Bucking the trend

Chad Barnes, EIC

April 1, 2016

Chad Barnes reports that contrary to current industry norms, contracting activity in the Eastern Mediterranean and North Africa region is on the rise.

The Eastern Mediterranean gas landscape and a focus on Egypt. Source: Middle East Economic Survey

The last year has witnessed an overall decline in offshore activity in many parts of the world, due to low oil prices. However, activity in the Eastern Mediterranean has actually increased and the area offers potential future opportunities for offshore companies. The activity is fueled by several recent major gas discoveries in Israel, Cyprus and Egypt that have the potential to not only serve domestic gas demand, but to act as a hub that could supply the European gas market.

Early in 2015, after years of delays, BP’s US$12 billion West Nile Delta Development in Egypt, the biggest project in the region, also finally received the green light. BP said that the project will be fast-tracked to meet Egypt’s gas shortages, with first gas planned for 2017.

Likewise, Eni’s 30 Tcf deepwater Zohr discovery offshore Egypt is also a game changer in the region, with the potential to convert Egypt from a net importer back to the LNG exporter that it was 10 years ago. The two-phased, fast-tracked project is targeting first gas in 2017 by drilling six wells this year and tying them into existing nearby infrastructure.

The recent success of Egyptian exploration has hindered developments of Israel’s Leviathan field and Cyprus’s Aphrodite field. Egypt was due to be a major gas customer from these fields. However, that has changed since Zohr has the potential to cover a significant part of Egypt’s domestic gas demand.

The $7 billion FPSO development of the Leviathan field has recently been scrapped in favor of a revised, cheaper fixed platform solution. According to the new plan, half of the 21 Bcm of gas per annum is destined for Israel and neighboring countries while an additional platform exit point will be made for potential export opportunities to new markets. A final investment decision by Noble Energy is due to be made in late 2016. However, the Aphrodite partners are in advanced gas sale negotiations with the Egyptian market for potential exports in 2022. BG Group’s recent Aphrodite field farm-in suggests that gas from the field is likely to go to BG Group’s Egyptian refinery or potentially to their Idku LNG export facility.

With Egypt not expected to require gas imports from 2022 for its domestic needs, exporting to Greece or Turkey may be a more attractive option for Cyprus and Israel. A pre-FEED study is due to be completed in March 2016 (as OE went to press) for a subsea pipeline to Greece, which could influence the development decisions of the Eastern Mediterranean fields. However, considering the Zohr, Aphrodite and Leviathan fields all lie within close proximity to each other, there is the potential to allow a coordinated development of the fields, using the existing idle LNG export facilities in Egypt. Provided that there is better cooperation between the countries and improved political stability, the next decade could see the region emerge as a major gas exporter to meet Europe’s growing gas demand.

Chad Barnes is an analyst at the EIC for the upstream sector, and covers this remit globally. He has a degree in geology from the University of Leeds and a Master’s degree in integrated petroleum geoscience from the University of Aberdeen. Chad has also gained experience working with a North Sea operator, Ithaca Energy.