Cyprus, Israel, Lebanon, Egypt – Energy Developments in the East Mediterranean – Gary Lakes, ERPIC Energy Program, IBLC, March 2017
Cyprus, Israel, Lebanon, Egypt – Energy Developments in the East Mediterranean
Gary Lakes – Director, ERPIC Energy Program
International Business Law Consortium
Nicosia, March 2017
Good morning, welcome to Cyprus. I’m going to talk this morning about the offshore industry in the East Med. And it’s really quite interesting for those of us who are involved in it and who have been paying attention to it for about, let me see, since about 2010.
This map shows the geopolitical layout of the East Mediterranean. There are some contentious issues, some controversial matters. And I’ll explain: the map is based on the UN Convention on the Law of the Sea (UNCLOS – ed.). Now, not everybody agrees with that, and I’ll get into that a little bit later. You’ll see how. This is the Egyptian offshore, these are the blocks that have been awarded. Most of Egypt’s production comes around here – some of the Western Desert. This is a slice of offshore territory that’s been allocated to the Palestinian Authority – it’s right off the coast of Gaza. This is the Israeli offshore, and I’ll mention that Israel is not a signatory country to the UNCLOS agreement. This is the Lebanese offshore – more about them later – but one of the areas of dispute is this area here between Israel and Lebanon. Also, here’s the Syrian offshore – another area of dispute. Syria’s not, I believe it’s not a signatory to the convention. You see the Turkish coastline here. Now, the reason it’s jagged like this is because a little island here called Kastellorizo, and in accordance with the parameters of the convention that entitles Greece to this offshore area. And I’ll have some more to say about that. This is, of course, the Cyprus offshore, and these are the blocks that have been designated so far. I’m sure you’ve learned that this area is, there’s a political problem here in Cyprus called the Cyprus problem – it seems to be pretty well known. But there have been no designations, no delineation of blocks here in that area.
So I’ll just give you a rundown, a summary of what’s going on in the region, what the developments have been. I’m sure we’ll have plenty of time for questions later.
This area is the Levant Basin and that’s the Levantine Basin right here. This is where most of the attention is centered on. So in the Levant Basin, according to the US government geological survey, there’s 122 trillion cubic feet to be found in the area. There would be like 1.7 billion barrels of oil – none has been discovered yet. So far, the amount of gas that’s been discovered in the area is 38 trillion cubic feet, and that’s about 1 trillion cubic meters. Now, most of this has been found in Israel by a Houston-based company called Noble Energy. And they’re also responsible for the discovery of the Aphrodite field offshore Cyprus.
Like I said, all significant discoveries in the East Med have been made by Noble Energy, but that hopefully will change in that next year or so. Israel’s Tamar field is on-stream. It came on-stream in March 2013 and it supplies Israel’s domestic market. That’s the only field in the East Med, apart from what exists in Egypt, that’s actually producing right now. The Leviathan partners, which include Noble and Israel’s Delek and Israel’s Ratio, they agreed on a final investment decision to develop the Leviathan field just in January. The Leviathan field was discovered in December 2010 and it has taken this long for things to get to the point where they can actually make a final decision to develop. It’s been a very long and winding road, there are a lot of, you know, different things that have happened. And it’s quite an interesting story, but I’ll not get into all of that.
Cyprus is awaiting some commercial deals, preferably with Egypt, to develop the Aphrodite field. And just in February Lebanon re-launched its licensing round. It originally started in 2013. And because there were a lot of political problems in Lebanon, as I’m sure you all know, there was no government, there was no president, and that changed at the end of last year when the parliament, did select a president and a new cabinet was formed.
With the gas that they found so far they believe that the East Mediterranean gas will supply the regional market. So that’s like Israel, Egypt, there’s now a plan to go and take Israeli gas to Jordan – there’s a lot of debate about this – and some possibility of gas to Turkey, but also even building a pipeline to Greece. None of this stuff is decided, most of it is theoretical. There’s pros and cons on both sides, people are arguing their position. It could become an important source of supply for European gas which is interested in developing its energy security, essentially to move away from its dependence on Russia. But developing depends on the markets and the politics, the financing. As I said just while ago, there’re pipelines under consideration to Greece and Turkey, and LNG is a possibility if there’s significant quantities discovered. LNG is liquefied natural gas and, you know, it’s a convenient way to move it about the world, it isn’t tied to a pipeline. But it’d be about 2020-2022 before things start happening. And the entire region needs more exploration and drilling.
This coming summer TOTAL, which has several blocks now offshore Cyprus, will drill a well in the southern Cypriot waters. And it’s significant, because what really has people excited here is the Zohr discovery. It was made in August 2015 with 30 trillion cubic feet of gas. It came as a complete surprise to the region and it got everybody pretty excited. And it prompted the Cypriot government to launch its third licensing round. Which it’s just finalized today, I understand, it’s finally signed contracts with EXXON MOBIL and ENI and TOTAL for more blocks. In the Cyprus offshore there’s the Aphrodite field which is in Block 12, discovered by NOBLE ENERGY. Blocks 2, 3 and 9 have gone from the second licensing round to ENI-KOGAS which is the Korean gas company. Blocks 10 and 11 went to TOTAL. ENI drilled two dry holes in Block 9 and suspended its drilling program in 2014. It said it wanted to recalibrate its seismic. It did that and then it went off to Egypt and discovered the Zohr field. So that’s another reason why everybody’s sort of excited about what might come in the months ahead. Like as I said, TOTAL will start drilling this summer. There has been a farm in – NOBLE and DELEK sold some shares to BG, which has since been taken over by SHELL in Egypt. So they’re now part of the Aphrodite field consortium. Like I said, with the Zohr discovery – it’s only six miles from Cyprus maritime borders. And there’s about the Cyprus licensing round, and also TOTAL drilling. TOTAL has been rewarded block 6, ENI awarded block 8, EXXON MOBIL has been awarded Block 10. The island is needing a new operations base with all the companies that are going to be coming here.
This will show you how the Cyprus offshore’s divided up now based on that. Right down here is the Aphrodite field, and right along here is where TOTAL and ENI – which has recently formed a new partnership, just two weeks ago – we’ll be drilling this summer. Now, the Zohr field, the Egyptian Zohr field is right around there. Like I said, EXXON MOBIL in partnership with QATAR PETROLEUM has been awarded Block 10. This is a new award, just finalized today, this one was just finalized today too. ENI was awarded to 2, 3 and 9 two years ago – that’s where they drilled the dry holes – and hopefully they’ll be coming back here for the second half of this year.
This is what’s got everybody excited. This is a geological layout. This is what they call a carbonite build-up. And before, you know, all the discoveries have been in sandstone. And this is the Zohr discovery here, and when that happened it really perked people up because things have been pretty quiet here. And now with 30 trillion cubic feet so close to the Cypriot area people
are optimistic. And you know, looking forward to hopefully having something to happen at long last.
The Israeli offshore. There have been six good discoveries. Tamar is operating. There were regulatory issues that held things up for a quite a long time, but a framework agreement was arranged last year and so now that’s why things like the Leviathan field are moving ahead. They would invest about 375 billion in phase 1 and produce about 1.2 billion cubic feet of gas a day. The Tamar gas will go to Jordan, beginning sometime in 2019. And then there’s the details about letters of intent. There’s a lot of talk between Israel and Turkey about putting a pipeline to Turkey through Cypriot waters. And this is quite a contentious issue.
Israel’s launched a licensing round for twenty four blocks and it’ll close the summer this year. And there is this continuing dispute with the territory of Lebanon. The squares in green here are the blocks that Israel’s made available for bidding. This area down here – these fields NOBLE discovered gas in like 2000 I think, and it was a very small supply. It’s now depleted. Israel used to get gas from Egypt. And then when the revolution happened in Egypt 2011, and 2013 Egypt had stopped exporting gas. So it was quite a rush to get gas from Tamar, and so that gas was piped down here to this infrastructure and then taken onshore that way. This is right about where the Aphrodite field is and a part of it goes over into the Yishai block in Israel. And Israel and Cyprus are negotiating what they call a unitization agreement, which would basically agree on how the resources from that field would be divided once that goes into development.
This again is the area that’s disputed with Lebanon. Nothing’s been awarded there and I don’t think it will be, on the Israeli side at least, until the matter is resolved. The Americans have been involved and try to negotiate for several years, so, you know, we’ll see. It’s just another one of these ongoing disputes between Israel and the Lebanese. So like I said, the Lebanon’s licensing round reopened in 2013. There was a pre-qualification round for companies in 2013. Forty six companies were pre-qualified and there was some major, the major international oil companies expressed interest in bidding in this, in the Lebanese offshore. It’s just an indication of what they think the area may hold. So at that time they offered 10 blocks, there was a lot of disputes amongst the Lebanese as to whether that was the right thing to do or not. So at the end of 2016 there was a new president, a new government, there were two decrees that needed to be passed. They’ve done that, they’ve made advances. The new round of bidding closes in September and it’s only for these five blocks: 2, 4, 8, 9 and 10. But 8, 9 and 10 are in the disputed area with Israel, and there’s sort of questions like, well, you know, you’ve had a lot of blocks to offer,
why did you do that? Here’s 8, 9 and 10 right here. This is the disputed area that shows you the Israeli blocks and where the Lebanese think that the Syrian Lebanese median line should be.
This disputed area is about 854 square kilometers, I think.
There’s the Cyprus EEZ. Cyprus and Lebanon have signed an agreement, but the Lebanese haven’t ratified it yet. They dispute the points as to which Cyprus entered into its delineation agreement. And then, of course, there’s this issue with Syria which can be expected to go on for a considerable period of time, considering the fact that Syria is in the state that it’s in.
Here, again, you see the offshore zones as determined by the UNCLOS agreement. There has been a lot of discussion about… The main thing about developing these gas fields is finding a market for it and because it’s a very expensive investment. Years ago there was quite a lot of talk about bringing Leviathan gas to a little place called Vassilikos and to develop LNG facilities there and export the gas that way. That hasn’t developed. It may develop in time as more significant discoveries are made. But, you know, there are diplomatic discussions going on between Turkey and now there’s a political rapprochement. But, you know, if you follow the press on Turkey, there’s been quite a lot of turmoil there since this summer when there was an attempted coup. The idea would be to take a pipeline around Lebanon’s and Syria’s zones and put it through the Cypriot waters. But because the dispute between Turkey and Cyprus, that’s quite an argument in itself. And frankly – my opinion – I don’t think that’s really going to happen. I think there’s more and more talk these days about actually referring back to these LNG projects that would put an LNG project here in Cyprus. But again, that’s a long shot and it all depends on how much gas is discovered.
What’s being discussed now is taking gas from Leviathan over to the Aphrodite field and then sending it down here, where there are two LNG plants here that are idle, because Egypt is basically trying to meet its own domestic demand. And to do that it has stopped exports by pipeline to Jordan, it stopped the exports to Israel, it added a cut-off gas supplies to these two LNG plants. And the one is owned by SHELL, which is now a partner in Aphrodite, and the other is owned by ENI which, as the map showed, has a lot of blocks offshore. ENI, which is the Italian company, is the major investor in the Cyprus offshore. Just to let you know, Egypt was exporting gas through what was called the Arab Gas Pipeline, and then there was also another pipeline that went offshore and bypassed the Gaza Strip. But there was an Arab Gas Pipeline that ran up this way up through Syria and there was a spur line here going into Lebanon. And then it almost made it to Turkey – it stopped just short of little town called Kilis there before being completed and feeding into the Turkish network. But that’s not the situation anymore. So it’ll be some while before anything like that can be considered again.
Okay, so we’re back to this map and this is how the layout of the East Med may look. But then when we go to here: now this is essentially Turkey’s view of the East Med. And Turkey is not signatory to the UNCLOS, and so it claims this area here, these areas, like this, as part of its exclusive economic zone. It says that this is part of Turkey’s natural continental shelf. And as you can see, it’s cutting into the blocks that Cyprus has delineated here. There’s Block 6 right there which was just awarded to ENI and TOTAL today. And this area here, this has essentially been awarded to Turkish petroleum company TPAO by this Turkish Cypriot administration. And this was done in 2013. It was basically when a lot of developments were happening here with the south, and it was basically for the Turkish Cypriots to state that they feel that they have a claim to the natural sources in Cyprus as well. Now, the Cypriot government itself hasn’t disputed this. What’s being disputed, really, is the Turkish continuing occupation of northern Cyprus, and the fact that there’s no peace settlement. But the Cypriot government stated repeatedly that the resources of the island are basically shared by all its citizens, and I think that once you see when and if there is a settlement – and hopefully there will be at some point in history – you’ll see that this map could change significantly. Where Turkey will stand and all that with regard to the offshore, it’s, you know, really unclear. It’s impossible to say. I think that ultimately there needs to be some sort of… They’re going to have to negotiate. The Greeks, the Cypriots and the Turks are going to have to negotiate about this offshore area too.
This is just another display of the area that was awarded by the Turkish Cypriot administration. It doesn’t really come down to Aphrodite, it doesn’t hit that. The map was designed that way so as not to really contradict that which was a fact, but anyplace else. And very frequently when there’s like seismic exploration being conducted, you will have the Turkish army intercede and warn ships to get out of Turkish waters, and this sort of thing. But the international companies operating here have shown quite a bit of resolve as far as the recognition of the Cypriot government’s standing on this position, and that’s certainly to be commended, I think everybody appreciates that.
Okay, we’ll talk about some proposed export routes. There is a pipeline from Israel, Cyprus to Crete, Greece and Italy that might come into… The proposed date of operation is like 2025. This is a long shot, it really is. It’s going to depend on a lot of things. It would have a capacity to transport 6 billion cubic meters a year. And this sort of says it. It was 1300 kilometers offshore pipeline, some of that would be in depths of like nearly three kilometers. The company that’s proposing this, IGI POSEIDON – which is a joint venture between Greece’s national gas company and Italy’s EDISON – have run estimates that say that they could do this for like 5.7 billion. I was at a conference earlier this week and there were some experts there who were saying that the cost would have to be at least probably twice that amount. The project has, however, received political and economic support from the EU to conduct the studies, and I think it’s been declared a project of common interest. But like I said, significant gas discoveries would be required in the East Med to make that happen. Now, this is how that pipeline would run. It would go from the Israeli and connect with the Cypriot offshore, then across to Crete, up to the Greek mainland, past Patras up here, and across the Adriatic, and then up into Central Europe this way. I mean, that’s, you know, one heck of a pipeline, and so, you know, we’ll just have to see. But I think it’s going to be close to the middle of the next decade before people really begin to look at that.
So some stuff about Egypt. I think we all know that Egypt has really been through… I guess it was, apart from Tunisia, more or less the start of the Arab Spring and the revolution. I guess you could say it’s been through quite a number of twists and turns. It had quite a number of energy shortages after 2011. Government subsidies damaged the energy market seriously there. It owed at one point more than 6 billion to companies who were supplying energy to the government, because they were paying well below market prices. They owed 6 billion, they still owe about 3 to 3.5 billion of those companies, and they’re doing what they can to pay it off. They actually had to start importing LNG in 2015, and there are two what they call floating storage and regasification units anchored at Ain Sokhna on the Red Sea. So, as I said earlier, there are two LNG plants there, onshore plants that are standing idle, because they don’t have any domestic supply. And that’s where Leviathan or Aphrodite might come in. Last year they made new price arrangements with foreign companies and boosted in some cases what they would pay for gas up to 5.80 dollars per million BTU. Egypt has natural gas resources of 100 trillion cubic feet which… I mean that’s a lot and lot of gas, but they don’t really know the geology of the country really, there’s not been enough exploration work. And also they’ve been, you know, there’ve been reluctance to actually get involved there and invest because of the financial circumstances that the companies can face. Like I said, it needs more exploration work.
The Zohr gas field has been fast-tracked with ENI developing that and will bring gas on-stream by the end of this year to feed into the domestic grid. And by 2019 it will be producing about 2.7 billion cubic feet a day, and that will translate to about 27 billion cubic meters a year, which is quite a bit of gas. But then Egypt is going to need a lot of gas. There’s a lot of energy growth to take place down there, there’s a lot of people in Egypt who still don’t even have electricity. So that whole market is going to have to be developed. So by 2020 they expect a lot, you know… There are other projects, about a dozen other projects going on down there and Egypt has really tried to come around with producing energy. So by the early 2020s they hope to be exporting again and to put an end to the LNG imports. But we’ll, you know, we’ll see.’
This is just a map of how the Egyptian offshore is laid out, where the companies are working, where they’re producing. There’s a lot of work in the Western Desert here and also in the Eastern Desert. The Nile Delta is very prolific and the Nile offshore here. And like I was saying, the Zohr gas discovery was here and that did get everybody quite excited, especially the Egyptian government, which is desperate for the gas. There’s another layout and I’ll show you. There’s the Gaza Marine area and there’s the Israeli offshore, and it shows Aphrodite and relationship to Zohr, and these are… Basically SHELL and BP – BRITISH PETROLEUM – that are operating there. There’s a lot of other companies involved there, some are large, some are not that big, but there is a lot of work taking place there in Egypt.
I’ll tell you a little bit about the Southern Gas Corridor and the TurkStream. When the Soviet Union collapsed, it opened up the Caspian Basin, the countries like Azerbaijan, Kazakhstan were open for Western exploration and development. So they discovered quite a bit of gas offshore Azerbaijan in the early… Well, about 2000s, and even before. So they decided to take this gas and transport it to Europe. And they came up with this concept of the Southern Gas Corridor, which would basically take Caspian gas, and also, I guess, it might develop from Turkmenistan, which again, that’s another long shot, or from the Middle East, from Iraq, Iran and transport it to Europe that way. So the Shah Deniz field offshore Azerbaijan, it will be producing I think by 2019… It will add another 16 billion cubic meters. I think now it’s producing about 6 or 8, and it’ll bring it up to about 22-24 billion cubic meters a year. So the entire project of the corridor is going to be like 45 billion dollars. I’ve got a map of, it I’ll show you here in a second.
There’s also plan by Russia. Now, Russia planned to sort of compete with the Southern Corridor by laying another pipeline across the Black Sea and they called it South Stream, but they wouldn’t comply with the Russian, sorry, with EU regulations. And so they had to scrap it. And they came up with a new plan with Turkey which is called TurksStream. And the whole thing, the idea of South Stream and TurkStream was to bypass the Ukrainian pipeline system. So TurkStream’s quite an ambitious project too, but it’s not going to get this big I don’t think for quite a length of time. Huge amount of gas would be exported through it. It would land in Turkey and then presumably go to Greece and then to Europe. But, you know, there’s going to be complications with this as well. I think they’ll lay the first line to Turkey and then we’ll see. The first line to Turkey will be about 15 billion cubic meters and that will cut out the pipeline that’s currently coming to Turkey through Ukraine and Eastern Europe. That’s the Southern Corridor there. Here’s Azerbaijan, Baku, offshore Baku, that’s the Shah Deniz field. It would travel all this way through an existing pipeline that was built to Turkey. I think it opened in 2006 and it does supply gas to Turkey, and also to Georgia. But the idea is to bring it all the way across here, across northern Greece through what’s called the Trans-Adriatic Pipeline, and into southern Italy.
This is the proposed TurkStream route. Previously the South Stream would have landed here in Bulgaria, but there were complications with EU, as I mentioned. There’s an existing pipeline from Russia to Turkey called Blue Stream. I think it’s got about an 8 billion cubic meters capacity annually. But this is a new proposal that Turkey and Russia are working on here in western Turkey, and then going to Greece. There is a lot of projects here. I mean, you know, you can really go on about it for those of us who are into this stuff. It’s kind of interesting.
But there’s a project called the Euro-Asia Interconnector and it’s electricity cable. And it’s designed to connect Israel’s, Cyprus’ and the Greek electricity system. So once (inaudible) gets in Europe, then, you know, it would go on to other countries as well. Egypt has recently been included in this project and the capacity would be like 2,000 megawatts. But it would follow the same route as that East Med gas pipeline. So with Egypt you’ve got like 1600 kilometers of cable and it would touch on all these countries, including Egypt. They think that it would cost under 4 billion dollars and be complete by 2022. And it also has political and financial support from the EU. Now, this would be the route that it would follow from Israel to Cyprus, and it would cross here to… This is Crete right there. It’s a bit difficult to make out. And then went across here to Greece. This is the Peloponnese here, if you can make that out.
But one thing I need to point out about this cable and also the East Med gas pipeline. As you see, this map is drawn in accordance with the UNCLOS, with the Convention on the Law of the Sea parameters. So anyway, this would be the Greek offshore, this is a Cyprus offshore, but if you bear in mind that map that I showed you from Turkey’s claims, Turkey just doesn’t recognize this. It comes all the way down here. And so, I mean there’d be a lot of political… You know, it poses a political problem, really. So, I mean, this area certainly is… There’s plenty of political problems to discuss.
So, I think that’s it. Thank you. If you’ve got any questions about this, I think we’ve got ample time, so I’ll be happy to help you with that.