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    Weekly Overview On Eastern Mediterranean Natural Gas Matters

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Summary

2016 is expected to be a year of many positive developments in the hydrocarbon sector in the East Med. Substantial regulatory and diplomatic challenges persist.

by: Karen Ayat

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Top Stories, Weekly Overviews, East Med Focus

Weekly Overview On Eastern Mediterranean Natural Gas Matters

Cyprus

The last week of the year saw some activity in the Eastern Mediterranean. The Cypriot Government has renewed Italy’s ENI and its South Korean partner KOGAS’ licence to drill in blocks 2, 3 and 9 of its Exclusive Economic Zone (EEZ). To date, the consortium has failed to encounter recoverable amounts of natural gas in Cypriot waters.

The partners’ right to drill in the three blocks has been extended to 2018 according to a statement released by Cyprus’s Minister of Energy Yiorgos Lakkotrypis. The Minister announced following a meeting on Monday that exploratory drilling is expected to commence in 2017.

In August 2015, ENI announced it had discovered a giant natural gas field off Egypt’s coast, the largest discovered in the Eastern Mediterranean to date. The Zohr field, located in the Shorouk Block in close vicinity to Cypriot waters, is expected to hold up to 30 trillion cubic feet of natural gas (Tcf), enough to end Egypt’s natural gas shortages and secure the country’s reentry into the natural gas export market. The discovery reinforced ENI’s presence in the Eastern Mediterranean region, and was a great boost for the neighbouring countries.

In December, France’s TOTAL also renewed its presence in Cyprus. The Cypriot Government is hoping that the renewed dynamism in Cyprus’s maritime zone will lead to new gas discoveries that will help the country turn into the natural gas hub it aspires to become, linking the region to Europe in a quest for new sources of supply. Noble Energy’s discovery of the Aphrodite field in Block 12 of the island’s EEZ in 2011 remains the only exploratory success thus far. Cyprus is eyeing the regional market, namely neighbouring Jordan and Egypt, as a destination for its gas. It also plans to use Egypt’s underused export terminals in Idku and Damietta to process and ship its natural gas.

Israel

Next-door in Israel, the country preps yet again for another regulatory battle as opponents to Prime Minister Netanyahu appeal before the High Court of Justice to contest the PM’s decision to approve the natural gas framework. The framework allows the partners in the 22 Tcf Leviathan and 10 Tcf Tamar fields to move ahead with the development of Israel’s largest offshore field.

Noble Energy and its Israeli partners were accused by the country’s competition regulator of constituting a monopoly that will distort the price of natural gas for the private and commercial consumers in the domestic natural gas market. Netanyahu’s opponents criticise what they consider a fake application of clause 52 of the Antitrust Law that strips the country’s competition regulator from its overseeing power over the industry on issues with sensitive strategic or diplomatic implications.

The chairman of the Knesset Economics Committee, heading the committee that voted against the framework, considered the application of clause 52 extreme in this instance and motivated by economic reasons rather than national interest. Noble Energy applauded Netanyahu's decision stressing on the importance of moving forward in the development of the field. The appeal against Netanyahu’s decision will be brought before the High Court of Justice in Q1 of 2016 and a panel of at least five judges will consider the petitions to the High Court of Justice challenging the legality of the government’s gas framework agreement.

Jordan

Jordan’s National Electric Power Company of Jordan NEPCO has awarded two LNG supply contracts to Gunvor of Switzerland and Gas Natural Fenosa of Spain. Both cargoes are due at the FSRU in Aqaba bay in the first quarter of 2016 and each of them is of 3 to 3.5 trillion British thermal units, according to the Jordan Times. Jordan relies on imported energy to satisfy most of its energy needs. 97% of the natural gas it consumes is imported. The disruptions in the flow of Egyptian gas in the aftermath of the 2011 unrest in Egypt has forced the Kingdom to import expensive LNG, mainly by Shell from Qatar, which has caused a spike in the energy bill. Jordan has expressed interest in importing natural gas from neighbouring Cyprus and Israel, who are both looking to commercialise their riches. The Kingdom’s need for natural gas is pressing despite various efforts launched to develop indigenous resources and energy efficiency measures undertaken by the Government.

Egypt

Egypt’s Zohr field will allow the country to reenter the natural gas export market. Egypt still needs to import natural gas from its neighbours in the interim while ENI develops the newly discovered field. Gas imports from Israel have become uncertain as the Government ordered two state-owned firms to halt gas talks with Israel following a ruling by Paris-based international arbitrators earlier this month ordering Egypt to compensate Israel with the sum of $1.76 billion for the cessation of gas supplies from Egypt to Israel in 2012. Israel’s Minister of Energy approved last week gas exports from Israel’s 10 trillion cubic feet Tamar field to Egyptian company Dolphinus Holdings. The approval is a positive step for Israel but the normalisation of the diplomatic relations between Israel and Egypt is a prerequisite for the concretisation of any gas deal.

The new year is expected to bring substantial developments in the hydrocarbon sector in the Eastern Mediterranean. Challenges persist, with Cyprus renewing efforts to find more gas off its coast, Israel attempting to overcome regulatory challenges and domestic disputes, Egypt trying to achieve an amicable solution with Israel before it resumes gas talks, and Lebanon still stuck in its domestic political impasse, unable to issue the two decrees that will pave the way for the opening of the country’s first licensing round.

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