 5% share in Israeli oil license
“We are looking ahead to a fruitful collaboration and the strengthening of strategic relations in energy between Israel and Cyprus,” says Cyprus Opportunity head.
C.O. Cyprus Opportunity Energy Public Company Ltd. has acquired a 5 percent share of the Hatrurim license near the Dead Sea, the company announced on Wednesday.
It marks the first time a Cypriot exploration firm has obtained part of a proven oil license in Israel.
Cyprus Opportunity joins Zerah Oil and Gas Exploration LP, which holds a 28.75% share of the license, Ginko Oil Exploration LP (28.75%), Israel Opportunity Energy Resources LP (25%), Ashtrom Group Ltd. (10%) and a company owned by Dr. Eliyahu Rosenberg (2.5%), who founded the firm Avner Oil Exploration, which is now owned by the Delek Group and involved in the Leviathan gas-reservoir exploration.
The Hatrurim license area, located in a region where the Delek Group found oil in 1995, covers approximately 94 square kilometers, the partners said. The exploration team, with a drilling plan led by Rosenberg, intends to reenter the existing Halamish well to diagonally drill to the projected center of the field, according to the group.
“We are proud to be the first company to obtain oil exploration rights at a proven field,” Cyprus Opportunity chairman Rony Halman said. “We are looking ahead to a fruitful collaboration and the strengthening of strategic relations in energy between Israel and Cyprus.”
The Italian energy company Eni knew it was taking a big risk this summer when it spent $60 million on an exploratory rig and began drilling more than 100 miles off the coast ofEgypt.
Eni’s gamble worked. The company, using drilling rights from the Egyptian government, found what it called a “supergiant” natural gas field. It may be the largest discovery yet in the Mediterranean and is one of the world’s biggest new gas finds in years.
Eni will need to drill more wells to prove its claim that the field, which it calls Zohr, holds up to 30 trillion cubic feet of gas. That could be worth about $100 billion, even when taking into account current low energy prices. But the promise of Zohr — the Arabic word for noon — is already brightening the prospects of the Egyptian economy, which has been benighted by an energy shortage and years of political turmoil.
As with so many things in the Middle East, however, the discovery of the gas field has geopolitical repercussions. And it has thrust Eni’s chief executive, Claudio Descalzi, into the role of shuttle diplomat.
Egypt’s becoming more energy-independent could sidetrack efforts — backed by the United States — to use energy diplomacy to improve relations between Israel and its Arab neighbors. Israel has its own ambitions for offshore natural gas, including a long-gestating plan to sell gas to Egypt.
Mr. Descalzi met recently with the Egyptian president, Abdel Fattah el-Sisi, to discuss next steps. And on Thursday, the Eni chief plans to visit Jerusalem in an effort to persuade the Israeli prime minister, Benjamin Netanyahu, that there are still opportunities for Egypt and Israel to jointly prosper by developing their gas fields.
Even before the Zohr discovery, Israeli officials had been divided over how to proceed on the gas front. And the government has been distracted lately by a wave of violence between Israelis and Palestinians.
But Mr. Descalzi says he envisions Israel and Egypt eventually collaborating, exporting gas to Europe and other parts of the world, perhaps in the form of transportable liquefied natural gas. He notes that nearby Cyprus, where another offshore gas field has been found, might be another candidate for a regional partnership.
The Zohr field “has created a big opportunity,” Mr. Descalzi said in a recent interview. “We can make a big eastern Mediterranean hub.”
In written answers to questions from The New York Times, the Egyptian minister of petroleum and mineral resources, Tarek el-Molla, outlined a similar vision. “Egypt is eligible to play a significant strategic role with regard to gas discoveries in the East Mediterranean region,” Mr. Molla wrote.
Not everyone shares that optimism. But the Egyptian economy could use the lift.
Egypt has a per-capita income of about $3,500 and is growing only about 3 percent a year. That is far too slow for the country to climb the development curve quickly enough to meet the needs of its 82 million people — and it is below the 5 percent growth rate achieved before the ouster of the country’s longtime ruler, Hosni Mubarak, in 2011.
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Claudio Descalzi, the chief executive of Eni, has been thrust into the role of shuttle diplomat after the discovery of the gas field in Egypt.CreditJacques Brinon/Associated Press
The Mubarak government, whatever its growth record, made Egypt an energy underachiever, even though the Nile Delta holds ample deposits of both oil and gas, which have long attracted foreign energy companies. While not an OPEC member, Egypt is a relatively significant producer of oil, extracting about 700,000 barrels a day — similar to Malaysia and Argentina.
But the Mubarak government’s efforts to appease the populace by keeping energy prices artificially low had an unintended drawback: It diminished market incentives for the foreign companies that extracted much of the oil and gas. The Egyptian government also tended to be slow to pay the companies, further damping their enthusiasm. That is why Egypt has had to import oil and gas in recent years to meet its needs.
The government of Mr. Sisi, who took power in 2013, has tried to fix that problem by raising domestic fuel prices and by cutting its back payments to oil companies by about half, to less than $3 billion. Earlier this year, the energy giant BP agreed to spend $12 billion to develop a large quantity of offshore gas for the Egyptian market. Now, the Eni discovery might stoke further interest in exploration, analysts say.
With a big new supply of natural gas, Egypt might be able to stop burning oil to generate electricity and start exporting the petroleum instead. New domestic supplies of natural gas would help conserve scarce foreign currency resources and might spur investment in gas-fired factories and electric power plants. And natural gas exports might follow.
“Egypt has undergone a remarkable transformation of fortunes — it looks like it has got its energy policy back on track,” said Martijn Murphy, an analyst at energy consultants Wood Mackenzie in Edinburgh.
But Egypt’s good fortune could come at the expense of its much richer neighbor. Eni’s trove could threaten Israel’s ambitions to tap its own giant offshore gas field, called Leviathan.
Israel is already self-sufficient in natural gas by dint of a smaller offshore field — Tamar, discovered in 2009 — that serves the country via pipeline. Noble Energy, an American company that operates Tamar for the Israeli government, discovered the bigger Leviathan field in Israeli waters in 2010. Leviathan has potential reserves far exceeding Israel’s own needs.
Encouraged by the Obama administration, Noble reached preliminary deals last year to export gas to both Egypt and Jordan, a move approved by Mr. Netanyahu as a way to earn money and strengthen ties with former enemies.
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A worker on a gas drilling platform in the Mediterranean Sea off the coast of Israel.CreditAhikam Seri/Agence France-Presse — Getty Images
Much of the Israeli gas for export would be converted to liquefied natural gas at two Egyptian facilities that are already in place on the Mediterranean coast. Those facilities have sat idle during Egypt’s domestic shortage. But Mr. Descalzi, whose company co-owns one of the installations, predicted that Egypt would be interested in using the terminals to export gas obtained from Israel, from the Zohr field or eventually from Cyprus, and to send the product by ship to Europe and beyond.
But negotiations to complete those deals have bogged down, in part because Israel’s antitrust commissioner has been blocking development of the Leviathan field over concerns about giving Noble too dominant a role in the country’s gas industry. Now some Israelis — including the country’s energy minister — have worried aloud that their country has hesitated too long. With Zohr, they fear, Egypt might no longer see a need for the Leviathan gas.
“If we continue to procrastinate,” Yuval Steinitz, the Israeli energy minister, told Parliament in September, “it is possible there will no longer be a need for Israeli gas in Egypt and Jordan.”
For months, Mr. Netanyahu has been working to clear the way for Noble and its partners from the Delek Group, an Israeli conglomerate, to develop Leviathan in return for concessions that would include a reduced stake in Tamar.
Israeli lawmakers approved the prime minister’s proposal by a nonbinding vote in September. But Mr. Netanyahu, who holds a one-seat majority in Parliament, has not yet succeeded in persuading the economy minister, Aryeh Deri, to push through the agreement.
Mr. Deri has said that he does not oppose the deal, but that he did not want to be the first Israeli economy minister to overrule an antitrust commissioner. To clear the way, Mr. Deri said in a television interview last weekend that he would be willing to resign.
Executives from Noble, impatient over the delays, have warned that they have the option of taking the Israeli government to international arbitration. “Noble Energy remains fully prepared, and is well positioned to take the actions necessary to protect the value of its assets,” Noble’s chairman, president and chief executive, David L. Stover, said in a statement last month.
Noble says that once the Israeli government signs off, the company could lock up agreements with customers like Jordan and Egypt, and might be able by the end of the decade to have gas flowing from Leviathan.
Analysts say there is still room for Israeli gas in Egypt’s plans. But participants in the talks on Israeli gas exports say that Egyptian officials, buoyed by the Eni discovery, might now take a tougher line.
Mr. Molla, the Egyptian minister, dismissed those concerns. “It is unlikely that the recently achieved Zohr discovery” would affect negotiations between international companies operating in Egypt and those producing gas in Israel, he wrote.
But Amit Mor, chief executive of Eco Energy, an Israeli consulting firm, said he worried that time might be passing Israel by. Unless the government moves quickly, he said, “we might lose an opportunity here.”
