The Priest, the Sheikh and the Rabie: Monetizing East Mediterranean Gas

Source: - Articles 2/28/2018, Location: Africa

Unlike other commodities, exporting natural gas is an extremely expensive decision. Emerging producers in East Mediterranean have to build multi-billion dollars projects and wait few years before getting the first gas shipment to consumers. In a carefully orchestrated sequence of events, Egypt, Cyprus and Israel finally set the stage for Monetizing East Mediterranean Gas. The recent developments position Egypt as the East Mediterranean gas hub and put an end to the so called Eastern Mediterranean Energy Corridor: a strategic system promoted for more than a decade to secure East Mediterranean gas supply to Europe via Turkey. This new order escalates tensions in the region as it ends the Turkey’s dream of becoming an energy hub.

Egypt: The new gas hub for the East-Mediterranean

Israeli Deal
Two 10-years agreements allowing Egypt via Dolphinus holdings to import gas from Israel was announced by Delek Drilling and Noble Energy. The deal is worth an estimated $15 billion. These agreements, one for natural gas from leviathan field, and one from Tamar field, each provide for total contract quantities of 1.15 trillion cubic feet of natural gas. Scheduled to start by the end of 2019, sales volumes are anticipated to begin at 350 MMcf/d from Leviathan and up to 350 MMcf/d from Tamar dependent upon gas availability beyond existing customer obligations.

Israeli PM Benjamin Netanyahu described the deal as “historic”. The gas is likely to be delivered by reversing the flow of the 100 kilometers Arish - Ashkelon submarine gas pipeline owned by East Mediterranean Gas Company (EMG). Arish - Ashkelon pipeline was used in the past to supply approximately half of the natural gas consumed in Israel during the time where Israel was a net gas importer.

Most of the Egyptian Natural Gas exports were halted in 2012 and because of the increasing local demand, Egypt decided to divert for domestic use the share of gas foreign firms normally get to export. In November 2017, the Egyptian Minister of petroleum, Tarek El Molla announced that for new Israeli import deals to be signed, arbitration cases related to halting gas export to Israel would have to be resolved. Egypt must pay almost $2 billion to Israel electrical corporation, in addition to more than $1 billion to EMG and it is not clear how this is settled in the final deal.

Cypriot Deal
Cyprus is very close to selling natural gas to Egypt. An agreement is expected to be signed with the EU in the near future to build the undersea pipeline “Hope pipeline” between Cyprus and Egypt. Aphrodite field (Block 12) and the newly discovered Cypriot gas fields are likely to supply gas by the pipeline to Egyptian LNG facilities in Idku and Damietta.

Eni recently announced a lean gas discovery 80 km from the southern coast of Cyprus after drilling an exploratory well “Calypso”, in block 6. ENI and Total have equal development rights in this block. Calypso is a promising gas discovery and confirms the extension of the ‘Zohr like’ play” into the Cypriot EEZ. It is believed to hold around 6 to 8 trillion cubic feet, or maybe more.

Egypt: The new gas hub for the East-Mediterranean
Today, Egypt has idle gas export facilities and no surplus gas for export. Based on the recent deals, Egypt will collect gas from Cyprus and Israel to be further liquified in its export facilities at Edku and Damietta. Liquified gas will then be transported by LNG carriers to ultimate consumers in Europe and Asia.

Initiatives related to newly discovered East Mediterranean gas to be transferred to Europe through Turkey where of strategic importance to Ankara. Turkey’s dream of becoming an energy hub has vanished with recent developments. Accordingly, Turkey decided to resume confrontation with Cyprus over maritime borders and offshore concessions. Turkey claims that companies drilling for oil and gas off Cyprus are within turkeys continental shelf. Turkish foreign minister Mevlut Cavusgolu claimed that block 6 of Cyprus EEZ belong to Turkey not Cyprus.

Tensions over Lebanon's maritime borders with Israel have flared, exacerbating fears of conflict between Israel and Hezbollah. Hezbollah leader threatened to target Israeli offshore gas platforms. Israel suggest that the Hezbollah attack on Israel is inevitable.

Natural gas sets the stage for future conflicts in the East Mediterranean

Dr. Maged Amin

Articles in the Egypt Gas Puzzle series:

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