Oil & Gas in East Med: What to expect in 2019
2018 was a year of major developments in Lebanon, Cyprus, Israel and Egypt
The year 2018 saw the translation of companies’ interest in the Eastern Mediterranean – following the discovery of Zohr, in Egypt, in 2015 – into concrete projects, and the confirmation of the region’s potential with a new and promising discovery in Cyprus. Egypt received its final LNG shipment in September and is aspiring to become a regional gas export hub following an impressive increase in production and the signing of agreements that could see the transport of gas from neighboring countries to feed its LNG plants for re-export. At the start of the year, Lebanon signed its first exploration and production agreements and is preparing to invite companies for a new bidding round in 2019. Meanwhile, in Israel, the development of Leviathan and Karish is on track. The country also launched its second offshore licensing round, counting on improved conditions this time around.
This year also saw the confirmation of regional cooperation among those countries that already enjoy relatively good relations and reminded us that heightened political tension in this part of the world could evolve into a confrontation at any time, with a direct i mpact on companies’ operations.
Geopolitical risks, market conditions and prospects
for monetization will affect the attractiveness of the resources. The decisive factor will, ultimately, competitiveness.
Here is a quick overview of the major developments and milestones that marked 2018 in the region, and what to expect in 2019, 10 years after the first major discoveries in the Levant Basin.
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The high point for Lebanon was the signing of two exploration and production agreements (EPAs) in January with a Total-led consortium including Eni and Novatekfor Blocks 4 and 9. The exploration plan was approved in May and preparations are underway for Total’s first drilling, in Block 4, expected toward the end of 2019. It will be followed by a more politically-sensitive drilling in Block 9, although it will be conducted some 25 km from the disputed border with Israel.
The drive toward strengthening transparency in the sector continued in 2018, with the publishing of the EPAs in April (Lebanon is the first country in the Eastern Mediterranean to disclose signed agreements) and the adoption by the Parliament in September of an oil and gas transparency law.
In June, Lebanon and Norway agreed to move onto phase 3 of the Oil for Development Programme, which extends from 2018 until 2020. The Programme has been providing technical support to Lebanese authorities since 2006, particularly in the establishment of the legal and regulatory framework governing the sector.
Lebanon is also completing plans to import LNG for power generation. In May, the Ministry of Energy and Water launched a tender for up to three FSRUs, after publishing the list of the 13 companies and consortia that prequalified for the tender. The tender closed on November 21. Eight offers were received from the following bidders: 1) Gas Natural Fenosa; 2) BW, Vitol, Butec, ALmabani, Rosneft; 3) Excelerate, Shell, BB Energy; 4) ENI, Qatar Petroleum Int Ltd; 5) Golar Power Ltd, CCC sal; 6) Total; 7) Petronas; 8) Phoenicia energy consortium (Gunvor, Exmar, EGC Egypt, Petrojet, Maridive, Primesouth). A final decision is expected early 2019, and will have to wait until after a government is formed.
In May 2018, the government approved the LPA’s recommendation to prepare for a second licensing round. According to a tentative timeline published on the LPA’s website, the tender will be launched by the end of 2018. The absence of a government could be problematic if cabinet formation drags on indefinitely, since there is an intention to amend some of the documents governing the second licensing round, including the prequalification requirements, tender protocol and the model EPA. If all goes according to plan, the prequalification round will take place between January and April 2019. The results will be announced in May. Prequalified companies will have six months, between May and October 2019, to submit their bids, and exploration and production agreements are expected to be signed by the end of 2019. Delays in forming the government already threaten these deadlines.