Eastern Mediterranean Energy: The Next Game
Two years ago, in June 2010, the Leviathan, the largest gas field in Eastern Mediterranean was discovered by Houston’s Noble Energy in Israeli territorial waters. After a couple of nicely executed wells, in January 2011 the find was elevated to 16 trillion cubic feet (Tcf) and then because of ongoing work, the field size could go up to 25 Tcf of gas. Current thinking suggests also 600 million barrels of oil. Added to the Tamar field’s 8.4 Tcf and other smaller accumulations, Israel might have booked already 50 Tcf of gas.
The Levantine Basin in Eastern Mediterranean (Source: USGS)
There is no end to the good news. A statement released on Sunday by the Israel Opportunity energy exploration partnership said that prospecting at the Pelagic group of deep-sea fields, west of Haifa, showed a potential of 6.7 Tcf of gas and 1.4 billion barrels of oil.
In December 2011 Noble Energy announced the results of their well in the Cypriot Economic Zone. They won the right to drill in Block 12 (the Aphrodite Field) a year earlier and following that drilling, Noble’s testing and analysis concluded that the Block contains up to 9 Tcf of “high-quality” natural gas, a world class discovery.
The size of the ultimate recoverable gas in the Eastern Mediterranean, according to the United States Geological Survey, is of the order of 200 Tcf of natural gas and 3.7 billion barrels of oil. A dozen new Cypriot blocks, currently in the process of being offered to international bidders, will almost certainly add 50 Tcf, perhaps 75 Tcf to the already discovered.
For Israel, the petroleum finds happened not a moment too soon. Just two weeks ago, Egypt, fresh out of the Arab Spring, cancelled its natural gas supply agreement with Israel, what was perhaps the most substantive remnant of the Camp David Accords. It would be hard to envision Egypt, governed by the Moslem Brotherhood, to be the main energy supplier to its archenemy.
Israel, views its recent good fortune with glee and, depending on the religious outlook of the individual denizen, perhaps a yet another proof of being the chosen people. Already the Tamar field has been marshaled to replace the loss from Egyptian gas.
Of course, it will not be uneventful en route to the real riches, far more than just using gas for domestic needs. Two important elements may turn the good news into not so good and even bad if countries are unprepared.
First, the Eastern Mediterranean finds are buried under 6,000 feet of water and then another 14,000 feet beneath the bottom of the sea for a total approaching 20,000 feet. Had it not been for the geopolitical incentives these finds might not be economically attractive. Certainly, there are virtually no other places in the world where natural gas (not associated with oil) is produced from such depths.
Seismic interpretation of discovered natural gas fields (Source: Noble Energy and others)
Beyond the cost of drilling, natural gas is cumbersome because it cannot be handled readily as oil can and, therefore, its exploitation is even more tenuous. Pipelines from the area of discovery to e.g., Europe are highly unlikely because of the water depth and the underwater terrain. This means that the transportation of gas will have to be converted into liquid natural gas (LNG) and, in early time, perhaps compressed natural gas (CNG) transportation.
There is almost a sadistic irony that natural gas of the size being contemplated can be so close and yet so far if the right decisions and the right knowledge are not evident. The size of the resource would require tens of billions of dollars of investment. The cost will involve the field development with very expensive wells and facilities and, especially, if LNG will be deployed. In all cases it will take huge companies to do it.
Which leads to the second problem. Israeli Globes wrote this on June 4, 2012.
“Israel sees itself as a natural gas princedom, but that self-image has yet to gain international recognition. A painful reminder of that was received just three weeks ago, from the direction of our north-west neighbor island, Cyprus. At the beginning of the month, the island”s authorities published the list of international companies that had put their names down to bid for oil and gas exploration licenses. Among the 15 bidders, the names of companies from the premier league of the oil majors stood out, such as French energy giant Total, and Italy”s ENI, one of the world”s ten largest oil companies. One can guess that if one of these companies were to announce that it was entering the Israeli market, Prime Minister Benjamin Netanyahu would be sounding off with declarations about the attractiveness of the Israeli oil and gas discovery industry. But that isn”t happening. By comparison with the foreign line-up in Cyprus, the one in Israel looks ridiculous. All the foreign companies operating here, apart from one, have market caps below $1 billion, and some of them are in the tens of millions.”
The implication is that large oil companies will not enter the Israeli domain in fear of antagonizing their Arab partners.
Israel will need Cyprus to exploit its resources by employing the right size company to construct e.g., LNG or gas-to-liquids (GTL) plants. The size of the resources cannot allow them to even remotely be consumed domestically; export is the only option. The Cypriot and Israel reservoirs should be unified; they are geologically contiguous anyway. Cyprus, in turn, will need the shield provided by Israel in relation to saber rattling Turkey. The Israeli-Cypriot marriage is made in oil and gas heaven.