By Charles Ellinas
This was the subject of a very successful conference – EMGC 2017 – held in Nicosia over March 14-15 and attended by leading experts and delegates from 25 countries.
The conference was organised by Gulf-Publishing Company Houston. Its focus was the East Med gas industry and its development, concentrating on markets, project development, gas monetisation, investment and gas trading, avoiding local politics. In other words the conference covered all the key issues that affect the future development of East Med gas resources. I examine and analyse these in this article.
In an authoritative opening keynote presentation, Luca Bertelli, ENI’s Chief Exploration Officer, concentrated on East Med geology and prospectivity. He said that two main geological features, the Nile-Cone and Eratosthenes, make it an exciting time for the region.
Since ENI’s first offshore discovery at Abu-Madi in Egypt 50 years ago, there is still much more to be explored and discovered, with at least 100tcf gas still to be found. Big discoveries made since 2009 have raised the rank of the East Med as an important emerging gas province.
Zohr-type gasfields are still to be discovered offshore in the East Med, with a higher likelihood in Cyprus’ EEZ. Priority has been given to discovering and developing easier gasfields, but there are also good indications for deeper reservoirs. The priority should be on further exploration, with development of discoveries to follow.
Zohr first-gas is expected end of 2017. So far, all gas developments in East Med are based on subsea tie-ins and pipelines to near-shore platforms for processing. This is cheaper and faster to develop, and it has been made technically possible because the gas is almost pure methane.
Giant gasfields have gas volumes and potential to support LNG exports. There are unused LNG plants in Egypt and, if new major discoveries are made, there could be a case for another LNG plant in Cyprus.
Pipelines to European and Turkish markets may be other possible export routes of East Med gas. However, such pipelines will require massive investments and political acceptance among the states involved.
Priority is given to domestic market needs. But, with existing infrastructure, East Med can become a gas-hub and could contribute to diversification of gas supplies in Europe.
State of East Med gas
Dr Stelios Nicolaides, Director Ministry of Energy, delivered the welcoming speech. He said the East Med has the potential to become a new source of energy for the EU, contributing to energy security. The region’s resources will also help meet domestic demand in East Med countries.
Cyprus is still engaged in discussions with Noble and its partners to agree the Aphrodite Development Plan. This is still centred around gas exports to Egypt. Delek said it hopes for news within 2017.
The Zohr-effect attracted considerable interest to the region and contributed to the success of Cyprus’ third licensing round. Total and ENI are planning drilling in Block 11 this summer and ENI should renew its drilling in Blocks 2, 3 and 9 late 2017.
Regional cooperation is considered to be of paramount importance. The region is still experiencing geopolitical difficulties and disputes.
Lebanon has kicked-off its first licensing round involving five blocks and expects bids in by September 15, with awards planned for November 15. A well-defined licensing process has been implemented and enabling laws and regulations are being enacted, with transparency considered to be key. Lebanon’s new government is giving priority to the success of this round.
In Israel, FID has been declared by Noble and its partners for Phase 1A of Leviathan, with 12bcm/yr capacity, costing $3.75billion, with first-gas expected end of 2019. This is destined for the Israeli domestic market and NEPCO in Jordan. The intent is to fast-track Phase 1B, with 9bcm/yr capacity, but securing firm gas export sales is a prerequisite.
Energean is proceeding with preparation and, within six months, submission of a Development Plan for Tanin and Karish in Israel, estimated to hold 2.4tcf gas. This is based on the use of an FPSO exporting 4bcm/yr to the domestic Israeli gas market by 2020. However, it still requires firm gas sales before it can proceed to FID.
Gas monetisation and investment
The EU will need another 100bcm/yr gas imports by 2030 due mostly to the gradual depletion of indigenous resources. With recent discoveries exceeding 70tcf and only 1,000km away, East Med can play a key role in supplying gas to the EU. IGI Poseidon made the case that this can be supplied through the East Med gas pipeline.
The technical and commercial feasibility of the pipeline was demonstrated after the completion of a pre-FEED design study funded by the EU.
It concluded that the pipeline could carry 14bcm/yr at a cost of $5billion. Its length will be 1,300km and, at its deepest section, 3,000m, its diameter will be 26”. On this basis, commerciality can be ensured if the gas price at destination, in Italy, is $8-$10/mmBTU – which is a challenge.
Use of pipelines to deliver gas to markets is advantageous at short to medium distances, but they are inflexible and run the risk of geopolitics. The deployment of FSRUs has added flexibility and has unlocked the wider use of LNG. Moreover, FLNG is now established technology, allows reduction of costs, enables the development of scattered offshore fields and can reach global markets in Europe and Asia.
Establishment of natural gas trade
I made a presentation on global markets and prices and their impact on the East Med. According to BP and IEA, there is an abundance of technically recoverable oil and gas resources globally, with the world facing a long-term oil and gas glut. Less than half of the world’s known hydrocarbon resources will be consumed by 2050. This is the main reason why prices will remain low for the longer-term. With EU having dropped its antitrust case against Gazprom, and with it the emphasis on diversification of supplies, Europe now has access to plentiful, cheap, Russian gas, down to about $5/mmBTU. East Med gas needs to beat such prices if it is to penetrate European gas markets – a challenge.
Egypt is becoming self-sufficient and will be exporting gas by 2020. Turkey has changed its energy strategy, reducing dependency on gas, into lignite, renewables, LNG and nuclear and, with TurkStream, it has access to plentiful, cheap, Russian gas. East Med gas is no longer a priority for either.
If Total/ENI are successful with drilling in Cyprus’ Block 11 this summer, as we all hope, FLNG may become a serious option for gas exports to Asian markets. In the longer term, ExxonMobil may also open up LNG options if exploration is successful and market prices allow it.
In a presentation on Israeli gas exports to Turkey, a view was expressed that, legally, Cyprus has no right to stop a pipeline from going through its EEZ. Political issues could be resolved if a third-party were to build the pipeline.
The strong concluding message from the conference was that it would be best if all countries in the region cooperate in the development and export of their gas deposits, thus strengthening regional ties, starting by agreeing EEZ boundaries. Expectations need to be managed with a degree of realism.
Dr. Charles Ellinas is a non-resident Senior Fellow, Eurasian Energy Futures Initiative, Atlantic Council