This analysis is part of a presentation given at Chatham House by MESP co-founder Mona Sukkarieh on January 26, 2016, during session 5 of the MENA Energy Conference, on “North Africa: Security, Stability, and Investment”.
The discovery of Zohr complicates the export of East Med gas to Egypt, though it does not necessarily rule it out. Egyptian production is declining, and demand is rising, fueled by economic development, low prices and a fast growing population.
Zohr, in addition to other fields expected to be developed by 2020 (West Nile Delta, North Alexandria, Atoll…), will reduce and probably also eliminate the need for imports by the early 2020s.
Until then, Egypt will still need to import gas. Which leaves the door somewhat open for East Med gas, less expensive than LNG. But, the short timeframe makes this option challenging, particularly that two of the three gas fields in question (Aphrodite and Leviathan) are not expected to be developed before 2019-2020. In the rush to supply the local Egyptian market before the need for imports dissipates, Tamar appears to have an advantage. But even here there are challenges: the only agreement being negotiated between the Tamar partners and clients to supply the local Egyptian market is the preliminary deal with Dolphinus for the supply of 5 bcm of gas over 3 years. Two obstacles stand in the way: The Egyptian decision to freeze gas imports talks following the ICC ruling in favor of Israeli companies (which required Egypt to pay $1.7 billion), and EMG’s unwillingness to cooperate under current conditions (EMG being the operator of the pipeline that will be used to transfer the gas). Both can be managed if there is a will.
For Cyprus in particular, there is the possibility to pipe gas to another regional market via Egypt: Jordan, a market with a rising gas consumption and looking for an alternative to relatively expensive LNG imports. But this would involve using a pipeline that was the target of over a dozen attacks since 2011. Chronic instability in this part of Egypt is a major challenge.
In addition, since much of Zohr will be absorbed by the local market, this leaves two Egyptian LNG plants still needing to be refilled. This situation puts Israeli and Cypriot gas in competition, with, on one side, an advantage for Tamar, already in production, possibly offset by the less “problematic”, from a socio-political perspective, Cypriot gas. Also, in favor of Cypriot gas, the acquisition by BG of a stake in Block 12, which improves the prospects of sending Aphrodite gas to Idku. Though it remains to be seen what Shell intends to do with the LNG facility.
The prospects for LNG exports via Egypt is still, theoretically, on the table. Especially if ENI is able to push forward its plans for a regional gas export hub in Egypt, connecting gas from neighboring countries, Cyprus, Israel, and maybe even Libya, for exports to Europe and maybe beyond.
It should be noted however that in order to be competitive in Europe, LNG imports have to match the price of piped gas, which is not a given, and this is the main challenge, with LNG prices in Europe in the range of $6-7 per mmBTU and expected to stay low for some years.
Beside that, future developments in the region may make Turkey Egypt’s main “competitor” for monetizing East Med gas, and by the same token boosting its positioning in the region – certainly an added advantage for Erdogan’s Turkey. Price-wise, exports via Turkey could be more competitive. But the Turkish market is in itself appealing. A large market with a growing gas consumption (expected to reach and even exceed 80 bcm by 2030), and seeking to diversify its supplies. The Turkish option however would require solving the Cyprus problem first, since any pipeline would have to pass through the Cypriot Exclusive Economic Zone.
Given all the uncertainty, some seem to be seduced by the appeal of innovative options that promise to give countries a certain autonomy in exporting their resources: Floating LNG (FLNG) and marine-compressed natural gas (FCNG). But here too, there are more questions than answers.