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Missing the boat

From Cyprus to the Niger Delta, developers hope to add lucrative new LNG capacity. The timing is bad

WHILE East African liquefied natural gas projects advance slowly, West African prospects for fresh LNG capacity are more mixed, if not scant. Like developers are finding elsewhere, this is an inauspicious moment to build pricey new upstream projects.

Nigeria LNG, which runs the continent’s largest plant, the 22m-tonne-a-year (t/y) six-train facility on Bonny Island, has long talked of adding a seventh train. But for now it’s unlikely, given the low returns on offer; while a resurgence of violence in the Niger Delta, which has disrupted supply in recent months has not helped either. More likely to reach fruition are FLNG projects in Equatorial Guinea and Cameroon, scheduled to be operational by 2017-18. Meanwhile Angola LNG, the 5.2m-t/y Chevron-operated facility, has been shut due to technical issues since April 2014, but could start exporting again before mid-2016.

Despite a wealth of gas discoveries in recent years, many gas-export proposals, and a recently launched third licensing round off Cyprus, the Eastern Mediterranean is not in any way speeding towards an LNG future. Domestic energy requirements and political machinations remain obstacles, while the close proximity of the large European market – especially via Turkey – makes pipeline exports rather than LNG production at least as attractive.

Egypt has just given operator Eni the go-ahead for the development of the offshore Zohr field, with estimated reserves of 30 trillion cubic feet (cf), three quarters of which is thought to be recoverable. But Egypt’s gas needs are soaring, so much of Zohr’s gas will be directed straight to the domestic market.

That means the main impetus for LNG is likely to come from Israel, where the Tamar and Leviathan fields, both operated by US firm Noble Energy in partnership with Israeli group Delek, hold an estimated 32 trillion cf of gas between them. Gas from a discovery in the Daniel East and West fields, to the south of those discoveries – announced in January by a group led by Isramco Negev and Modiin Energy – could also add around 9 trillion cf to Israeli reserves, according to early estimates.

An LNG facility – possibly FLNG – or a pipeline to Israel’s neighbours would make sense. If the economics don’t stack up, another possibility is to send the gas via pipeline to Egypt’s existing Damietta LNG and Idku plants, which have been starved of supply. Last year, Noble and Delek said they were seeking a deal to do this, but the Zohr discovery puts Egypt in a stronger position.

Nothing is moving quickly. Noble and Delek’s plans to develop Tamar and Leviathan have been slowed by litigation from opposition groups that claim the companies would effectively have a monopoly market position. Israeli prime minister Benjamin Netanyahu has now signed a gas framework that should allow the development to proceed, but the court cases keep coming.

Cyprus had dreamt of big LNG exports. But its only major find is the offshore Aphrodite field, discovered by Noble Energy in 2011 and estimated to hold some 4 trillion cf of gas. It isn’t enough to build an LNG industry on. In January, the Cypriot government approved the sale by Noble to BG of a 35% stake in Block 12, which contains Aphrodite, for $165m. That should push development, if not of LNG then of pipeline supplies.

A recent broad agreement between the region’s main gas owners to develop an export industry jointly may help, allowing eventually for gas from deposits in the East Med to be shipped to Greece or Cyprus. But each of the main resource owners faces different obstacles, and a shuffling of the resource pack is likely – Aphrodite, for example, could supply Egypt, not Leviathan. For all of the region’s hopeful gas producers, the slumping market means the window of LNG opportunity is probably closed for now, leaving local pipelines the better alternative.

This article is part of an in-depth series on offshore production. Next article: East Africa: creeping along.

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