East Med gas going nowhere
Lebanon’s first offshore well was dry, exploration off Cyprus is on hold—the region’s glitter is looking distinctly faded
The expectation was that 2020 would see an acceleration of offshore activity in the Eastern Mediterranean, with exploration and appraisal wells in Cypriot blocks and more drilling off Lebanon. But this was not to be, and the coronavirus pandemic’s impact on price and on the pockets of IOCs is mainly to blame.
But there have been other setbacks too. French major Total (partnered by Italian explorer Eni and Russian independent Novatek) announced in late April that the Byblos-1 well in Block 4—Lebanon’s first exploration venture—was dry. There is scant hope of a second well, in Block 9, being drilled this year as planned. The negative news from Lebanon matches the gloom settling over the East Med as a whole.
Cyprus’s previously high hopes for 2020 have collapsed. ExxonMobil is postponing two wells to appraise its Glaucus discovery in Block 10 (with an estimated 5-8tn ft³ gas in place) until next year; and Eni and Total have put on hold six planned drillings, including an appraisal of the Calypso discovery in Block 6 (3-5tn ft³ gas in place). At the same time, US explorer Noble Energy and its partners Shell and Israel’s Delek Drilling may be forced to reschedule plans that would have seen gas from the Aphrodite field in Block 12—discovered in 2011— reach Egypt in 2025.
With IOCs forced to make huge spending cuts across the globe, Cypriot energy expert Charles Ellinas thinks Cyprus will struggle to fulfil its ambition to be a major gas player. “The prospects for gas development and exports do not look that good, at least in the foreseeable future,” he says.
“The prospects for gas development and exports do not look that good, at least in the foreseeable future” Ellinas
Price is a key issue. Egypt is having problems exporting its LNG, even though it is offering it at $5/mn Btu. In Europe, p/th prices at the UK’s NBP hub are threatening to go into single figures. “Cyprus gas would be more expensive,” says Ellinas. “If the gas glut continues well into this decade, the prospects do not look good in the longer term either.”
In question, too, are hopes for broader gas exports from the region. In April, a Greek-Italian venture said it was planning to shortlist contractors for a section of the EastMed pipeline project—a $6bn plan to transport gas from Israel and Cyprus to Europe. Despite this recent positive-sounding development, Ellinas says, “the future of the EastMed gas pipeline is not promising”. “Even though it has access to gas, it comes down to finding buyers in Europe to pay the price that makes this pipeline viable. Too many factors in Europe are against it.”
Turkey continues exploration
For the Cypriot government and its IOC licence-holders, the future is uncertain. The big unknown is when—or even if—offshore operations will resume. There is no such debate for Turkey, which is ignoring the global financial and health crisis and expanding its search for hydrocarbons off Cyprus—including in areas inside the island’s internationally recognised economic exclusion zone (EEZ). Turkey argues that Cyprus should not have begun energy operations before the island was reunited, thus allowing Turkish Cypriots to share in the activity. With no sign of reunification in sight, Turkey is making a political point by pressing ahead with exploration based on its own interpretation of maritime boundaries.
“I believe that Turkey will continue its own drilling programme,” says Mehmet Ogutcu, CEO of energy advisory group Global Resources Partnership. “It has even bought new ships for this purpose.” Ankara sees no reason to pause operations to give diplomacy another chance.
“A diplomatic solution is out of sight as far as I can see. There is no appetite for anyone to undertake a cumbersome process once again, knowing that it will not go anywhere,” Ogutcu adds. Which means more politically choppy waters even when IOCs finally restart their operations off Cyprus.