EMGC 2015: Gas leaders examine roles of Egypt, Cyprus in future trade

By ADRIENNE BLUME, Managing Editor on 3/18/2015

NICOSIA, Cyprus -- Gulf Publishing Company opened its third annual Eastern Mediterranean Gas Conference (EMGC) with a welcome from John Royall, President of Gulf Publishing Company. Royall thanked attendees for coming to the event and said that he believes the Eastern Mediterranean region will continue to grow over the long term with respect to exploration efforts and reserves. He also believes the downturn in the oil and gas market and pricing will be short lived, which he later addressed in a forecast presentation based on Gulf Publishing Company's World Oil data.

Cyprus embraces collective approach. Kicking off Session 1, Harris Georgiades, Minister of Finance for Cyprus, spoke about the energy prospects and potential revenue stream for Cyprus. The development of these country's gas resources must be actively promoted, Georgiades said.

"The energy prospect can be a game-changer domestically, as long as we develop it wisely," the Minister noted. "The regional energy agenda must be promoted through a network of engagement and cooperation [among regional players], and it should not exclude anyone."

Georgiades also wished the conference success, and said he hoped it would help promote the development of Cyprus' energy future. "It is the vision of the Cyprus government to use its energy resources for the benefit of Cypriots and their country, as well as for regional cooperation," the Minister said.

Noble Energy and Cyprus eye Egypt demand. Ben Dillon, V.P. of Communications and Government Relations for Noble Energy, next provided a summary of Noble's activity in the Eastern Med. The company has discovered over 40 Tcf of gross resources since 1999 at several fields.

Dillon noted that Noble is close to submitting a development plan for the gas resources from Cyprus' offshore Aphrodite field, which is the third-largest natural gas discovery in the Levant basin. Pipeline connections to Egypt are now under discussion, as the Cyprus government signed an MOU over the weekend of March 14–15 with Egyptian Natural Gas Holding Co. (EGAS) for cooperation in oil and gas.

Dillon also noted that Noble has made great progress with the Israeli government in the last two weeks to create a framework to overcome persistent regulatory hurdles. Clarity on Israeli antitrust and tax laws is needed to advance the next round of major projects in Israel, and for the further development of Leviathan field and the expansion of Tamar field, Dillon acknowledged.

This work will enable regional export deals to be completed in the near term, including projects to supply Egypt and Jordan with gas. "There is an exceptional opportunity to provide energy and economic security for Cyprus and Israel," as well as to the wider Eastern Med region, Dillon said.

Cyprus energy development options. Following Dillon's talk, Toula Onoufriou, President of Cyprus Hydrocarbons Co., took to the podium to discuss progress on hydrocarbons development for Cyprus. She gave a brief review of successful gas discoveries by Noble Energy and recent seismic studies conducted by Eni/KOGAS and Total.

A field development plan is in progress for Aphrodite field, and marketing and sales discussions are being conducted with EGAS and other entities, Onoufriou noted. In addition, a technical study will be undertaken to examine the potential of creating pipeline and onshore facilities to export natural gas from Aphrodite field to Egypt. The African country has a mature gas industry and infrastructure, and gas shortages have created a large demand opportunity for Eastern Med producers.

Onoufriou said that several development options exist for the development of Cyprus' Aphrodite gas reserves, as well as any future discoveries. The options include pipeline exports, exports from an onshore LNG terminal, exports from a floating LNG vessel and the production of CNG fuel.

Cyprus could be established as an energy hub, Onoufriou said, with regard to the production, processing and exporting of gas to Eastern Med and European nations. There are also opportunities for Cyprus to facilitate collaboration between countries in the region.

"These resources offer an important opportunity for Cyprus to reposition itself," Onoufriou said. "We must work toward sustainable economic growth by developing energy, as well as other sectors."

Yiorgos Lakkotrypis, Minister of Energy, Commerce, Industry and Tourism for Cyprus, next reviewed the outcomes of the six exploration and production sharing contracts signed over 11 blocks. Noble Energy has been successful with its Aphrodite discovery, although Eni/KOGAS and Total's drilling efforts have yet to yield results. The companies will continue to investigate exploration opportunities in blocks 10 and 11, Lakkotrypis said.

"The large reserves discovered offshore Cyprus and Israel will allow the Eastern Mediterranean to be a key player in the natural gas industry," Lakkotrypis said. Although much work remains to be done in terms of infrastructure development and regional cooperation, the potential to fulfill regional, European and Middle Eastern gas markets is very much alive, Lakkotrypis asserted.

Global O&G industry forecast. Following a coffee and networking break, Gulf Publishing Company CEO John Royall presented World Oil's industry forecast, covering regional activity as well as production and pricing forecasts for 2015. The threat of oversupply presented in World Oil's 2014 forecast came to pass, Royall explained.

At OPEC's production quota meeting in November 2014, the cartel decided to maintain its output level. At the same time, a continued, sharp drop in the price of crude oil was seen as U.S. oil and gas production continued to climb, creating a glut of supply in the market.

"Some have blamed OPEC for the price decline ... But the U.S. caused this problem, and the U.S. will fix it," Royall asserted. Low oil prices will encourage consumption, which will eventually encourage prices to creep up. Furthermore, U.S. drilling rigs can go online and offline relatively quickly, helping production economics. "For the first time, the U.S. is the swing producer instead of OPEC," the CEO noted.

A decline in investment has also occurred in U.S. and Canadian shale plays as a result of the oil price collapse. In the U.S. alone, a 30% decrease in exploration and production investment has been seen.

The price decline is affecting upstream development in nearly every region, except China and Saudi Arabia, Royall said. World Oil forecasts an average price for Brent crude oil of $58/bbl in 2015, and an average price for West Texas Intermediate of $43/bbl.

The oil price decline is also keeping gas prices low, since many Asian natural gas import prices are indexed to oil prices. World Oil predicts an average Henry Hub natural gas price of $3.35/Mcf for 2015.

Royall closed his forecast by noting, "The two key things to watch for are production in U.S. shale plays as they level off, and what global demand looks like."

Egypt enters the scene. The last presentation before lunch was delivered by John Burley, V.P. of Business Development for BG Group Egypt. Burley discussed the future potential of Egypt's gas infrastructure, noting that BG Egypt is well positioned to offer options to Cyprus for facilitating gas exports.

Burley also offered an overview of Egypt's mature and established gas infrastructure, including subsea operations and the country's 7.2-MMtpy, two-train LNG plant, which was built in 2004. An equivalent LNG plant in terms of size and scope would cost four to five times as much to build today, Burley said.

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