Cyprus catching up?
Egypt is far ahead in the race to be the top East Med gas producer, but Cyprus is hoping it will soon move into second place
It's not often in any industry that one comes across an overnight game-changer. But the discovery of the Zohr gasfield 200km (124 miles) offshore Egypt in 2015 was just that. Not only was the find massive, with reserves of 30 trillion cubic feet (850bn cubic metres) of natural gas, but it also broke new geological ground.
Most discoveries off the Egyptian coast had been in clastic sedimentary rock in waters relatively close to shore. Egypt's deepwater seabed had been largely written off as unproductive. Italy's Eni, which won the Block 19 Shorouk concession in 2013, had a hunch after studying seismic images that reservoir rock lay 1,400 metres (4,700 ft) below the surface. They were proved right. But it wasn't a regular gas find—as Eni said, "Zohr turned out to be a sensational discovery", with the gas contained in a previously unknown carbonate layer. Luca Bertelli, Eni's head of exploration put the success down to "geological intuition and powerful Eni proprietary seismic imaging technology".
The surprise Zohr mega-discovery changed the complexion of the Eastern Mediterranean region, putting it into the top bracket of global gas prospects. Eni was initially the sole operator in Block 19 when the licence was awarded. It tried without success to attract partners to spread the financial load because of the high cost of deepwater drilling and the big commercial risks involved, given that there had been no previous discoveries nearby. But the company pressed on regardless and its ultimate spectacular success whetted the appetite of IOCs both to partner the Italian firm and seek concessions elsewhere in the East Med, not just in Egyptian waters.
BP was the first major to link up with Eni, buying a 10% participating interest in Zohr in November 2016, with the option to buy a further 5% by end-2017. The following month, Rosneft bought a 50% share in the venture, with the same 5% option. The two deals earned Eni in the region of $2.1bn, helping it meet the $7bn investment cost.
Another unique aspect of Zohr is the fact that Eni—now with its two partners—has been able to develop the field so fast. First gas is expected by end-2017, just over two years after the initial discovery. Eni says this has been possible in part because the company has been operating in Egypt since 1954 and is well established there.
Another reason is the fact that Egypt's gas delivery and distribution infrastructure is already in place, in a country where there's a huge demand for gas—for domestic consumption and liquefaction for export. On top of this, the Egyptian government is more generous than others in offering IOCs an attractive gas delivery price of up to $5.8 per million British thermal units. At the same time, the authorities are changing the regulations to expand the role of private firms in the country's gas sector to help Egypt develop into a regional gas hub.
Catalyst for Cyprus
Gas from offshore Cyprus may one day be passing through that hub. Few outside Egypt were more excited by the Zohr find than the Cypriots. For Block 19 lies adjacent to the marine boundary between the two countries and the newly discovered carbonate layer extends well into Block 11 in Cyprus' economic exclusion zone. Total was awarded the licence for that block in 2013 and in March this year Eni—with the experience gained in developing Zohr—bought a 50% share. Drilling began in July and by the end of this year Cypriots will learn whether or not their country too will be a big hitter in the natural gas league.
If, as is thought likely, a sizeable find is made in Block 11, then this could serve as a catalyst for other discoveries, current and future, in Cypriot waters. The Aphrodite field in Block 12, with 4.5 trillion cf of reserves, was discovered in 2011, but still awaits development. Cyprus' relatively small market doesn't justify the cost of extracting the gas, while the reserves aren't sufficient to justify the construction of a liquefied natural gas plant on the island. A major Block 11 discovery, along with future finds by Eni, Total or ExxonMobil (with Qatar Petroleum), all with offshore licenses, could result in sufficient gas for an onshore or floating LNG project, or a joint scheme to export gas to Egypt.
No one knows how many Zohr-type fields are waiting to be found under the waters of the Eastern Mediterranean. But that game-changing discovery in 2015 means that IOCs will be looking at both Egypt and Cyprus as potentially good targets for investment for a good many years.
This article is part of a report series on Top 10 upstream bright spots. Next article is: Iran's great opening