Weekly Overview on Eastern Mediterranean Natural Gas Matters
In the past week, the Eastern Mediterranean witnessed once again the forming of new regional ties that would likely enhance regional cooperation and lead to the fruition of regional natural gas deals. International companies have shown interest in participating in offshore explorations in the Levant basin, in the form of acquiring or renewing drilling licences and by expressing their desire to purchase existing natural gas fields. Eastern Mediterranean countries are also holding various meetings to strengthen energy ties.
Israel
The partners in Israel’s largest offshore field, the Leviathan field--estimated at 622 billion cubic metres (bcm) and discovered by Noble Energy in 2010--announced their plan to export natural gas to the Egyptian domestic market via an existing subsea pipeline. On Wednesday 25 November, the developers disclosed they had signed a preliminary deal with Egyptian company Dolphinus Holdings to export 4 bcm of gas a year for 10 to 15 years. A final deal is yet to be negotiated and finalised by the parties and will be subject to regulatory approvals.
Egypt is undergoing a severe energy crisis and is also looking to import natural gas from Israel’s Tamar field: earlier this year, in March 2015, a deal was signed between Dolphinus and the Tamar partners to buy $1.2 billion worth of natural gas (5 bcm) over a period of 7 years. Gas from the Leviathan field may also reach BG’s liquefied natural gas plant at Idku as the field’s partners pursue their negotiations with Britain’s BG Group.
ENI’s giant discovery offshore Egypt, the Zohr field estimated at up to 30 trillion cubic feet of gas (tcf), is not stopping Egypt from looking regionally for new sources of natural gas to fill in the gap in its production. Israeli and Cypriot gas could provide an interim solution for Egypt’s natural gas shortages until the Zohr field reaches production stage. Israel has initiated important efforts to fast-track the development of its fields and secure its place as a regional natural gas exporter. After months of regulatory hurdles and a domestic dispute between the partners in Israel’s largest offshore fields and the country’s Antitrust Authority, a natural gas framework is expected to be finalised in the weeks to come forcing Delek to sell its shares in the undeveloped Tanin and Karish fields in an effort to introduce competition in the domestic natural gas market. Chinese investment group Fosun International has expressed an interest in purchasing the two small fields estimated at a combined 3 Tcf.
Egypt
On November 26, ENI announced that development of the Zohr field discovered in August 2015 and estimated at up to 30 Tcf of natural gas will commence in January 2016. The announcement followed a meeting held between ENI’s CEO Claudio Descalzi and the Egyptian President Abdel Fattah el-Sisi in Cairo. The Zohr field is expected to end Egypt’s natural gas shortages and turn it into a natural gas hub. The country is still looking to import natural gas from Israel and Cyprus. Several deals are being discussed between Egyptian company Dolphinus Holdings and the Tamar and Leviathan partners for the purpose of transporting Israeli gas to the Egyptian market via an undersea pipeline.
Israel is also eyeing Egypt’s underused LNG plants to reach distant markets in Asia. It is yet unclear if Egypt’s will have the capacity to process gas from the neighbourhood, namely Israel and Cyprus, once gas from the Zohr field will start flowing, but for now, all possibilities remain on the table. The entry of the BG Group into Cyprus’s Aphrodite field is an important development that would likely secure an export deal for Cyprus. BG is the operator of the Idku plant near Alexandria in Egypt and could facilitate the sale of natural gas from Cyprus’ offshore field to Egypt.
Cyprus
ENI’s disappointing track record in Cyprus’s Exclusive Economic Zone (EEZ) is not stopping Cyprus from aspiring for a better future. Apart from BG Group’s entry among the partners in the Aphrodite field, the Cypriot Government approved on Thursday 3 December a two-year renewal of French energy giant TOTAL’s exploration rights in Block 11 of the island’s Exclusive Economic Zone (EEZ). The French giant’s contract to drill in Block 11 was approaching its expiry date in February 2016 but the company seems to have gained a renewed interest in Cyprus’s hydrocarbon potential since ENI’s substantial discovery in Egypt, only 6 kilometres away from Cyprus’s Block 11. Early in 2015, TOTAL announced it was withdrawing from Cyprus and gave up its licence to drill in Block 10 of Cyprus’ waters for not having identified drillable prospects in Block 10 of Cyprus’ EEZ. The company’s decision to renew its presence in Cyprus is a great boost for Cyprus eager to explore its potential.
In an intervention at the EU Energy Council meeting, which took place in Brussels on 26 November, Minister of Energy of Cyprus Yiorgos Lakkotrypis said there are currently around 1,600 bcm of natural gas ready for exploitation in the Eastern Mediterranean and that the amount could contribute in the EU’s quest to diversify its sources of supply. The Minister also highlighted the excellent cooperation between Cyprus and its neighbouring countries, and the island’s role in furthering the dialogue between the EU and the Eastern Mediterranean countries.
Greece
Greek Prime Minister Alexis Tsipras met with Israeli Prime Minister Benjamin Netanyahu on Wednesday 25 November in Jerusalem. The two leaders discussed common interests such as confronting the rising terrorism in the region and energy matters. They agreed on furthering the bilateral security cooperation and on expanding their energy ties working closely to facilitating the export of natural gas from Israel and Cyprus to Europe.
Prime Ministers Netanyahu and Tsipras agreed to hold a trilateral meeting with Cypriot President Nicos Anastasiades in January 2016 to discuss ways to fully exploit the Eastern Mediterranean newly discovered riches in Israel, Cyprus and Egypt. In the last year, Athens has initiated efforts to enter the natural gas game offering to transport East Med gas to the EU via pipeline through Greece. The EU is looking to diversify its sources of supply away from Russia to ease its dependence on Russian gas.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat