Charles Ellinas
Interest in the East Med has increased during the last ten years with the discovery of major gas fields such as Tamar, Leviathan and more recently the giant Zohr field in Egypt. These have opened up major opportunities for new discoveries, but also for oil and gas investments in the region.
This was confirmed at Gastech 2018 in Barcelona, the world’s largest gas conference, by Lapo Pistelli, head of international affairs at ENI, Walid Nasr, the chairman of the Lebanese Petroleum Authority (LPA) and myself.
Interest in the East Med has increased during the last ten years with the discovery of major gas fields such as Tamar, Leviathan and more recently the giant Zohr field in Egypt. These have opened up major opportunities for new discoveries, but also for oil and gas investments in the region.
This was confirmed at Gastech 2018 in Barcelona, the world’s largest gas conference, by Lapo Pistelli, head of international affairs at ENI, Walid Nasr, the chairman of the Lebanese Petroleum Authority (LPA) and myself.
Huge gas potential in the East Med
Pistelli said that ENI’s interests in the region include a substantial number of offshore blocks in Egypt, Cyprus and more recently in Lebanon. But it is ENI’s discovery of Zohr in a carbonate formation, a geological structure not previously considered in the East Med, that has opened up the region’s potential.
The East Med is a true hotspot for the oil and gas industry. A total of about 4000 billion cubic metres (bcm) gas resources have been discovered so far. But there is still huge potential for more discoveries, with 2800 to 8500 bcm yet-to-find, attracting strong interest by the industry.
This was also confirmed by Dr Fatih Birol, the executive director of the International Energy Agency (IEA), at a recent conference in Hamburg. He confirmed that East Med gas is very promising despite challenges.
The development of this potential and the need for inter-connected infrastructure call for regional cooperation. Full exploitation of the new giant gas discoveries requires full use of existing facilities and construction of new transportation infrastructure. Once in place, this can act as a catalyst to develop small discoveries and resources yet-to-find.
The priority should be to use these gas discoveries domestically and regionally to boost local economies and bring social benefits. But there is more gas available than can be utilised locally. Export of this gas requires LNG facilities, existing and new, and possibly regional pipelines. Turkey could eventually be another potential market for this gas.
The proximity of the region to the EU offers obvious advantages, such as closeness to European markets for LNG exports, a regulatory framework and a strong financial market.
East Med, and particularly Egypt, has the potential to become a hub for gas export leveraging the unused capacity of existing LNG plants, which can be easily expanded to accommodate more gas as more discoveries are made. Furthermore Italy could play a role as transit hub for natural gas towards the EU, provided gas can be exported at competitive prices. But is this promising gas potential of the East Med about to be unlocked?
Realisation of this potential
A prerequisite for further integration and realisation of the full gas potential of the East Med is geopolitical and regional stability through resolution of regional conflicts. The EU could play a central role in this by putting European diplomacy into action.
But Dr Birol warned that selling this gas to European markets would face serious challenges because of the strong competition from low-priced Russian gas and US LNG.
Similar challenges apply to global markets where gas demand is being met by large amounts of LNG from Qatar, Australia, the US and Russia. These amounts will increase further over the next five years, putting more downward pressure on global gas prices.
Dr Birol suggested that priority should be given to utilising this gas in regional markets.
Talks for possible sales of gas from Cyprus’ Aphrodite discovery to Shell’s Idku liquefaction plant in Egypt are progressing
East Med focus
I spoke about the potential for more gas discoveries in the East Med. Ever since the discovery of giant offshore gas fields Tamar, Leviathan and Zohr, the East Med has been the focus of attention by international oil companies. Most majors, Shell, ExxonMobil, BP, Total and ENI have interests in the region.
Israel
Since discovery of Leviathan in 2010, Israel has been trying to secure export markets, but this is proving to be a major challenge. Export options such as the EastMed gas pipeline to Europe and exports to Turkey are proving to be challenging commercially, but also politically. More recently, potential gas sales to Egypt appear to be progressing, with the Leviathan partners having secured access to the EMG pipeline. But this is routed to Egypt through Sinai, with major security challenges. Nevertheless it looks increasingly likely that this export route may materialise, with the gas probably destined for the Egyptian domestic market.
It is this lack of export routes that has been thwarting attempts by Israel to attract international majors to its offshore licensing rounds. Suffice to say that no exploration has taken place in Israel during the last five years.
Cyprus
Talks for possible sales of gas from Cyprus’ Aphrodite discovery to Shell’s Idku liquefaction plant in Egypt are progressing, but there are still serious commercial issues to be resolved. Noble and its partners have requested renegotiation of Aphrodite’s production sharing agreement, asking for reversal of profit sharing, citing low oil prices. Agreeing to this may seriously reduce Cyprus profit-share.
In the meanwhile, in September Cyprus and Egypt signed an inter-governmental agreement facilitating the potential construction of a gas pipeline from the Aphrodite gas field to Egypt’s liquefaction plants, should commercial agreements be reached.
In addition, emboldened by strong interest from Total, ExxonMobil and ENI, Cyprus is seeking expressions of interest to lease block 7.
However, Cyprus is still beset with challenges due to the unresolved Cyprus problem and threats by Turkey. Much hangs on restarting negotiations, following discussions at the UN in New York in September, for another attempt to find a solution to Cyprus problem this year.
Egypt
Egypt, though, is a different ball-game. The discovery and development of Zohr and a number of other smaller gas-fields are proceeding at a fast pace, turning Egypt from an importer of LNG, to self-sufficiency in September and into an exporter early next year.
With massive yet-to-find resources, Egypt is optimistic about new discoveries. With exploration in full swing, Egypt is also launching new licensing rounds in the Red Sea and the Mediterranean. The promising western part of Egypt’s EEZ in the Mediterranean is still largely unexplored.
In addition, ENI, Shell, BP and Edison announced recently plans to expand their existing investments and activities, demonstrating their faith in the country. In fact BP has invested over $35 billion over the last five years.
With the support of the EU, it aspires to become the regional gas-hub, keen to act as a conduit of Israeli and Cypriot gas exports, should these materialise.
New discoveries?
However, the centre of attention in the East Med now is on drilling later this year, with great anticipation that ExxonMobil’s very promising block 10 offshore Cyprus and ENI’s Noor prospect offshore Egypt may lead to significant new gas discoveries. Drilling will start before the end of 2018, with results expected in early 2019. Another promising prospect is the North Thekah concession, close to Zohr, where Edison plans to drill next year. Such discoveries could completely alter East Med gas development plans and unlock its export potential.
Particularly in Cyprus, a major discovery by ExxonMobil and the potential of LNG exports could alter Cyprus’ and regional geopolitics irrevocably. ExxonMobil came to the region specifically because of the prospect of such a major discovery. Should that become reality, it is likely to pursue rapid realisation of LNG exports by all means available to it – technical, commercial and political.
Developments in Lebanon
Walid Nasr presented recent developments in Lebanon and the plans for a second licensing round. He said that in January 2018 Lebanon signed its first offshore licenses for blocks 4 and 9, with a consortium comprising Total, ENI and Novatek. The exploration process has started, with drilling expected in 2019.
Substantial progress is being achieved, including the preparation of the required technical and environmental studies as well as logistics, ahead of drilling works. The first well will be drilled in block 4, to be followed later by another well in block 9.
Following the success of the first round, Lebanon is now proceeding with the launch of a second offshore licensing round, offering additional offshore blocks during the first half of 2019.
Dr Charles Ellinas, is a nonresident senior fellow at the Global Energy Centre of the Atlantic Council
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