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“Egypt has two LNG liquefaction plants, (at Idku and Damietta) and was an exporter in the 2000s, but falling production and rising demand meant it became a net importer in 2015, and the LNG plants have remained idle”
By Costis Stambolis
A series of events over the last two years in the east Mediterranean’s active hydrocarbon exploration belt has enabled the emergence of what is generally perceived as a new major peripheral gas hub in Egypt.
First, it was the discovery of the giant offshore Zohr gasfield in 2015, which is by far the largest field to have been discovered in the broader region over the last few years. Then, early in 2017, we had the prospect of the reactivation of Egypt’s two near-idle liquefaction terminals at Idku and Damietta, being capable of restarting gas exports, something which became apparent as Cyprus is nearing an agreement to sell natural gas to Egypt, and through it to international markets. And thirdly, only two weeks ago we had the signing of a major $15 bln deal for the sale of Israeli gas to Egypt.
This latest trade agreement between the two former foes, note political analysts, comes in the footsteps of the historic Israel – Egypt Peace Treaty of 1999 between Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin, and opens up a new market for gas from Israel’s offshore gas fields Tamar and Leviathan, discovered in 2009-10, and also points to possible to further cooperation in the future.
Most of the 64 bln cubic metres of gas that Delek Group of Israel has agreed to sell to Dolphinus Holdings of Egypt is intended for the domestic market. Hence, Egypt as a result of its own large gas discoveries, which it has been slowly bringing into production, including the giant Zohr gasfield, is now poised to become a gas exporter once again. In this context we should note that Egypt has two LNG liquefaction plants, (at Idku and Damietta) and was an exporter in the 2000s, but falling production and rising demand meant it became a net importer in 2015, and the LNG plants have remained idle.
The intelligence group Stratfor argued that an attractive option for exporting gas from Israel and Cyprus would be to use those facilities, making Egypt “the centre of regional gas development”. Although this scenario has been playing on and off over the last two years, it is only very recently that any concrete steps have been made towards this direction.
Affordable way out for Cyprus
In Cyprus’s case which is keen to monetise its newly-found gas resources, Egypt offers a commercially affordable way out of its present limbo since other options on the table, such the construction of a brand new LNG plant in Vassilikos or a deep-sea gas pipeline to Greece, are prohibitive from an investment and financing point of view, especially taking into consideration the currently suppressed global LNG export prices.
According to latest information from the ongoing negotiations between the Cyprus Natural Hydrocarbon Company and Egypt’s corresponding state organisation, Cyprus would supply Egypt from the Aphrodite field, which was discovered by Noble Energy Inc. in 2010 and contains an estimated 140 bcm of gas or 4.5 trillion cubic feet.
“Cyprus is close to selling natural gas to Egypt’s liquefied natural gas plants, and we could reach an agreement in the coming weeks,” Energy Minister Georgios Lakkotrypis told Bloomberg in a telephone interview from Nicosia only two weeks ago. The Egyptian LNG plants at Idku and Damietta lie less than 200 kilometers south of Cyprus with the laying of underwater pipeline connections not difficult thanks to relatively shallow waters.
Latest gas discoveries within Cyprus’s EEZ following the latest major gas find in Calypso in Block 6, together with the known deposits in Israel, the Zohr field off Egypt and prospects for reservoirs off Lebanon, could create a centre of gas production on Europe’s doorstep.
While that may offer a handful of nations access to vast resources, they have only just started to discuss between them the best way to export the fuel in a region rife with political enmity. Turkey’s latest aggressive moves, just ten days ago, to block ENI’s exploration in Block 3 in Cyprus’s eastern EEZ is a case in point which helps illustrate the immerse difficulties at political level which hamper the successful development of the region’s vast hydrocarbon wealth. Israel and Lebanon, meanwhile, have traded threats in recent weeks over their contested maritime border.
Also, the broader area between Cyprus, Israel, Lebanon and Egypt may contain additional gas deposits, and countries in the region are eager to develop their own export plans. The U.S. Geological Survey estimates the area could hold more than 340 trillion cubic feet of gas, more than total U.S. proven reserves.
All talk finally coming true
“This is basically the moment when, finally, all the talk about turning Egypt into a regional gas hub is finally coming true,” Riccardo Fabiani, senior Mideast analyst for Eurasia Group, said recently, as quoted by Bloomberg.
Energy analysts familiar with the East Mediterranean region observe that Egypt, which until few years ago used to export gas by land pipeline to Israel and Jordan, expects to meet all its needs for the fuel later this year thanks to production from the ENI-operated Zohr field. The most populous Arab nation also has wider ambitions of once again supplying other countries.
A new law in Egypt has enabled private companies like Dolphinus Holdings to import gas and re-export it through the country’s LNG facilities.
“Egypt is proceeding with its plan to achieve self-sufficiency in natural gas by year-end and a surplus in 2019, and moving ahead with its strategy to become a regional hub for energy,” note the above analysts.
Noble Energy and Delek Drilling-LP, the lead partners in Israel’s largest gas fields, who have sealed a deal to supply around 64 bln cubic meters of natural gas to Egypt’s Dolphinus Holdings starting in 2020, point out that they expect Zohr’s output just about to meet Egypt’s demand by 2023 and only for a limited time.
In Cyprus, Texas-based Noble Energy and Royal Dutch Shell Plc each own a 35% stake in the Aphrodite field, while Israel’s Delek controls the rest.
“The fact that Shell Energy is the administrator of Egypt’s Idku liquefied natural gas plant favours such a deal,” said Dr. Charles Ellinas, a well known commentator on East Med energy, referring to an imminent agreement involving Cyprus and Egypt.
Energy experts in Nicosia observe that any discussions must take note of the fact that Cyprus has gas reserves beyond Aphrodite, as the latest Calypso find showed. Total SA and Eni found small volumes in 2017 at the Onesiphorus field, confirming the existence of a carbonate platform similar to Egypt’s Zohr, which Eni has described as the largest find in the Mediterranean. Eni also announced on February 8 another discovery in the Calypso field in Cyprus’s Block 6 with “an extended gas column.”
The prospect of a new gas export hub, such as the one now contemplated by Egypt, opening up in the eastern Mediterranean is particularly attractive for Europe, which is worrying about declining production from the North Sea and its growing dependence on Russia.
However, there are still problems to be overcome, including the pipelines needed to take the gas to Egypt and Turkey’s growing belligerence. The region’s complex politics mean exploiting the reserves to their full potential will not be easy.
Keith Johnson of “Foreign Policy”, warned that despite the positive signs, the gas reserves would not necessarily ease the tension between Israel and its neighbours or between Turkey and Cyprus.
“For all the region’s promise, energy hasn’t been able to break the shackles of longstanding geopolitical rivalries”, he wrote.
At the same time Cyril Widdershoven at Oilprice.com suggested that “increased insecurity or an outright war” must not be excluded and could indeed threaten gas supplies from the region.
Costis Stambolis is a Financial Mirror correspondent, based in Athens. [email protected]
