NewMed could play key role in linking Europe to gas from east Mediterranean
For a region written off as devoid of petroleum until a decade and a half ago, the eastern Mediterranean has attracted a remarkable Rolodex of top international companies.
Adnoc joined that club last Tuesday, when it teamed up with BP to offer to buy half of NewMed Energy, an Israeli gas company. To make the most of this deal, the Abu Dhabi national champion must negotiate a complex diversity of corporations, countries and borders.
Adnoc and BP will form a joint venture to develop gas outside the UAE, with this transaction as its first step.
NewMed’s main asset is its 45.34 per cent holding in Leviathan, the largest gasfield in Israel and the second biggest in the eastern Mediterranean. It also holds 30 per cent of the offshore Aphrodite gasfield near Cyprus. The Adnoc-BP partnership will acquire the free float of NewMed on the Tel Aviv stock exchange, and additional shares from Delek, to own 50 per cent and take the company private. The deal is valued at about $2 billion.
The UAE is already involved in the eastern Mediterranean’s gas business. In 2018, Mubadala paid $934 million for 10 per cent of Zohr (BP holds 10 per cent), the largest gasfield in Egypt. In September 2021, it bought 22 per cent of the Tamar gasfield, Israel’s second biggest, for about $1 billion. Musabbeh Al Kaabi, who took up the role of heading Adnoc’s international growth business in January, was previously chief executive of Mubadala Petroleum and Petrochemicals from 2017 to 2020.
The eastern Mediterranean gas story really started with the discoveries of Tamar in 2009, Leviathan in 2010 and Aphrodite in 2011. It has become one of the world’s hottest gas exploration plays. About 80 trillion cubic feet have been discovered this century, more than the combined reserves of the EU, the UK and Norway. Last week, in a paper written with Shangyou Nie for the Columbia University Centre on Global Energy Policy, we pointed out that, after Russia’s invasion of Ukraine and the near-total shut-off of Russian west-bound gas exports, any nearby alternatives should be enticing to Europe. The question is how to get it to market.
So far, Israel’s offshore gas meets domestic needs and some is sent to Egypt and Jordan. Cyprus has yet to get a development going but Aphrodite has been followed by several other significant finds.
Meanwhile, Egypt has two underutilised terminals for the export of liquefied natural gas. Despite it being the area’s largest producer, it struggles to meet domestic demand. After Zohr, found in 2015, it has made only a few moderate-sized discoveries.
Crisis-hit and energy-starved Lebanon finally resolved a maritime border dispute with its southern neighbour in October and will commence drilling at the long-awaited Qana prospect in the fourth quarter of this year. Palestine, despite having untapped gas off Gaza’s coast, relies on Israel for electricity and may start buying Israeli gas too.
There are essentially three options to get to Europe.
First, send as much gas as possible to Egypt, liquefy it at the plants at Idku (near Alexandria) and Damietta, and export by tanker. Second, build a new LNG plant, either floating or onshore, probably in Cyprus. American energy company Chevron, which operates Tamar, Leviathan and Aphrodite, has pushed the floating LNG option.
Third, build a pipeline, which could run under the sea to Crete and on to mainland Greece, then to south-east Europe and Italy. Last month, Italian utility Edison announced it would make a final investment decision this year on what it calls the “Poseidon Pipeline”.
So, what is holding up these projects, given the urgency? First is the region’s bewildering complexity. Three continents collide here, geologically and politically. The rocks have given up many of their secrets but the politics encompasses disputed borders, particularly with Turkey, the divided island of Cyprus, civil war in Syria, the government shambles in Beirut and the Israeli-Palestinian conflict. Second is the lack of urgency and interest from Europe, which struggles to think and act strategically, particularly when it concerns fossil fuels.
A pipeline or LNG plant that will operate for more than 20 years seems problematic when the bloc is meant to reach its net-zero carbon goals by 2050 – although this paradox is more apparent than real. Italy, France and Greece, as well as EU member Cyprus, are deeply involved in the eastern Mediterranean but often at cross-purposes or in support of their favoured national companies.
Third is commercial fragmentation. The major oil companies – Shell, BP, Chevron, ExxonMobil, TotalEnergies and Eni, along with Russia’s Rosneft – are all present in different countries and assets, and their big egos and corporate strategies are prone to collide. There are also regional players, notably QatarEnergy in Lebanon and Cyprus, and smaller British and Israeli corporations, as well as Edison, part of France’s EDF.
The two UAE companies now span all three key east Mediterranean countries. It is a bold move for Adnoc’s first upstream venture but it benefits from people who know the area well, a highly capable partner, ample finance and political weight. Chevron is not active in the UAE’s upstream sector but all the other big oil companies are, allowing for further creative deal-making.
NewMed could be the platform to take east Mediterranean gas from local to continental prominence.
UAE companies Adnoc and Mubadala now span all three key east Mediterranean countries