Oil & Gas in East Med: What to ex­pect in 2019

2018 was a year of ma­jor de­vel­op­ments in Le­banon, Cyprus, Is­rael and Egypt

Financial Mirror (Cyprus) - - COMMENT -

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.

Le­banon

re­gion’s be their

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.

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