The EU’s desire to diversify sources of gas supply, reducing its dependency on Russia, has driven interest in developing a southern gas corridor from the East Mediterranean towards Europe. Following last month’s meeting between Trump and European Commission President Jean-Claude Juncker, an agreement between both parties was reached, and the EU is poised to raise its US LNG imports in the coming years. In addition, Egypt and Cyprus reaching an agreement to connect the Aphrodite gas field to Egypt highlights a new potential gas supply source to the EU.
Since 2015, the EU has been working with Israel, Cyprus, Greece and Italy on the possible development of the EastMed pipeline – a 1,900km, 9-12bcm pipeline that would link Israel and Cyprus gas fields to Italy via Greece. Israel gas discoveries include 33tcf of gas 2P reserves from Tamar and Leviathan (operated by US-based Noble Energy, in partnership with Israel’s Delek Group), and 2.4tcf of gas 2P reserves from Karish and Tanin (Greece’s Energean operates with 100% working interest). These fields have the potential to supply significantly in excess of domestic demand, and export solutions are under evaluation. In Cyprus, the Aphrodite discovery is estimated to hold 4.5tcf of gas (operated by Noble, in partnership with Delek and Anglo-Dutch Shell), however, gas remains stranded contingent on a commercial export solution. Nevertheless, there is a high expectation for incremental gas discoveries offshore Cyprus with several majors active. Italy’s Eni partnered with France’s Total, recently discovered the Calypso field, and US-ExxonMobil in a consortium with Qatar Petroleum is due to drill an exploration well in November. Increasing regional gas resource has raised hopes for a possible export route to Europe.
A few kilometres south, Egypt was forced to stop LNG exports in 2014 due to its fields’ natural decline and increased domestic consumption becoming a gas net importer. However, since 2015 and following several offshore gas discoveries such as Eni’s 30tcf Zohr field, exports may once again become a possibility. The country currently has 2 idle LNG liquefaction plants (Idku – owned by Shell, and Damietta), and has been in conversations with Cyprus and Israel to import their gas to liquefy and re-export it to global markets; the EU being an obvious end market.
In February, a deal between sellers Noble/Delek, and Dolphinus Holdings, a private Egyptian company, was concluded. The Egyptian company agreed to buy 64bcm of Tamar and Leviathan gas over 10 years at a value of US$15bn. The gas would be exported to the Egyptian gas grid via the offshore EMG pipeline (previously used to export gas from Egypt to Israel) and then liquefied. In August, there were reports that Cyprus and Egypt have reached an agreement to build a pipeline from Aphrodite to Egypt (the pipeline is expected to cost approximately US$1bn) with the EU giving the project the green light. The much expected southern gas corridor to Europe appears to be coming closer to becoming a reality, and most likely initially fuelled by Eastern Mediterranean LNG instead of the cost prohibitive EastMed pipeline, which is estimated to cost approximately US$7bn. Decision on the EastMed pipeline is expected in early 2019. Key listed E&Ps active in the region include BP, Delek, Energean, Eni, ExxonMobil, Noble Energy, Qatar Petroleum, Shell, and Total.