The im­pact of Zohr on the de­vel­op­ment and ex­port of East Med gas

Financial Mirror (Cyprus) - - FRONT PAGE -

The dis­cov­ery of the Zohr off­shore gas­field com­pli­cates the ex­port of east Mediter­ranean gas to Egypt, though it does not nec­es­sar­ily rule it out. Egyp­tian pro­duc­tion is de­clin­ing, and de­mand is ris­ing, fu­elled by eco­nomic de­vel­op­ment, low prices and a fast grow­ing pop­u­la­tion.

Zohr, in ad­di­tion to other fields ex­pected to be de­vel­oped by 2020 (West Nile Delta, North Alexan­dria, Atoll), will re­duce and prob­a­bly also elim­i­nate the need for im­ports by the early 2020s.

Un­til then, Egypt will still need to im­port gas. Which leaves the door some­what open for East Med gas, less ex­pen­sive than LNG. But, the short time­frame makes this op­tion chal­leng­ing, par­tic­u­larly that two of the three gas fields in ques­tion (Aphrodite and Le­viathan) are not ex­pected to be de­vel­oped be­fore 2019-2020. In the rush to sup­ply the lo­cal Egyp­tian mar­ket be­fore the need for im­ports dis­si­pates, Ta­mar ap­pears to have an ad­van­tage. But even here there are chal­lenges: the only agree­ment be­ing ne­go­ti­ated be­tween the Ta­mar part­ners and clients to sup­ply the lo­cal Egyp­tian mar­ket is the pre­lim­i­nary deal with Dol­phi­nus for the sup­ply of 5 bcm of gas over three years. Two ob­sta­cles stand in the way: The Egyp­tian de­ci­sion to freeze gas im­ports talks fol­low­ing the ICC rul­ing in favour of Is­raeli com­pa­nies (which re­quired Egypt to pay $1.7 bln), and EMG’s un­will­ing­ness to co­op­er­ate un­der cur­rent con­di­tions ( EMG be­ing the op­er­a­tor of the pipe­line that will be used to trans­fer the gas). Both can be man­aged if there is a will.

For Cyprus in par­tic­u­lar, there is the pos­si­bil­ity to pipe gas to an­other re­gional mar­ket via Egypt: Jor­dan, a mar­ket with a ris­ing gas con­sump­tion and look­ing for an al­ter­na­tive to rel­a­tively ex­pen­sive LNG im­ports. But this would in­volve us­ing a pipe­line that was the tar­get of over a dozen at­tacks since 2011. Chronic in­sta­bil­ity in this part of Egypt is a ma­jor chal­lenge.

In ad­di­tion, since much of Zohr will be ab­sorbed by the lo­cal mar­ket, this leaves two Egyp­tian LNG plants still need­ing to be re­filled. This sit­u­a­tion puts Is­raeli and Cypriot gas in com­pe­ti­tion, with, on the one side, an ad­van­tage for Ta­mar, al­ready in pro­duc­tion, pos­si­bly off­set by the less “prob­lem­atic”, from a so­cio-political per­spec­tive, Cypriot gas. Also in favour of Cypriot gas was the ac­qui­si­tion by BG of a stake in Block 12, which im­proves the prospects of send­ing Aphrodite gas to Idku. Though it re­mains to be seen what Shell in­tends to do with the LNG fa­cil­ity.

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