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Hot air - MENA in the spotlight

Written by  Tuesday, 27 June 2017 10:52

High hopes are pinned on gas as a transition fuel and there being markets to sell it to in the gas-rich Mediterranean. Elaine Maslin reports.

Maersk Discoverer drilling in Egypt's Eastern Med Sea for BP. Photo from BP's Flickr.

The gas discoveries made in the Mediterranean since 2009, notably Leviathan (Israel) and Zohr (Egypt), have propelled the basin into one with worldwide relevance – according to those with a stake in it.

These huge fields and others have the potential to turnaround fortunes. In Egypt, the Zohr discovery could help return the country to a gas exporter, instead of an importer with idle export infrastructure.

Such countries hope that carbon-reduction commitments, not least those made in the 2015 Paris agreement, will see natural gas used to help the world transition to a lower carbon future, as well as addressing energy security concerns, helping those with it find ready markets for it. Egypt also hopes it can become a gas hub, to export neighboring countries’ finds, such as Lebanon and Cyprus.

The Paris agreement was a watershed moment for Innocenzo Titone, president of the Offshore Mediterranean Conference (OMC), held in Ravenna, Italy, in late March. “Things will never be the same as they were before,” he told the event, which had visitors from 30 countries and 650 exhibitors over 30,000sq m. “In the transition, the oil and gas industry has a role to play. No transition will be achieved without integration of renewables and fossil fuels, specifically gas. The huge potential in the Mediterranean can act as a driver for this.”

Gilberto Dialuce, director general for energy supply security and infrastructure, Italian Ministry of Economic development, told OMC that development of the eastern Mediterranean’s gas could be positive for energy security, drawing countries in the region closer together. A more diversified gas, as well as electricity, supply and infrastructure could also improve the life of those on the southern shores of the Mediterranean, by improving their energy supply and security, and even ease issues such as migration, he said.

Game changer

Until relatively recently, upstream offshore development was in stasis offshore Egypt. The uprising in 2011 saw President Hosni Mubarak overthrown and resulted in a period of uncertainty, as well as unpaid debt to international oil companies mounting into billions.

Tarek El-Molla, Egypt’s Minister of Petroleum and Mineral Resources told OMC how the country, after 2011, fell fast into gas shortages, resulting in blackouts and factory stoppages. “We were paralyzed,” he says. It wasn’t until 2013 that a decision was taken to build LNG import infrastructure in place, so that the country, which is 92% reliant on fossil fuels for its energy, would have the energy it needed. Meanwhile, the country has some 19 Bcm/yr of idle LNG export capacity, says Manfred Hafner, professor at Johns Hopkins University and associate fellow at Fondazione Eni Enrico Mattei. Zohr will go a significant way to putting that export capacity back to use.

“Zohr is a game-changer,” El-Molla says. “We have been, since 2011-2013, having difficult times… changes of regime and instability: politically, in security and economically. A great discovery like Zohr has made a lot of changes for us. Zohr is the biggest discovery in the Mediterranean and one of the major discoveries in the world and for us this is the beginning.

Eni's Claudio Descalzi at OMC 2017. Photo from Eni's Flickr.

“We will be self-sufficient [in gas] by 2018 and, by 2019, we will be in a position to resume export by existing LNG plants,” he adds. “We may go beyond that, with expansion of [our] LNG plants with additional trains. [there could be] other strategic plans for fertilizers and petrochemicals, that would need gas in parallel to exports.”
Zohr, slated to be one of the longest subsea tiebacks in the world, was found in 2015 in one of 15 blocks awarded by Egyptian state-owned company Egas in 2012. Until then, exploration in the area hadn’t yielded significant results (OE: April 2016). IHS Markit says Zohr holds in-place resources of 32 Tcf of dry gas, with possible recoverable resources of about 20 Tcf. A development plan for the field was approved in 2016 and first gas is expected late 2017. Meanwhile, in July 2015, Eni also discovered Nooros, which was brought online in September the same year.

“In a few years we are going to fulfill all domestic needs for Egypt for gas,” said Claudio Descalzi, Eni’s CEO at OMC. “Egypt is consuming 55 Bcm/yr at the moment and growing, because the economy is growing. The plan is to reach more than 80 Bcm [production].”

Meanwhile, the hunt for the rest of the estimated 200 Tcf in Eastern Mediterranean waters continues, across Cyprus, Lebanon, and Israel. Egypt’s broader vision is for the gas found to come to Egypt, which would then act as a regional gas. “We could help others monetize their gas,” El-Molla says, with gas sent via existing or new pipelines to Egypt for consumption or re-export. El-Molla says that dialogue with Cyprus is already advanced, and there were also ongoing talks with Israel, Lebanon and Jordan.

Cyprus

Cyprus will be a key focus, said Luca Bertelli, Eni’s chief exploration officer, at OMC, thanks to Zohr. “The Zohr play can contribute to the discovery of more gas,” he says, having highlighted a new play, attracting the likes of ExxonMobil and Qatar Petroleum to Cyprus, alongside Eni and Total, in turn bringing competition to the region, with Total planning to drill in deepwater block 11 this year.

Yiorgos Lakkotrypis, Cyprus’ Minister of Energy, Commerce, Industry and Tourism, says that Cyprus is “a country in its (E&P) infancy. But, with Zohr, the geology has been illuminated once again.” Yet, monetizing what is found will mean regional cooperation.

The country’s small domestic market for gas – 0.7 Bcm/yr, rising to 1 Bcm in a decade – has meant while fields in neighboring Israel are being developed (Tamar, Leviathan and Zohr), while Cyprus’ 4 Tcf Aphrodite gas discovery remains untapped. “Cyprus’ market is too small on its own to support Aphrodite,” Lakkotrypis says. “[Fields like] Aphrodite and others [to be discovered] will be for export.” Cyprus’ options include pipelines to Europe, onshore LNG and even compressed natural gas. But, the optimal way appears to be sending it to Egypt, he says. “The key will be cooperation. If there’s no Eastern Mediterranean cooperation, then we will get nowhere,” he says. Furthermore, export relies on there being market demand, which could be “unpredictable,” especially from Europe, he says.

Leviathan looms

First steel was cut on Noble Energy’s Leviathan natural gas project early March, with first gas targeted for 2019. Leviathan is 130km offshore Israel, in 1600m water depth. It is estimated to contain 22 Tcf of natural gas. Leviathan’s initial development includes four subsea wells, each capable of flowing more than 300 MMcf/d of natural gas. Initial proved reserve bookings are estimated to be 9.4 Tcf gross.

Starting from scratch

Lebanon’s first bid round could finally play out in 2017 with five blocks on offer.

Lebanon's Licensing Round map. Image from Lebanese Petroleum Administration.

The country’s Minister of Energy and Water, Cesar Abi Khalil, told OMC, “It is better to come late than never at all.” In 2013, 26 operators prequalified for the first round. “Unfortunately, back then, the prime minister resigned. Now we have a new president and prime minister, and a new licensing round. Things are different,” this time, Khalil says. Additional companies have also been invited to pre-qualify and the country has acquired 2D and 3D seismic data.

Khalil says that there is 122 Bcm of gas in the eastern Mediterranean, with about a third of it expected to be offshore Lebanon. The domestic market, which consumes 0.2 Tcf/yr, will be the first priority when it comes to getting the gas to market, due to the country’s $1.5-2 billion deficit. Lebanon wants to rely less on gas import for power generation. But, he hopes that gas can be exported, too.

There are existing pipeline projects, such as the Arab gas pipeline, which was supposed to go to Turkey and reach Europe, but it is unfinished. “We hope once the Syria crisis is finished we will be able to utilize this,” Khalil says. And he says that, realistically, it will be 4-6 years before any production is achieved.

Early in April, Lebanon extended its deadline for its second pre-qualification round to 28 April, to give companies more time to respond to requests from the Lebanese Petroleum Administration (LPA). As of 31 March, nine new companies sent applications to take part in the licensing round, including India’s ONGC Videsh; Russia’s PJSC Lukoil; Malaysia’s SapuraKencana Energy; Algeria’s Sonatrach International Petroleum E&P; Qatar Petroleum International; Egypt’s Advanced Energy Systems; Iran’s Petropars; JSC Novatek; and the trio of Vega Petroleum, Edgo Energy, and Petroleb.

The new nine join a list of 14 companies that were already prequalified in 2013, when Lebanon first tried to launch its offshore licensing round. The round will open up five blocks for bidding: 1, 4, 8, 9, 10. Winners are set to be announced by the end of the year.

Turkey

Turkey, which has also been keen to reduce its reliance on Russian gas, in particular, is eyeing the potential in its waters. It started seismic work offshore Turkey this April, using the seismic exploration vessel Barbaros Hayrettin Paşa, and has said it will explore its segment of the Mediterranean and the Black Sea this year.

Instability

Regional instability remains, however. There are concerns over Libya, which has various factions fighting for power. Tunisia has also faced unrest, Descalzi says. It’s an issue, “with 500 million people in the region and a 20-30% predicted increase in population, it’s a region that needs stability.”

Massimo Nicolazzi, ISPI (Institute for International Political Studies) Energy Watch, points to broader concerns; stagnant energy consumption in Europe; redundant gas transport infrastructure; a decline in production from some current major suppliers; uncompetitive LNG markets; and increasingly liquidity in the market impacting pricing. All of which could make it harder for new entrants.

Thanks to recent LNG mega-projects, Nicolazzi expects LNG to be oversupplied for a while. “Entering the [LNG] market doesn’t just mean substituting someone out of production, but displacing existing suppliers,” he told OMC. This could mean a price war – the bottom line will be an ability to compete on price, he says.

Hafner argues that linking the likes of Leviathan and Aphrodite, as well as Zohr, could create enough capacity to restart existing Egyptian LNG export facilities – i.e. the 19 Bcm Idku and Damietta plants, which Egypt, as a country, has contractual obligations to supply with gas. “Bringing together underused and scalable export infrastructure would be key to unlock [economic] regional gas export once more gas is found in Eastern Mediterranean,” he told OMC. “There are other schemes that can be looked at, like a pipeline from the Eastern Mediterranean to Greece and one to Italy to export gas to Europe by pipeline.” This could avoid the waves in the LNG market, but, while “Europe prefers pipeline infrastructure,” European gas demand is uncertain. “With LNG, we will always find a market. Geopolitical projects are difficult. The quickest option would be to use idle capacity in Egypt.”

El-Molla adds, “Time is of the essence. The solutions are there. We have the market, if it’s not export it is there to be used. Momentum is there, alignment is becoming more clear, we are starting to hear new comers (upstream) in Cyprus, and we pray also in Lebanon. Then, this will mean business.” 

Raccortubi expands

Before and through the downturn, Italy’s Raccortubi Group has been expanding through acquisition and setting up new subsidiaries. The firm set up subsidiaries in Dubai, Singapore and São Paulo, Brazil, in 2013, acquired specialized butt weld fittings manufacturer Petrol Raccord in 2014, and then Raccortubi Norsk (then Norsk Alloys) in 2015.

The moves broaden the firm’s geographic spread but also mean the firm’s traditional production of butt weld fittings, from 1/2in to 16in from Tecninox, a part of the group since 1988, complemented with seamless and welded fittings up to 56in.

Last year, Raccortubi also introduced Titanium Gr 2 into its manufacturing and stockholding range, together with all the relevant base material. This means the firm can react quickly to orders and deliver complete packages, says Luca Pentericci, Raccortubi Group’s President. The same ethos cuts across the whole business.

“Due to the extensive raw material availability, we can work on tight schedules for specific projects but we are also able to guarantee a fast-track service to meet any urgent request from our customers,” he says, adding that the firm’s business model is to offer the flexibility of a stockholder while having the expertise of a manufacturer. “In Petrol Raccord, not only have we included in manufacturing welded elbows in two halves, but we have also implemented a new quick production line to rapidly manage orders even within a few weeks. This, of course, thanks to extensive raw material availability, [including] sheets/plates up to 50mm-thick in duplex, superduplex, 6Mo and titanium.”

It should put the firm in good stead, when orders start to pick up. “We expect a global recovery when the oil price reaches a level at which companies will be able to arrive at a convenient breakeven point and restart investing,” Pentericci says. “Of course, oilfields are very different to one another, but if the general situation is not expected to change rapidly, the methods for extracting crude oil will remain more or less the most traditional, without looking for complex solutions in terms of neither technology nor materials.” 

Italian decommissioning

As elsewhere, Italy has offshore facilities, some of which are nearing the end of their economics lives as oil and gas producers. The potential for their reuse was discussed at the Offshore Mediterranean Conference in Ravenna, in March.

In Italy, there are 136 offshore sites, including platforms and similar infrastructure (93 within 12mi of the coast), of which 16 will be ready for decommissioning by 2020, according to Franco Terlizzese, general director at Italy’s Directorate General for Safety of Mining and Energy Activities – National Mining Office for Hydrocarbons and Georesources at the Italian Ministry of Economic Development.

What is done with them is up for debate. Just as in the North Sea and offshore Australia, discussions around leaving platforms in place to become natural reefs have been held. In Italy, there’s also a discussion about how to put them to use for other purposes. 

Fabio Fava, professor at University of Bologna and Italian representative of Blue Growth in Horizon 2020 and strategic board of the BlueMed initiative coordinator, suggests repurposing for renewable energy production, hydrogen generation, energy storage, environmental monitoring, aquaculture, and tourism, among others.

Indeed, the Paguro (hermit crab in Italian) platform that lies on the seabed 25m deep, 12km off the Adriatic coast, has become a popular destination for sports divers. The Agip platform exploded and sank following an accident during the drilling of a new methane well in 1965. Aquatic life has sprung up around the facility and, in 1995, the Paguro Association was founded to control visits to the wreck and for the protection of the biology in the area (it’s even used by a wine producer as a place to age their wine, at least according to its marketing).

Nicola Mondelli, chief operations officer at Basis Engineering, said his firm has been looking at extending the use of platforms in the Adriatic Sea for energy storage and power generation from renewables, including solar and wind, in some cases combined with hydrogen generation from seawater.

Ravenna’s Mayor Michele de Pascale says that scientific research would also make economic development and the environment compatible. He suggests that Ravenna could be the center for new technologies that could make use of former platforms.

“Decommissioning may not be a funeral for the offshore, but a switch to new investments,” says Franco Nanni, chairman of Ravenna Offshore Contractor Association (ROCA). Indeed, Eni’s CEO Claudio Descalzi has hinted at the potential to give a second life to offshore facilities (OE: May 2017) and, in fact, Terlizzese says, “Eni has confirmed its readiness to finance a second life of the offshore sites.”

However, there’s work to be done, not least on the impact on the environment of these facilities. Environmental groups have requested that decommissioning guidelines are drawn up for Italy – just 47.7% of the facilities within 12mi of the Italian coast have been covered by an environmental impact assessment, Nanni says.

It also might not be so easy to bring new lives to offshore facilities, however. Tobias Rosenbaum, managing director of BD Gas and Infrastructure at DNV GL, says that such activities could involve a lot of effort and cost. Andrea Bombardi, chief commercial officer at RINA (the Italian classification and verification society, agreed. 

 
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