Eastern Med gas evolution sweeps on

14 November 2018
23 October 2018, Week 42, Issue 697

The wave of momentum behind East Mediterranean gas plans rolled on at the turn of the fourth quarter – on the operational, financial and political fronts.

One of the parties involved in the landmark Israel-Egypt export deal publicly mooted first supplies to the North African country starting in the first quarter through the recently acquired pipeline, while the main upstream operating company completed its divestment of a stake in Israel’s second largest gas field to part-fund the purchase of the midstream infrastructure.

Egypt declared gas self-sufficiency last month and is now pursuing ambitions to become a regional transit hub. Collaboration with Cyprus to receive the island’s putative first production continues to be publicly espoused – this time in the context of support for the Greek Cypriot government amid the renewed flare-up of an offshore sovereignty dispute with Turkey.

The US’ Noble Energy and Israel’s Delek Drilling – the partners in the development of Israel’s giant Tamar and Leviathan offshore gas fields – and Cairo-owned East Gas, incorporated into the EMED Pipeline special purpose vehicle, reached an agreement in September. This will allow the two upstream partners to use the idled East Mediterranean Gas (EMG) pipeline to fulfil a landmark US$15 billion deal signed in February to supply up to 7 bcm per year of gas for 10 years to Egypt’s privately owned Dolphinus Holdings.

The pipeline settlement entailed EMED paying US$518 million for a 39% stake in EMG – created last decade to serve a defunct intergovernmental pact to deliver gas in the opposite direction – from private Israeli and Egyptian investors, accompanied by operating rights for the 90-km line.

East Gas, a subsidiary of state-owned Egyptian General Petroleum Corp. (EGPC), also agreed to acquire 9% of EMG from Mediterranean Gas Pipeline, controlled by Turkish magnate Ali Evsen. 

A deadline of June 30 was set for the conditions precedent to be met but the partners at the time expressed hopes that completion would occur considerably sooner – and East Gas CEO officer Mohammed Saleh said in an interview in early October that deliveries were likely to commence during the first quarter.

The pipeline was expected to be classified as being good condition, he said – despite having been out of use since 2011 – and testing was scheduled to start soon, ahead of embarking on modifications to enable the flow to be reversed.

Supplies were deemed likely to begin at around 1 bcm per year – reflecting the limited spare output capacity at the Tamar field, which has been producing around 10.3 bcm per year chiefly for the domestic market bar minor exports to Jordan and which has design capacity of around 11.4 bcm.

Noble and Delek were required to sell down stakes in the Tamar licence in order to be permitted to participate in the development of the larger Leviathan field under Tel Aviv’s tortuously negotiated 2015 Natural Gas Framework regulatory agreement – with the local firm being forced to exit completely and the US operator obliged to reduce its stake from 36% to 25%.

Both companies accomplished the divestment partly by transferring stakes to the newly created Tamar Petroleum vehicle, which was listed on the Tel Aviv Stock Exchange last year – with Noble selling the company’s final remaining 7.5% interest in March for US$560 million and 38.5 million shares.

In early October, the US firm sold the stock – representing a 43.5% holding – through the bourse for just under US$165 million, in a deal presumed to be intended to raise finance for the company’s US$185 million share of the EMG acquisition cost.

Noble is leading the development of the 634 bcm Leviathan field, the estimated US$3.75 billion first phase of which is scheduled for start-up in late 2019, producing 12.4 bcm per year.

An agreement on the infrastructure to allow the Israel-Egypt supply deal to proceed came only days after Cairo and Nicosia had signed an agreement to collaborate on the development of a subsea gas pipeline from Cyprus’s estimated 127 bcm undeveloped Aphrodite field – again operated by Noble with Delek and Royal Dutch Shell Group as junior partners – to LNG export plants on Egypt’s Mediterranean coast.

Signalling their continued commitment to the latter axis, the Egyptian, Cypriot and Greek leaders convened in Crete on October 10 to discuss energy matters. However, the main message being sent was to Turkey in response to Ankara’s renewed protests earlier in the month over planned drilling in the island’s Exclusive Economic Zone (EEZ) – under offshore rights apportioned by the internationally recognised Greek Cypriot government.

US super-major ExxonMobil had stated its intent to start drilling in Block 10 in the south-west by the end of the year. In February, the Turkish government sent a warship to prevent such activity by Italy’s Eni in Block 3 in the zone’s south-east.

Ankara also reacted angrily last month to pipeline plans and in mid-October declared its intent to start its own exploration in the EEZ. “We have clearly expressed our support for Cyprus in its efforts to capitalise on the sovereign rights deriving from international law regarding [the offshore reserves] and to make progress in their exploitation,” Greek Prime Minister Alexis Tsipras proclaimed after the Crete meeting.

Edited by

Ian Simm

Editor

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