Oil & Gas in East Med: 2018 roundup and what to expect in 2019

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 impact on companies’ operations.

Geopolitical risks, market conditions and prospects for monetization will affect the attractiveness of the region’s resources. The decisive factor will, ultimately, be their 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.


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 Novatek for 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.

Speaking of deadlines, the LPA’s mandate was set to expire on December 3. By law, it is possible to renew the mandate once. It was clear after the first few months of 2018 that this is where we were heading, as the selection process for a new board extends over many months and no action was seen on this front. In the absence of a government to renew the mandate, Energy Minister Cesar Abi Khalil issued a decision extending the LPA’s term, putting an end to a subject that the LPA, the Energy Ministry (and the government) have evaded discussing publicly throughout 2018.


The year started off on a high note with a drilling, and a discovery by Eni, in Cyprus’ Block 6, and is ending with a promising drilling in Block 10 by ExxonMobil.

In February 2018, Eni announced the discovery of Calypso in Block 6. The field holds an estimated 6-8 tcf of natural gas and confirms the extension of a “Zohr like” play into the Cypriot EEZ. An appraisal drilling will follow in 2019 to have a clearer image of the reservoir’s potential. A few days after the announcement of the discovery, the Turkish navy prevented Eni’s drillship, the Saipem 12000, from reaching its next drilling target in Block 3. Turkey’s reaction took an unprecedented turn. For years, Ankara issued statement after statement, harassed and monitored drillships and surveyors but, up until that point, did not go so far as to cause the interruption of drilling operations in Cyprus’ EEZ. The Saipem 12000 ultimately backtracked, and Eni had to postpone the drilling in Block 3 (and a number of other drillings elsewhere in the Cypriot EEZ) to an unspecified date.

Exploratory drilling resumed in Cyprus on November 16, with two back-to-back drillings by ExxonMobil in Block 10. Turkey, which does not have direct claims to Block 10, did not intervene to interrupt Exxon’s program. But, as Ankara believes that the Island’s resources are jointly owned by the Greek and Turkish Cypriots and does not recognize what it calls unilateral actions by the Greek Cypriot administration, it strongly objected to the drilling. Early results of Exxon’s drilling will start to emerge by the end of the year. A significant discovery could be a game-changer on more than one level for Cyprus: new discoveries could make the exploitation of offshore resources more viable than it has been so far with the modest Aphrodite. For various reasons, it was a challenge to monetize Aphrodite up until this point. Unexploited resources kept tension between Greek Cypriots and Turkish Cypriots below a certain level. If the exploitation of offshore gas resources is made possible before a solution to the Cyprus Dispute is found, it will strengthen the Greek Cypriots’ hand in the negotiations. This might explain Turkey’s aggressive behavior following the discovery of Calypso. Ankara’s measured response to Exxon’s drilling has to do with the location of the drilling (no direct claims on the block) and the profile of the company (American). A more muscular approach, similar to the February 2018 incident in Block 3, is not ruled out elsewhere in the Cypriot EEZ.

But Nicosia is proceeding with its plans undeterred. On October 3, Energy Minister Giorgos Lakkotrypis announced that block 7 (parts of which fall within what Ankara considers its continental shelf) would be on offer for a month. Instead of a proper licensing round, the government decided to grant the license for Block 7 for companies that hold licenses in adjacent blocks, due to geological considerations related to the discovery of the Calypso gas field by Eni in nearby Block 6. Only three companies were invited to bid: Eni, Total and ExxonMobil. On November 26, the Energy Minister announced that a joint offer was submitted by Total and Eni. A final decision on the award is expected early 2019. The political calendar (possible resumption of negotiations) could incite Cypriot officials to speed up the process (this could explain the swift one-month window given to companies to express interest in the block). Heading to the negotiating table with a new set of faits accomplis (new award, new discovery-ies) would consolidate the position of Greek Cypriots, who could then brandish revenue sharing as a carrot to entice Turkish Cypriots into a deal.

Next to Block 7, Block 8 could see some changes. Total has expressed interest to farm into the block currently licensed to Eni. The company has voiced its intention to expand its activities in Cyprus. It is currently the operator of Block 11 and Eni’s partner in Block 6. As mentioned above, it recently submitted an offer together with Eni for Block 7 and is considering opportunities elsewhere in the Cypriot EEZ.

Further south, the government and companies are at pains to find solutions to develop Aphrodite. Cyprus and Egypt signed an intergovernmental agreement in September for the construction of a pipeline that could ultimately carry gas from the Aphrodite gas field to Egypt for liquefaction and re-export. Aphrodite’s right holders seem to think that the option does not secure a reasonable return on investments and would like to revise the terms of the production sharing contract that links them to the State in order to have a bigger share of revenues. Cypriot authorities have shown willingness to discuss the issue. An additional obstacle for developing Aphrodite could be the fact that a small part of the reservoir extends to the adjacent Ishai license in Israel. Cyprus and Israel have been negotiating a unitization agreement for years but have yet to reach a deal.

In the meantime, and until Cyprus can produce its own gas, Nicosia is planning to import LNG and has launched a tender for the procurement of an FSRU in October. The deadline to present offers is on January 18, 2019, and the completion of the LNG import terminal is expected by November 2020. A second tender will follow in 2019 for the supply of LNG. Critics claim the project is costly and is going to increase the price Cypriot citizens pay for electricity, already among the highest in Europe. Energean proposed a supposedly less expensive alternative that involves transporting gas by pipeline from gas fields it operates in the northern part of Israel’s EEZ. However, the offer was not accepted as it was unsolicited and was not submitted as per the terms of the tender. An important element to take into consideration is the fact that gas from Karish and Tanin is earmarked for the domestic Israeli market and that Energean needs to apply for a special approval from Israeli authorities to export gas from these two fields.

As it is customary now, 2019, like the years before it, will see a series of meetings on the East Med pipeline. An intergovernmental agreement is expected in February 2019. Yet, a number of parameters need to change to make the project commercially viable.


The development of Leviathan is proceeding smoothly. Almost 70% of the project has been completed. First gas is expected on schedule, by the end of 2019.

The first half of 2019 will see considerable activity in the northern part of Israel’s EEZ. In March 2018, Energean announced that it secured $1.2 billion in funding to develop Karish and Tanin and made a final investment decision for the Karish project the same month, after signing a series of GSPAs with industrial groups and independent power producers, by offering unexpectedly low prices. In June 2018, Energean announced that it will be drilling an exploratory well in its Karish license by end of March 2019. The Greek company refers to it as “Karish North”, and this has already caused alarm in Lebanon-whether justified or not is beside the point, as it could cause political tension to rise further. The drilling will be followed by three development wells in Karish Main. First gas from the main field is scheduled for 2021.

After years of speculations as to which route Israeli gas was going to take to reach export markets beyond the region, the Egyptian option was quicker to materialize than all the rest. Noble Energy and Delek Drilling announced on February 19 the signing of two agreements with Egypt’s Dolphinus, worth about $15 billion, to supply gas from Leviathan and Tamar to Egypt, both for local consumption and re-export. Gas is expected to flow to Egypt in the first half of 2019, ten years after the discovery of Tamar, Israel’s first major gas discovery. The deal is a major breakthrough: It marks a successful conclusion to years of multi-tracked negotiations to export Israeli gas to Egypt. From an Egyptian perspective, the deal is an important step toward turning the country into a regional gas export hub, but approval depended in part on finding a solution to the $1.7 billion in compensation that Egypt is required to pay to Israeli companies following halt in supplies in 2012. Egyptian media started reporting in November 2018 that a deal had been reached to considerably reduce the fine and extend the payment period. Another important milestone was the acquisition, by Noble Energy and Delek, of a 39% stake in the EMG pipeline, which will eventually be used to transport the gas to Egypt.

Another, much more modest but still noteworthy export agreement was signed with two Jordanian companies. The Tamar partners signed a deal with their customers, Jordan Bromine and Arab Potash, for additional volumes. The deal will go into effect in the first quarter of 2019 and could reach $200 million.

On November 4, the Israel Ministry of Energy announced the opening of a second offshore licensing round. Israel is hoping to generate more interest than it was able to attract in the first bid round, which was completed last year, and is counting on an apparent improvement of market conditions and better prospects for exports. Nineteen blocks in five zones are open for bidding, all located in the southern part of Israel’s EEZ. Bids are due in June 2019 and the announcement of winners is expected in July 2019.


Egypt’s natural gas market has been undergoing fundamental changes over the past four years, and 2018 has been no exception. In 2017, the Parliament adopted a gas market law and an implementation decree was approved in February 2018, establishing a gas market regulatory authority and paving the way for the private sector to import natural gas directly, an important step towards becoming a regional gas transit hub. Less than a week later, Noble Energy, Delek and Dolphinus announced the signing of a deal to export Israeli gas to Egypt. Preliminary approvals were granted last year, and the first natural gas import licenses were expected to be delivered by the end of 2018, but the Natural Gas Regulatory Authority has postponed the issuance of licenses because the private sector was still “unprepared”.

In September, Egypt received its final shipment of LNG, a significant milestone for the country, which will save the country around $1.5 billion a year. Cutting LNG imports was made possible thanks to a series of large gas discoveries. In September, production from Eni’s Zohr reached 2 bcf/d. This figure is expected to reach 2.7 bcf/d in 2019. Output from Zohr and various other new fields pushed domestic gas production to a record 6.5 bcf/d by September 2018.

Also in September, Eni started drilling in its Nour concession. The public is anticipating a large discovery although Eni denied the wild estimations reported in the media. More details will be revealed toward the end of the drilling work later in December, or early in 2019.

A series of new awards is expected in 2019. Last May, EGAS launched a bid round putting 16 concession areas on offer: 13 blocks in the Mediterranean Sea and three concessions in the onshore Nile Delta region. The deadline to place bids was originally set for October 8 but was postponed to November 29, 2018. Another tender for Red Sea exploration blocks will be launched by the end of 2018. A new model contract, offering investors friendlier terms in future agreements on undeveloped frontier areas such as the Red Sea, is expected in the first half of 2019 and will take effect with the awards following the Red Sea tender.

Egypt is also proceeding with payments to international oil companies, a further sign of the sector’s good health. By July 2018, arrears stood at $1.2 billion, down from $2.1 billion in February, and from a high of $6.3 billion in 2012. Cairo intends to fully repay IOCs by the end of 2019, although this is not the first time a target date is provided.

On the subsidies front, further reductions to fuel subsidies spending were envisaged by the 2018-2019 budget, down to EGP 89 billion, but Egypt could end up spending much more, as the increase in oil prices since the budget was approved indicates, depending on prices throughout the year (the current budget assumes oil prices at $67 per barrel). This could disturb plans to phase out fuel subsidies in 2019. The public’s tolerance for higher prices faster than expected will affect the political decision to pursue or postpone plans to reach this target in 2019.

This article was published in the December 2018 edition of Executive Magazine.

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