Weekly Overview on Eastern Mediterranean Natural Gas Matters
Cyprus
On a visit to Nicosia on January 11, Vice President of the European Commission, in charge of Energy Union, Maroš Šefčovič, met with Cypriot Minister of Energy Giorgos Lakkotrypis and President Nicos Anastasiades to discuss the role the eastern Mediterranean could play in diversifying Europe’s sources of supply.
At the meeting, Šefčovič stressed the importance of Cyprus in regards to the EU, pointing out that natural gas could reach Europe from the Eastern Mediterranean if future exploration activities prove successful. He also said that the discoveries made thus far in the Levant basin (offshore Israel) are promising.
Europe’s annual consumption of 400-500 mn m3 could partly be met by gas from the eastern Mediterranean, but that would depend on the size of the discoveries, and the export strategy of the countries involved, the politician added.
Cyprus has seen a renewed interest in its gas in recent times. Earlier this month, Italy’s ENI announced it was renewing its presence in Cyprus through the extension of its exploration agreement with the Government of Cyprus. Cypriot Minister of Energy Yiorgos Lakkotrypis said the agreement allows ENI and its South Korean partner KOGAS to explore Blocks 2, 3 and 9 of the island’s EEZ until 2018, with drilling expected to commence in 2017.
The renewal comes on the back of ENI’s giant find in Egyptian waters, the Zohr field, discovered in August 2015 and estimated to hold up to 30 trillion ft3 of natural gas. ENI is currently gathering geological data to assess the likely presence of recoverable amounts of natural gas in the three blocks.
France’s Total also renewed its exploration agreement for a licence offshore Cyprus for another two years in December 2015.
Israel
The partners in Israel’s Leviathan offshore field--Noble Energy, Delek Drilling, Avner, and Isramco Negev--said January 7 that they were engaged in talks to supply natural gas from the field to a number of Israeli companies, including electricity producers and industrial companies. Production from the Leviathan, Israel's largest offshore field, is expected to begin sometime between 2018 and 2020.
The way has been cleared for Israeli exports in the political sphere: After months of domestic political debates, Israeli Prime Minister Benjamin Netanyahu last month approved the natural gas framework that would pave the way for the development of the giant field. The plan is controversial and was approved via the application of Clause 52 of the Antitrust Law, stripping the competition regulator of its overseeing authority over the sector and granting the economy minister the exclusive power to override decisions by the Antitrust Authority chief on issues with sensitive strategic or diplomatic implications.
Israel is eyeing the Jordanian and Egyptian markets as first destinations for its natural gas. Gas could reach distant markets via Egypt’s underused export facilities at Idku and Damietta. Recent tensions between the two countries following an arbitration ruling by the International Chamber of Commerce. As a result of the ruling, the Egyptian companies Egyptian Natural Gas Holding Company (Egas) and Egyptian General Petroleum Corporation (EGPC) must compensate Israeli Electric Corporation (IEC) and Eastern Mediterranean Gas (EMG) $1.7 bn and $288 mn respectively. The resultant tensions have halted gas talks between Israel and Egypt. A diplomatic effort is now being implemented by Israel to resolve the dispute. The Egyptian companies have said they will appeal the arbitration decision.
Egypt
The situation remains the same in Egypt this week in relation to natural gas.
Eni’s giant discovery of the Zohr field offshore Egypt brought the promise of the end of the country’s energy troubles. Egypt has been struggling to meet the natural gas domestic demand and eyeing the regional market for relief. Once a net exporter of natural gas, namely to Jordan and Israel, Egypt’s growing domestic consumption and its flat production has put a strain on the country’s ability to meet its needs. Eni is committed to fast track the development of Zohr. Appraisal drilling will confirm the quantities and first gas is expected in 2018.
Egypt is expected to play a crucial role in the region in 2016, as a route for neighbouring gas and as an important natural gas producer. The country is aiming to achieve self-sufficiency by 2020 and re-enter the LNG export market by 2022. In the meantime, Egypt will still be looking to import gas from Cyprus, and possibly Israel, if the relationship between the two countries normalises.
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