East Med presses upstream buttons
Six Eastern Mediterranean states will be drilling for hydrocarbons in 2019, but, as always, the politics is complicated
The impending results of two drilling campaigns have the potential to super-charge the East Mediterranean as a world-class hydrocarbons province.
Egyptian officials have suggested that the gas in place at the offshore Nour field could exceed that of the country's mega-giant Zohr field—at least 30tn ft³, or 850bn m³, the biggest discovery yet in the East Med. Eni is dampening expectations of current drilling there, referring to Nour in its recent third-quarter results presentation only as a "sizeable prospect". In Cypriot waters, ExxonMobil is drilling in Block 10, targeting the same carbonate layer as in the Zohr discovery.
"There are few regions in the world where so much activity is concentrated, and where so many top international oil companies are investing," says East Med energy analyst Charles Ellinas on the fringes of an upstream workshop in Athens organised by the Institute of Energy for South-East Europe, or Iene. "It is not surprising when yet-to-find gas is estimated to be somewhere between 2.8tn and 8.5tn m³."
Another huge discovery would cement Egypt's position as the East Med's leading energy centre. Onshore and offshore exploration and development are expanding fast, and international firms are attracted both by good hydrocarbon prospects and a highly competitive gas sale price. "Egypt is where all the serious action is taking place in this region," says Ellinas.
Focus is inevitably on Zohr, where production has reached 2bn ft³/d, and where, according to Eni's recent Q3 conference call, the addition of trains 3-5 from March to September next year could see production hit 3.2bn ft³/d by year-end. But BP has invested $35bn in Egypt over the past five years, while Eni has ploughed in $16bn thus far, and both forecast more to come. Shell and Italy's Edison are also targeting further investment.
Egypt plans further licensing rounds in the coming year targeting blocks in its western Mediterranean offshore. This area, Ellinas says, "is completely unexplored, and the prospects for finding more gas are very serious".
Cyprus high hopes
ExxonMobil should give early indications by the start of 2019 on whether any Block 10 discovery could be comparable to Zohr. But Demetris Fessas, acting head of the state-owned Cyprus Hydrocarbons Company, cautions patience. "From what we have seen so far from these carbonate reservoirs, they are a lot more complicated in terms of making assessments," says Fessas. "So it might take time to determine the size of the volume we have actually got."
The Cypriot authorities expect to choose an operator for Block 7 in 2019, having invited current licence holders to submit bids by the end of the year. Cyprus also hopes to finally approve development of the Block 12 Aphrodite gas discovery, via an export pipeline to Egypt.
Aphrodite was discovered in 2011, but development has been delayed because its 4.5tn ft³ gas in place is in excess of domestic market needs but insufficient to justify an LNG export terminal. "We see a real opportunity for exports to Egypt and talks are at a very advanced stage," says Fessas.
Turkey talks tough
Turkey has also begun drilling in East Med waters, with a first target is 60 miles south of Antalya. But the Turkish government plans at a later date to drill in areas much closer to Cyprus. Turkey asserts that some blocks in Cyprus' internationally accepted economic exclusion zone are part of its continental shelf. It also insists that Cyprus should not be exploring while the island remains divided, saying that to do so ignores the rights of Turkish Cypriots.
Another huge discovery would cement Egypt's position as the East Med's leading energy centre
In February, the Turkish navy blocked the path of a drillship chartered by Eni as it tried to reach Block 3, which is also claimed by the Turkish Republic of Northern Cyprus, a breakaway state recognised only by Turkey. "If the Greek Cypriot side say they want to exercise their sovereign rights without consulting the Turkish Cypriots, then certainly there will be more confrontations, predicts Yurdakul Yigitguden, a Turkish energy consultant. "The Turkish Cypriots say if no one from the south consults them, then they will issue their own licences for exploration."
Whatever happens around Cyprus, Yigitguden expects Turkey to expand upstream operations in both the East Med and Black Sea in 2019. Falling output and increasing import dependence directly contradicts the current administration's promise, on coming to power in 2002, to increase oil and gas production. "Now they have to show the people that something is going on," says Yigitguden. "So there is both an economic and political dimension to the upstream push."
Greece kicks off
In Turkey's western neighbour Greece, FTSE 250 and Tel Aviv-listed independent Energean will use extended reach drilling technology from an onshore platform to access offshore oil reservoirs in the Katakalon block off the west coast, with 2P reserves estimated at 10.5mn bl. Production could start in 2020. Also off western Greece, regional independent Hellenic Petroleum, as operator, and Edison will target oil reserves in the Patraikos block.
With a consortium featuring Total and ExxonMobil, alongside Hellenic, awarded exploration licences for the ultra-deep-water West and South West of Crete blocks earlier this year, Greece is proving that it can attract big names. " is very important because we have real operations," says Yannis Bassias, head of state firm Hellenic Hydrocarbon Resources Management. "The arrival of the big companies is a door-opener: others will want to follow." In the months ahead, Bassias will look for bidders for two vast deep-water blocks south of Crete, and another licence south of Block 2 in the far north-west offshore.
For Israel, the giant Leviathan offshore discovery, with 22tn ft³ of gas in place, should see first gas in Q4 2019. US independent Noble Energy is targeting initial capacity of 1.2bn ft³/d, with Jordanian national power company Nepco one confirmed buyer and a private Egyptian consortium Dolphinus a possible second.
Energean took a final investment decision on the offshore Karish gas field earlier this year and will spud its first production well in March. The company, which has signed 12 gas sales and purchase agreements with private Israeli firms with an average duration of 16 years, has commissioned the construction of its own floating production, storage and offloading facility. First gas is scheduled for Q1 2021.
“Cooperation is technically possible, but politics doesn’t allow it” Stambolis, Iene
Lebanon, the East Med's late starter, should see the drilling of the first exploration well on Block 4 next year. Total is lead partner (40pc) in a consortium with Eni (40pc) and Russia's Novatek (20pc). The group was awarded the licences for Blocks 4 and 9 in Lebanon's first bid round, and a second is expected in the coming year.
While southern parts of Block 9 are contested by Israel—Lebanon and Israel have no diplomatic relations—Total has stressed that it will remain clear of disputed areas and operate only in northern waters.
Despite individual states' flurries of upstream activity, geopolitics casts a shadow over any discovery's monetisation prospects. "Midstream co-operation among East Med players is essential," says Iene director Costis Stambolis. "We just don't see regional cooperation." Examples of political barriers abound. Strained Israel-Turkey relations have knocked plans for a gas pipeline link off the table. Cyprus cannot export to the huge Turkish market just across the water. Greece and Turkey dispute areas of the Aegean. Shared Lebanon-Israel export facilities are unfeasible. "Technically, much is possible," Stambolis adds, "but politics does not allow it."