US officials report progress in developing gas off Israel, Cyprus

Emphasizing that significant challenges remain, two US government officials told two US House Foreign Affairs subcommittees that progress is being made in helping Israel and Cyprus develop their offshore natural gas resources in the eastern Mediterranean Sea.

“The future that I see for the region includes new and old pipelines connecting Israel’s offshore resources to Jordan, Egypt, Turkey, and the Palestinian Authority,” Amos J. Hochstein, special envoy and coordinator for international energy affairs at the US Department of State, said during the Middle East and North Africa Subcommittees’ joint hearing on Sept. 9.

“It includes Cypriot gas exports to Turkey and Egypt, allowing Egypt to satisfy its own power needs and export surpluses to international markets via existing, but now idle, LNG terminals,” Hochstein said.

Regulatory certainty, a business climate that is conducive to investment, contract sanctity, and close cooperation between the government and private sector are still critically important in the eastern Mediterranean, Hochstein said in his written testimony.

“The lack of regulatory clarity and stability cost Israel years in the development of its largest offshore resource. But, despite early challenges, I am now optimistic and confident in the long-term stability of energy development in the region,” he said.

But a second witness warned that continued lower global gas prices and falling demand in Europe suggest that intense competition for customers could develop.

“In the eastern Mediterranean, there are competing proposals to develop pipeline and LNG infrastructure to support regional gas demand—each with a unique set of challenges and each confronted by an increasingly competitive global supply for LNG. At present, the focus appears to be on developing regional gas pipelines,” said Jonathan Elkind, assistant secretary for international affairs at the US Department of Energy.

Many agreements proposed

As Israel considers plans to become an energy exporter, multiple export agreements have been proposed with various countries, he noted in his written testimony.

Noble Energy Inc., which discovered Tamar gas field off Israel in 2009 (OGJ Online, Jan. 19, 2009), signed a sales agreement with two Jordanian companies to provide gas supplies from the field in early 2014, and has letters of intent with at least three Egyptian firms for transport of gas via subsea pipeline to existing LNG facilities for export, as well as Egyptian domestic power generation, Elkind said.

Eni SPA’s August 2015 discovery of Zohr gas field (OGJ Online, Aug. 31, 2015), with an estimated 70 tcf of recoverable resources, offshore Egypt may make selling gas to Egypt and using Egyptian LNG facilities more challenging for Israel, he said.

“The Israeli government is also considering the idea of transporting Israeli and Cypriot gas through a new subsea pipeline that would run to mainland Greece, which would be a very long and expensive route, and presumably therefore challenging to construct given current market conditions,” Elkind said. “A consortium led by Noble Energy discovered gas in the Aphrodite field offshore of Cyprus estimated to hold 5 tcf of potential resources. Israeli and Turkish officials have also indicated the time may be right to explore exporting gas to Turkey via pipeline.”

Hochstein said, “Cyprus just concluded a successful third bid round, with bids from companies including ExxonMobil, Qatar Gas, and others. This cycle of exploration and development in the region will continue as long as discoveries continue to be made, expanding potentially to places like Lebanon and Greece.”

He said, “I believe that the eastern Mediterranean remains an underexplored and underdeveloped area, and I fully expect that significant discoveries will continue to be made there. However, the market is still looking for validation that historic political differences will not get in the way of investment and development.”

Contact Nick Snow at nicks@pennwell.com.

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