Zohr Gas Field: A New Game Changer in East Mediterranean

Source: Gulfoilandgas.com - Articles 9/3/2015, Location: Africa

On August 30th, Eni announced the discovery of Zohr, the largest ever natural gas field in the Mediterranean, at approximately 180 kilometers off the coast of Egypt. Zohr supergiant gas field lies within the Egyptian maritime borders surpassing the nearby Leviathan gas field offshore Israel. The estimated reserves of Zohr are 30 trillion cubic feet. This new development would allow Egypt to emphasis its role as the main regional player in the Energy landscape. This article focuses on the impact of the discovery on gas monetization strategies in the Eastern Mediterranean region.

About Zohr field

Zohr 1X NFW well is located in the Shorouk exploration block. It covers an area of 100 square km at a depth of 1,450 meters. Zohr 1X NFW was drilled to a total depth of 4,131 meters and hit 630 meters of hydrocarbon column in a carbonate sequence of Miocene age with excellent 2 reservoir characteristics (400 meters plus of net pay). Shorouk offshore block is part of the old NEMED concession previously operated by Shell. Early 2011 Shell relinquished NEMED after a ten year effort to prove up commercial gas. Shorouk is located 170 km to the north of the Mediterranean shore line close to EDDM development lease and covers an area of 3,765 km2, in water depths ranging from 1,400 to 1,800 m. The block is bounded from the North by Egypt’s economic maritime border and by North Hap’y offshore concession from the South.

Key Statistics
Discovery size: 30 trillion cubic feet
Estimated value: 60 to 90 billion USD
Largest ever natural gas find in the Mediterranean
One of the top 20 largest gas fields in the world
Add close to 50% to Egypt's gas reserves
Cover at least 10 years of current Egyptian gas consumption
Expected production: 2018 (3 years)

What does this mean to East Mediterranean energy players

Reversing the Flow article was published on April 2nd, 2014, to explain how can Egypt's idle gas export infrastructure serve the energy security needs of Egypt and the region. Gulfoilandgas.com analysts studied multiple routes to suggest the construction of a new "Hope pipeline" for monetizing gas discoveries offshore Cyprus. Today, Egypt Gas Find could Shake Up Energy plans of countries in the eastern Mediterranean region. A revised outline for impact on neighboring countries is presented below.

Great news for Egyptians

A reference to the magnitude of gas reserves in the East Mediterranean was presented in an article published by Gulfoilabdgas.com on June 2014, under the name of "Love Thy Enemy: The Untold Story of Huge Gas Reserves in the East Mediterranean". The discovery comes as a big relief for Egyptians. It will allow them to fill the gas supply gap and satisfy the increasing local demand. It will also present an opportunity for resuming gas export based on a revised healthy export strategy. Egyptians should have now a clear understanding of how to strategize in the right direction after learning from their (very expensive) mistakes.

The revised export strategy should:
1) recognize the priority for securing domestic needs for generations to come,
2) ban completely all forms of energy subsidies,
3) ban the introduction of coal in Egypt energy mix,
4) allow room for healthy and fair cooperation in conjunction with regional gas monetization.

Zohr gas field and East Med gas monetization

Great loss for Israel

For the last few years, Israel tried to play a risk free role in the eastern Mediterranean energy arena. The cornerstone of their gas monetization strategy was to secure a long term exclusive access to the Egyptian market and to Egypt's idle gas export infrastructure. In the mean time, under the so called "East Mediterranean Energy Corridor" concept, they were persistently rushing Cyprus to build the Vasilikos LNG plant which would cost them around $12bn if built.

Egypt Gas Find is dramatically changing the rule of the game for Israel. Egypt no longer needs Israeli gas. On Monday, Energy shares plummeted on Tel Aviv Stock Exchange in response to the unexpected change in the market landscape prompted by Zohr discovery. Shares for Avner Oil Exploration and Delek drilling companies plummeted by 13% and Ratio Oil Exploration by 18%. Zohr discovery is putting pressure on investment plans in Leviathan gas field relying on Egypt as the main consumer to pay for the field’s development cost. Israel hoped to sign a long term deal to export Leviathan gas to Idku plant in Egypt through British Gas. Tamar field could also suffer as its partners hoped to export 25% of their gas to Damietta LNG trough Union Fenosa.

More options for Jordan and Lebanon

On April 3, Israel announced a $500 billion deal for the sale of 1.87 bcm of gas from Tamar gas field to Jordanian companies Arab Potash and Jordan Bromine over the next 15 years. With the new discoveries, more options will be now available to Jordan and Lebanon if Egypt resume export through the Arab gas pipeline.

Golden opportunity for Cyprus

On November 25th 2014, the plan for a new Gas Pipeline from Cyprus to LNG plants in Egypt was announced at a tripartite Egyptian-Cypriot-Greek meeting in Cyprus. The move echoed Gulfoilandgas.com strategy proposed in early 2014, which described how Cyprus could send natural gas from its Aphrodite field (Block 12) by a 180 km undersea pipeline to Damietta LNG in Egypt.

Today, Zohr discovery represents an even better opportunity for monetizing the Cypriot gas. The approximate distance between Shorouk block and the Cypriot block 12 lies in the range of 30 to 40 km. Gas pipelines and transportation infrastructure will be built and/or upgraded anyway to transport gas findings from Shorouk block to the Egyptian shore for either export or local consumption. Such close proximity means that a relatively small investment is required from the Cypriot side to construct the marine gas pipeline segment that merge with Zohr gas transportation system in order to capitalize on the existence of such infrastructure at the Egyptian side.

For Cyprus, this scenario represents a low risk and high revenue opportunity allowing them to send Cypriot gas for further processing in Egyptian lng plants for future export. The exact scenario could be based on the outcome of the revised Egyptian export strategy. For Egypt this will represent an excellent buffer to fill export gaps and balance supply and demand as needed in view of fluctuations in local consumption and the need to keep some of the gas available for future generations.

Strategic Implications

Potential economic development for Egypt
More Emphasis to the importance of strategic ties between Cyprus and Egypt
Reduction of the chances for monetizing gas discoveries offshore Israel
On the local side, this will represent another reason to reject coal introduction to the energy mix of Egypt

Dr. Maged Amin
Founder: Gulfoilandgas.com

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