The Making of A Multilateral Gas Hub

When the East Mediterranean gas saga began to unfold a decade ago, a regional accord had to be struck and multilateral agreements were necessary in order for a gas hub to be conceived. An increasing number of cooperation opportunities were put on the table; from pipelines to “pipedreams”.

Although seemingly progressive at first glance, most export options whether pipelines or liquefied natural gas (LNG) facilities in Egypt or its neighboring countries have continuously fallen flat throughout the years. Nonetheless, many multilayered deals still aspire to foster a new era of economic and political stability in the region.

But is multilateralism elongating the road to become a hub? Minister of Petroleum and Mineral Resources, Tarek El Molla, asserted that the multilateral nature of gas export arrangements does not happen overnight. In fact, he insisted during an energy conference in the United Arab Emirates (UAE), last September, that Egypt’s export plans are actually still on track.

Why Egypt?

When it comes to choosing a strategic natural gas hub, Mohamed Hanafy, Director of Oil & Gas at Arab Engineering & Distribution Company, told Egypt Oil & Gas (EOG), “Geographically speaking, there is no doubt that Egypt has been blessed with a key strategic central location that facilitates exports in all directions and towards all continents almost equidistantly. In terms of gas export, it means shorter pipelines and simpler infrastructure investments are needed to convey the gas to the Middle East, Europe and Asia.”

Apart from the geographic location, another factor makes Egypt readily capable of becoming a central regional gas hub. According to Hanafy, with significant reserves, Zohr is one of the key resources for establishing a gas hub in Egypt, leveraging Egypt’s position to provide consistent natural gas supplies to address the region’s demand.

Echoing the same sentiment, Aboud Zahr, Managing Director at DEP Levant Oil & Gas, remarked to EOG that “Due to the available oil and gas infrastructure and networks in Egypt any potential hub in the East Med shall be built around Egypt. This fact reduces the amount of investments and at the same time the risk which international oil major will have to take.”

However, Mona Sukkarieh, energy and political risk consultant and co-founder of Middle East Strategic Perspectives, told EOG, “Beyond Egypt, and up until this point, the nature of these deep-water discoveries in the Eastern Mediterranean, size of the local markets and limited infrastructure did not grant the countries with this newly-found resource wealth the autonomy they would have wished for to fully exploit and export these resources.”

LNG Infrastructure

Egypt has two LNG plants; the first one is in Idku plant owned by the Egyptian LNG, and includes two liquefaction units. The second one is in Damietta and includes one liquefaction unit. “Leveraging existing infrastructure in Egypt appears to be, at this stage, the optimal option to facilitate the monetization of the region’s offshore gas resources,” Sukkarieh added.

A Network of Pipelines

Egypt also has the Sumed pipeline, which carries oil from a terminal at Ain Sokhna on the Red Sea to the Sidi Kerir terminal on the Mediterranean. “Multiple infrastructure elements are readily present and can be used as part of the gas hub master plan,” Hanafy said, explaining that the presence of Sumed pipeline establishes critical gas transfer capabilities across the country. “The presence of the Arab Gas Pipeline plays a similar key role with international exports,” he noted.

Through Egypt’s network of pipelines, the country began to export natural gas to Jordan on February 19, the Jordanian state-funded Al-Mamlaka (The Kingdom) TV channel reported. This happened through the most significant pipeline, the Arab Gas Pipeline, which extends natural gas exports from Al-Arish to Jordan and further plans to extend exports to Syria and Lebanon. The Arab Gas Pipeline also connects to Israel via the underwater Arish-Ashkelon pipeline, which Egypt once used to export gas to Israel. Now, however, Egypt will import natural gas from the 22 trillion cubic feet (tcf) offshore Leviathan and later the smaller Tamar field via that pipeline, El Molla declared in an interview during the World Energy Congress on September 10, 2019.

In a so-called $19.5 billion landmark agreement last January, Egyptian private company Dolphinus Holding began importing 200 million cubic feet of natural gas per day (mmcf/d) from Tamar and Leviathan gas fields, Israeli Energy Minister Yuval Steinitz stated at that time. An annual of 2.1 billion cubic meters (bcm) will be imported from Leviathan alone, rising to 4.7 bcm a year by H2 2022. The agreement stipulates that Egypt will continue to take in a total of 85 bcm Israeli gas over the next 15 years.

Since Egypt announced in 2018 that it had achieved self-sufficiency in natural gas, this only means that any imported natural gas will be redirected towards the global markets. It could also expedite Egypt’s LNG exports in the coming years.

Major Players in the East Med Arena

The gas pool of the East Mediterranean is largely dominated by three major players; Shell, Noble Energy Inc. and Israel’s Delek Drilling LP, who continue to hammer out potential deals to utilize the LNG plants in Egypt’s Idku. According to statements by the company, Noble Energy has executed multiple agreements to support delivery of natural gas from the Leviathan and Tamar fields, offshore Israel, into Egypt.

It is important to note that the Arish-Ashkelon pipeline, which carries Israel’s natural gas to Egypt, is owned by the East Mediterranean Gas Company (EMG), whereas Noble and Delek partnered up with Egypt’s East Gas Company last year in a venture called EMED to buy a 39% stake in EMG to facilitate export deals.

Meanwhile, just a few months after testing the East Mediterranean waters, US major Chevron announced its takeover of Noble Energy, enabling its expansion plans in the region.

Chevron’s plans include the construction of a 340-kilometer (km) pipeline from Cyprus’ Aphrodite to the Shell-operated 7.2 million tons per year liquefied natural gas (LNG) export terminal at Idku.

The Pipedream Take Two

The pipeline project was even sought by the EU; approximately 129 bcm of natural gas will go through the liquefaction plants in Egypt and then get re-exported to the European market. “In the first phase, gas shall be pumped to the existing LNG plants in Idku and Damiatta and re-exported as LNG to Europe till their maximum liquefaction capacity is exhausted,” Zahr said.

“As a second stage, one of the East Med countries, like Cyprus, shall generate electricity from its own produced gas and sell it to neighboring countries like Lebanon, Syria, Jordan and others,” the managing director further suggested.

Zahr noted that, except for Egypt, there is no existing infrastructure in the East Med. Developing expensive infrastructure coupled with the high cost of the offshore produced gas will make new projects not viable, like for example the previous East Med pipeline to Europe. Sukkarieh also thinks that It is important in this regard for Egypt to pursue sector reforms and reconsider pricing schemes to encourage the import and reexport of natural gas from neighboring countries via its large gas infrastructure.

“Undoubtedly additional infrastructure, mainly pipelines, will be needed to link to these producing countries’ gas supplies and to branch out exports to the consuming countries,” Hanafy advised.

Other agreements

On August 5, El Molla discussed via video conference with Cypriot Minister of Energy Natasa Pilides the establishment of a direct sea pipeline between the two countries. According to a statement by the Egyptian Ministry of Petroleum and Mineral Resources, the two ministers confirmed the ongoing coordination between the officials of the two countries to follow up on the measures needed to start implementing the project. The Cyprus gas is expected to arrive in Egypt in 2024-25.

Egypt and Cyprus signed an agreement in September 2018 to establish a marine pipeline project. However, ever since, experts speculated the feasibility and viability of such a project.

Securing the Future

A commentary piece by Simone Tagliapietra, Adjunct Professor of Global Energy Fundamentals at the Johns Hopkins University, published by the Italian Institute for International Political Studies, endorsed Egypt as the center piece of the natural gas hub in the Mediterranean. It stated that “all in all, the plan of creating an eastern Mediterranean gas market based on the existing LNG infrastructure in Egypt does look like the most logical course, as it would present economic and commercial benefits for all regional players involved – and as it would also avoid unnecessary geopolitical tensions.”

Sukkarieh concluded that, “A collaborative regional approach geared toward capitalizing on existing infrastructure, creating synergies to bring upstream costs down, and reviewing certain aspects of domestic regulatory frameworks to help make exports viable may be needed for a chance to improve the competitiveness of these offshore resources. Improving prospects for monetization is key for attracting investors and encouraging future exploration activity.”

Source: Egypt Oil & Gas