East Med energy stars align

Tamar Field

We know that few put much faith in astrology, but 2016 could be the year that the stars begin to align for East Mediterranean energy. A big gas discovery, rumors of new wells and development plans, letters of intent for supply deals and friendly chats among regional leaders are part of the mix – so the star signs are open to interpretation.

THE pace is picking up for East Mediterranean energy. This year won’t go down as anyone’s favorite year in this sector, but as it nears its end, the region appears to be entering a new, more optimistic phase. In the early months of 2015 Egypt was facing a gas supply crisis, Israel’s regulatory fiasco brought a halt to offshore development, France’s Total relinquished one block offshore in Cyprus and was ready to quit another, while Italy’s Eni postponed further exploration in the island’s sea after drilling two dry holes. It was glum.

Now plenty of plans are being laid, but pulling them off will be the thing that finally launches the region as an energy player. That will take years still, but from the looks of it, the dots could start to connect in the first quarter of the new year.

Eni’s CEO Claudio Descalzi visited Cairo for a third time in as many months in late November to discuss with Egyptian President Abdel Fattah al-Sisi the development of the Zohr gas discovery, which was discovered last August and which has been the catalyst for the region’s latest developments.

The initial estimate for the resource is 30 trillion cubic feet (tcf) of natural gas and Egypt estimates that 20-22 tcf is recoverable. Much of this would feed Egypt’s domestic market, where demand is insatiable.

Since September, Descalzi has been touring the region, discussing his vision of transforming the East Mediterranean into an energy hub with the leaders of Egypt, Israel and Cyprus This suggests that Eni intends to use some of its Egyptian gas resources, not only those in Zohr, to restart the idle Union Fenosa Gas LNG facility at Damietta, where it holds a 40 percent stake.

“They [Sisi and Descalzi] discussed the prospects that could result from the establishment of a gas hub in the Eastern Mediterranean Sea, which would allow to share Egyptian transport infrastructures and exports with the nearby discoveries in the area, as those of Cyprus and Israel,” an Eni statement said.

Appraisal drilling at Zohr, which is only 10 km from the maritime border with Cyprus, is to start in January. Media reports, citing Egyptian sources, see the project producing 1 billion cubic feet per day (bn cfd), or 10.3 billion cubic meters per year (bcm/year), in 2017 and 2.7 bn cfd (27.9 bcm/year) in 2019. That’s a lot of gas. Zohr’s output would be transported by a 220 km pipeline to an existing processing plant on the Nile Delta coast and sent from there to Egypt’s domestic grid or to an LNG plant for export.

The Zohr discovery has rekindled interest in Cyprus waters where things had been quiet before news of the Egyptian discovery. In November BG, which operates Egypt’s second LNG plant at Idku, announced it had purchased 35 percent of Block 12, where the 4.5 tcf Aphrodite gas field is located.

Houston-based Noble Energy is the operator of Block 12 and is partnered with Israel’s Delek Group in Cyprus and in Israel, where the two control the huge Leviathan and Tamar gas fields. Noble presented the Cypriot government with a development plan for Aphrodite in August. BG is now expected to examine the plan – which is estimated to require a $5 billion investment – before the three partners and the government approve it, probably in the first quarter of 2016.

Cyprus has been negotiating the sale of Aphrodite gas to Egypt for 18 months, and a government source recently mentioned that commercial agreements with BG and with the Egyptian Natural Gas Holding Company (EGAS) could also be finalized in the first quarter.

The day after the BG part in Block 12 was announced, the head of Middle East Exploration and Production for Total, Arnaud Breuillac, visited Cyprus to tell President Nicos Anastasiades that Total was ready to drill in Block 11 next year. Industry sources suggest the drilling target date is September 2016. In early December, the Cypriot government extended Total’s Block 11 contract by two years.

Furthermore, a Cypriot government source said Total is now keen to re-acquire Block 10, which it relinquished in January. But under EU regulations, Cyprus cannot hand back the block just like that. All the excitement generated by Zohr, which was discovered in a carbonite stratum where companies had not looked before, has prompted the Cyprus to consider a new licensing round. Upstream explorers – including Total and Eni – have expressed interest in a number of the island’s unassigned blocks, the government source said.

Despite making some progress towards determining what its hydrocarbon policy might actually be, Israel is still debating how to proceed. Much depends on the Knesset (parliament) allowing Prime Minister Benjamin Netanyahu to override the Anti-Trust Authority and sign a framework agreement. That would allow Noble and Delek to move ahead with development of the Leviathan field, where the gas reserve is an estimated 22 tcf and more.

In 2014, the Leviathan partners signed a letter of intent to sell gas to BG for its Idku LNG plant and the Tamar partners signed initial papers to supply Damietta. Noble and Delek also planned to ship gas to Jordan. Without a regulatory okay, none of that can happen, and that all depends on the convoluted machinations of Israeli politics.

The New Year party will kick off early during the second week of December when Presidents Sisi and Anastasiades meet in Athens with Greek Prime Minister Alexis Tsipras, who visited Netanyahu in Jerusalem in late November. This will be the third three-way summit Egypt, Cyprus and Greece have held to discuss energy cooperation. The Athens meeting will be followed in January [tentatively] with the first tripartite meeting in Nicosia between Cyprus, Greece and Israel for energy cooperation talks.

And all that depends on the East Mediterranean planets not going retrograde again.

Source: Global Sources Magazine.