Exportation of EastMed gas resources: is it possible without Turkey?

• Author: Arinc, Ibrahim S.
• Position: Report

Introduction

After the recent discoveries of natural gas resources in the Eastern Mediterranean (Levant) basin, geopolitics and natural gas related commercialization efforts have become top agenda items. However, technical, economic and political facts illustrate that without regional stability, cooperation, and the contributions of global and regional actors, the exploitation of the isolated, small-scale reservoirs of EastMed does not seem viable. Therefore, one can see a number of regional cooperation efforts cropping up between Israel, Cyprus, Egypt and Greece which could help to realize the first phase of exportation of EastMed gas into world markets. Ankara, too, aims to become a robust gas transit center and key gas trade hub. However, Turkey has political conflicts with Greece, Israel and the Greek Cyprus Administration (GCA) that hinder its ability to be the most feasible route for exportation via pipelines. Nevertheless, the gigantic reserves of EastMed would require a pipeline system to commercialize and export the gas, and pipeline options without Turkey are considered politically possible but economically unfeasible. Once the political issues are resolved, Turkey shall be the main market for the new EastMed Gas Corridor for integrated gas resources. The EastMed Turkey European Gas Project thus may represent the sole win-win for regional resources and an instrument of solution for the EastMed's regional conflicts.

Turkey has the largest natural gas market in the EastMed vicinity and is located in the middle of natural gas-rich regions (47.8 billion cubic meters (BCM) natural gas consumption with 5.7 percent annual increment in 2014). (1) However, Turkey has a robust growing economy that depends almost entirely on energy imports (97.15 percent of the gas demand was imported in 2013). (2) In order to meet the demands of Turkish industry, gas is the top "to do list" item for the Turkish government. Accessing, Acquisition and Affordability are the "triple A" for sustaining a feasible natural gas supply in response to roaring domestic demand. (3) Ankara's primary concern is to satisfy Turkey's own energy needs in the most cost-effective way; its ambitions to become an energy corridor and hub are secondary. (4) Regardless of which issue takes precedence, however, Turkey's need to clear up long-standing conflicts with the other players in the EastMed region has become immanent.

The Cyprus issue has been the most problematic issue of Turkey's foreign affairs since the country's establishment in 1923. Turkey's increasing problems with its EastMed neighbors over the last five years have limited Turkey's geopolitical capacity to connect EastMed resources to the Turkish market. Despite the political obstacles, however, the exportation of EastMed gas via Turkey is commercially appealing and is still being discussed among gas business circles.

The geopolitical importance of the EastMed basin has increased in recent years due to the large gas findings in the region. This has resulted in the emergence of the EastMed as a new upstream player in the world market, and with that shift has come both a revival of old conflict zones, and the potential for new and unusual alliances. A rising demand for democracy, civilian uprisings for freedom and the soft-power efforts of global actors indicate that tension will not be an option for the region in the near term. This paper will focus on the natural gas export options of the EastMed and will examine some options for the exportation of the EastMed resources. This paper also proposes an optimum "integrated model" for a Turkish solution, a model supported by a brief overview of the relevant technical, commercial and geopolitical facts and figures.

EastMed Gas Resources and Upstream History

The U.S. Geological Survey (USGS) estimated that there are 1.7 billion barrels of recoverable oil and 3.4 trillion cubic meters (TCM) of recoverable gas in the Levant basin as of 2010. (5) USGS also illustrated the prospects of 1.8 billion barrels of oil, 6.2 TCM of gas, and six billion barrels of condensate in the Nile Delta Province. (6) Furthermore, numerous reports indicate the world-class undiscovered gas potential of the southern Cretan basin, the deep Herodotus basin and the Ridge prospects. (7) These landmark announcements for the Levant basins were solid signals for the pioneer companies of the "Caspian-class or even larger" business development rush and the competition with Northern Iraq and Sub-Saharan offshore resources. EastMed gas could be supplied to meet the rising Middle East gas demand, the exploding Egyptian consumption, the fast-growing Turkish economy, the European Union (EU), and even the broader global demand in the form of Liquefied Natural Gas (LNG).

The history of the exploration efforts of EastMed is older than the USGS estimate. The newer, core developments which have attracted global interest are primarily due to Israeli efforts. Initial small gas discoveries were made in the Noah offshore field by the Tethys Sea Partnership in June 1999 and the Mari-B field with 45 BCM reserves in February 2000. The field supplied gas to the Israel Electricity Company starting in 2004. (8)

Meanwhile, on the Palestinian side, the BG Group estimated that Gaza Marine-one and -two wells contained 28 BCM of natural gas at 36 km offshore Gaza in 2000. (9) However, BG withdrew from the negotiations in 2007. It is not clear when the Palestinian gas could be exploited, but the finding was as important, as it was yet another proof of the potential for a working petroleum system in the basin.

However, the first game-changing offshore find was the 283 BCM of gas discovered at the Tamar site in January 2009 by the consortium of Noble Energy of the U.S., and Avner, Delek Drilling, and Isramco Negev of Israel. In March 2009, the Tamar partners also discovered another small gas reservoir at the Dalit site with seven to eight BCM of gas. Delek has estimated that Tamar and Dalit contain a quantity sufficient to meet Israel's natural gas needs for over 20 years. (10) Tamar was commissioned and started to supply gas to Israel in March 2013.

The next major discovery in the region (as well as the largest to date) was in October 2010: A giant field in the Leviathan blocks which was comprised of 491 BCM of gas reserves (11) (updated to 623 BCM gas and 39.4 million barrels of condensate after further analysis in July 2014). (12) The shareholders of the consortium are Noble, Delek, Avner and Ratio Oil. A 25 percent farm-in option of Australian LNG-player Woodside Petroleum at a cost of 2.7 billion U.S.$ (bnU.S.$) failed in May 2014. Another recent discovery is the Karish prospect of the Delek and Avner partnership on 22 May 2013. The field is located in the Alon-C license near to the conflict zone with Lebanon. The reserve has approximately 50 BCM. (13) The field also contains 13 million barrel of condensate.

On 4 December 2013, Noble announced another discovery of a small reserve containing 20 BCM gas 13 km southwest of the Tamar field. Finally, the latest announcement (December 2014) highlighted the third biggest field, containing 89 BCM of gas, the Royee field 150 km off Israel's coast. (14) The license is owned by a consortium led by Ratio. Smaller discoveries include the Dolphin, Yam Tetis, Shimshon and Tanin (34 BCM) fields; the Pelagic field is estimated to hold 190 BCM but needs further confirmation through appraisal drillings. (15) The EastMed Levant basin reached around 1.2 TCM recoverable gas reserves with these latest discoveries. According to Israeli sources, the fields are mainly gas-prone, and oil potential in the system is low. (16) The same sources also stated that there are strong indicators of deeper gas reservoirs and deep oil.

In parallel with the Israeli developments, at the north of the basin, the GCA-initiated exploration efforts in 13 parceled blocks of the so-called Cyprus Exclusive Economic Zone ("EEZ") was based on delineation agreements reached between 2003 and 2007 with Egypt and Lebanon, which have not yet been ratified, In February 2007, Noble was awarded a license in Block 12. With the EEZ agreement signed with Israel in December 2010, the first drilling in the block began on 20 September 2011. In December 2011, Noble announced 198 BCM of gas discoveries in Aphrodite field. (17) Nobles partner, Delek, further estimated the reserves as being approximately 147 BCM. (18) The discovery in Block 12, together with the large finds in the neighboring Israeli Leviathan block, significantly raised interest for the second Southern Cyprus offshore licensing round, launched on 11 February 2012. Despite protestations from Turkey, the round attracted 15 strong bidders such as Total, ENI, Gazprombank, Petronas and Kogas. (19) ENI and Kogas were invited to contract for Blocks 2,3 and 9 and Total by itself for Blocks 10 and 11.

In the northeast, Lebanon's government announced that there are up to 2.69 TCM of natural gas and 750 million barrel of oil resources in its EEZ. Preliminary seismic data estimates the amount of recoverable gas to be 708 BCM. (20) The government announced that the deadline to submit bids for the first licensing round had been re-extended from 14 August 2014 to early 2015.

Deep exploration plans on older strata of the Levant basin, the deep Nile campaign, the Lebanon tender progress, offshore Antalya developments and prospects on the adjacent Herodotus, Cretan and M. Ridge basins offer improvements for the commercialization of the EastMed basin. The expensive Floating Production and Storage Offloading Platform (FPSO) and/or Floating LNG (FLNG) terminals will likely represent the introduction of new, cutting-edge upstream technology in EastMed. Noble is the pioneering oil company and front-runner in the EastMed.

TPAO started to explore EastMed basins off of Turkey. Initially there was an exploration and development agreement with Shell signed in 23...