March 2018

Offshore in Depth

Operators accept risks of Mediterranean gas development
Ron Bitto / Contributing Editor

The deepwater natural gas resources in the Eastern Mediterranean are caught in a web of controversy with strands that include the Muslim Brotherhood, a divided Cyprus, Turkish and Egyptian strongmen, disputed leases, Hezbollah, and the once unheard of prospect of Israel becoming an energy exporter. Still, because of potential access to huge gas reserves, international energy companies, including Noble, Eni, BP and Total are making significant investments despite the risk of conflict between players who make no secret of their animosity toward each other. 

The prize. The Levant basin, in the Eastern Mediterranean between Cyprus, Egypt and Israel, has proved to be as rich in resources as the USGS estimated in 2010. Reservoir engineers concluded that the area holds 122 Tcf of recoverable natural gas, equivalent to the reserves of Iraq. Tamar and Leviathan fields, discovered in Israeli waters by Noble in 2009 and 2010, respectively, have combined reserves of 32 Tcf. Tamar now provides natural gas that produces 60% of Israel’s electric power capacity, and Leviathan’s Phase I development received FID in February 2017 after six years of bureaucratic debate. 

Discovered by Eni in 2015, Egypt’s 30-Tcf Zohr field was developed on a rapid schedule and began producing on Jan. 31, 2018. With 4.2 Tcf in reserves, the Aphrodite prospect off Cyprus was deemed too small for major infrastructure investment when Noble discovered it in 2011, but partner Delek Drilling has subsequently submitted a development plan. In early February 2018, Eni announced that it had discovered a “Zohr-like gas column” with its Calypso well drilled in Block 6 off Cyprus. Egypt also has seen major gas discoveries in the West Nile Delta, including the Atoll field, which BP brought on-line in February after investing $1 billion.

Following these major discoveries, Lebanon held its first offshore lease sale in October 2017, accepting one successful bid from a consortium including Eni, Total and Russia’s Novatek to explore in Blocks 4 and 9. 

The problem with Turkey. Turkish President Recep Tayyip Erdogan has tried to disrupt offshore development around Cyprus, despite Nicosia reaching agreement with Egypt, Lebanon and Israel over the maritime boundaries of its Exclusive Economic Zone (EEZ). With Turkey left out of the potential gas windfall, Erdogan claims that the developments violate his country’s sovereignty over the Turkish continental shelf. There are two political reasons for Erdogan’s interference.

Since a Turkish incursion in 1974, Cyprus has been divided between Greek and Turkish sectors, with the international community recognizing the Greek Cypriots in Nicosia as the legitimate government. Turkey is the only country that backs the Turkish Cypriots, and takes the position that they have an “inalienable right” to share offshore revenue.

Another reason for Turkey’s interference stems from the Arab Spring. Erdogan was a staunch supporter of Mohamed Morsi, the Muslim Brotherhood leader who was elected president of Egypt in 2012. In July 2013, Morsi was removed from office in a coup d’état led by General Abdel Fattah el-Sisi, who is now Egypt’s president. Relations between the two strongmen have not been good.

As a show of force, the Turkish navy staged maneuvers in the waters around Cyprus, beginning in early January.  Meanwhile, Eni had contracted the Saipem 12000 drillship to begin an exploratory campaign in Block 3. Reuters reported that on Feb. 9, the Turkish navy intercepted the vessel before it reached its drilling location. On Feb. 23, the drillship made a second attempt to reach the site, and was again blocked by Turkish military vessels. Eni redirected the Saipem 12000 to Morocco, to explore other prospects. 

Lebanon-Israel lease dispute. The maritime boundary between Israel and Lebanon has never been finalized to resolve competing claims. This ambiguity had not been a pressing issue until Lebanon held its lease sale, whose Block 9 crosses into Israeli-claimed waters and comes close to the Tanin and Leviathan discoveries. Israel warned international oil companies to steer clear of the disputed territory, and the Eni-Total-Novatek consortium has promised to keep its operations at least 25 km away from the disputed area. Despite these assurances, Israel’s defense minister has called the planned exploratory drilling “provocative conduct.” In response, the Lebanese militant group Hezbollah declared that it could attack Israeli gas facilities, if Israel tries to block Lebanon’s development. The Chicago Tribune reported that U.S. Secretary of State Rex Tillerson visited Beirut on Feb. 21 and offered to mediate the border dispute, but received a cool reception from Lebanese officials.

Regional supply shortage. Before 2010, Egypt was a net natural gas exporter and had constructed two LNG trains in Damietta and Idku. However, years of upstream underinvestment led to a decline in production, and the LNG plants were mothballed. Egypt also was forced to cancel a contract that supplied gas to Israel via pipeline, for lack of product to sell.

Egyptian energy hub. With new production from Zohr and the West Nile Delta, as well as the prospect of tying in Cyprus’ discoveries to Egyptian infrastructure, Egypt will be able to supply its growing domestic demand and restart its LNG plants. In late February, Egyptian gas company Doplhinus signed a 10-year, $15-billion contract with Delek to purchase gas from Tamar and Leviathan fields, which could be shipped through a pipeline that had previously supplied Egyptian gas to the Israelis. While some gas will likely be consumed in the Egyptian market, a portion also could be exported as LNG to Europe and Asia, as Egypt positions itself as the new energy hub of the Eastern Mediterranean. wo-box_blue.gif

About the Authors
Ron Bitto
Contributing Editor
Ron Bitto has more than 30 years of experience as a technology marketer and writer in the upstream oil and gas industry. RON.BITTO@GMAIL.COM
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