Friday, April 20, 2012

The East Mediterranean; a “second North Sea in Oil and Gas....” LOL ....

Israel’s biggest gas discovery, potentially turning the fuel importer into an exporter, is prompting a race by nations from Lebanon to Turkey to tap similar deposits in disputed waters of the Eastern Mediterranean...., a battle zone dating back to the 70s...., because of these hidden treasures....

Noble Energy Inc. (NBL) is developing the Leviathan and Tamar fields off Israel that hold about 30 trillion cubic feet of gas, more than triple the U.K.’s remaining reserves and worth about $670 billion at today’s prices. The Houston-based company also is behind the Aphrodite discovery off Cyprus.

With the U.S. estimating the region holds about 122 trillion cubic feet of gas, enough to supply the world for one year, Lebanon and Turkey stepped up prospecting. Territorial disputes will have to be resolved first or the potential will remain untapped.

“All sides are looking at the eastern Mediterranean in a new light, but at the same time border disputes remain very important,” said Charles Gurdon, managing director of London- based risk assessor Menas Associates. “In the end, most of these cases will have to go to international arbitration.”

Countries in the region will have to temper disputes over maritime borders and sovereignty before companies such as BP Plc (BP/), Total SA (FP) and Royal Dutch Shell Plc (RDSA) can realize its potential as an export hub, according to the Observatoire Mediterraneen de l’Energie, an industry group.

“Joint exploitation of resources may change the whole political situation for the benefit of the region,” said Sohbet Karbuz, an oil and gas director at OME. “Energy can also become an extension of politics by other means.”

‘Implacably Opposed’

Lebanon and Israel have no defined maritime border, while Turkey doesn’t recognize the Greek Cypriot-led government of the Republic of Cyprus and relations with Israel have soured since Turkish activists died on a Gaza-bound flotilla two years ago. Tensions boiled over when Turkey sent an exploration vessel accompanied by warships and jets to stop Cyprus drilling for oil and gas last year.

“The sides are implacably opposed, whether it’s northern and southern Cyprus, whether it’s Turkey and Cyprus, whether it’s Israel and Lebanon,” said Gurdon at Menas, which advises Exxon Mobil Corp., BP and Chevron Corp. (CVX) among others. “In the end, people want to determine where the territory starts and stops.”

Cyprus will award permits covering 12 offshore blocks south of the island in its second licensing round, open for bids until May, according to Solon Kassinis, director of the energy service at the Ministry of Commerce, Industry and Tourism. Turkey also plans to start drilling for oil off northern Cyprus later this month, Energy Minister Taner Yildiz said in Istanbul today.

Egypt is planning to hold a licensing round in the Mediterranean after the Leviathan and Aphrodite discoveries, Gurdon said in a presentation in London today.

‘Second North Sea’

The East Mediterranean could become the “second North Sea” following Cyprus’s first offshore gas discovery last year, Kassinis said.

“The Lebanese have systematically refused to talk to us about border issues, whether territorial or maritime, and have unilaterally submitted their claims to the UN,” said Yigal Palmor, an Israeli Foreign Ministry spokesman. “We therefore have no choice but to submit our own claims to the UN as well, but the preferred solution is obviously direct negotiations.”

The North Sea, where Britain and Norway pump most of the oil and gas, is the world’s sixth-largest supplier of crude. While it still holds more than 26 billion barrels of oil equivalent resources, extraction peaked at the beginning of the last decade, U.K. government data show.

Cyprus-Israel Pipeline

As North Sea production declines, energy producers are looking to other regions, including the Mediterranean, to meet rising gas demand as countries seek alternatives to Russian supplies.

Cyprus is working with Israel, 300 miles (480 kilometers) south across the Mediterranean Sea, on the potential construction of a pipeline to connect their gas fields. The link would allow the countries to meet domestic demand before liquefying the fuel for export, Israeli Prime Minister Benjamin Netanyahu said Feb. 16.

Israel is examining plans to ship liquefied natural gas, or LNG, as far as Asia after 2018, said Gerry Peereboom, a director at Noble Energy. Israel may also pump gas to Egyptian LNG plants, said Raafat El-Beltagy, deputy chairman of Egyptian Natural Gas Holding Co.

LNG Exports

“Israel is now in the position to decide whether they’ll allow the companies that hold these gas resources for export to the international market,” said Richard Quin, an analyst on the Middle East and North Africa at Wood Mackenzie Consultants Ltd. “The challenges of exporting LNG from Israel are quite substantial. It could easily be a decade for exports actually to happen.”

The Aphrodite field spans waters between Cyprus and Israel. Noble and other international oil companies have stayed away from northern Cypriot waters as tensions with Turkey persist, maintaining divisions that have split the island since Turkey invaded the north in 1974. Turkey has said development projects should await resolution of Cyprus’s political status.

“The issue of Turkey remains absolutely critical, because Turkey doesn’t recognize Cyprus’s rights” to award licenses, Menas’s Gurdon said. “Turkey may adopt gunboat diplomacy and it may be difficult for Cyprus to search for and develop fields which are close to northern Cyprus.”

The European Union, which only recognizes the Republic of Cyprus, has withheld elements of Turkey’s EU membership talks as it calls on the country to acknowledge the island nation and help resolve its ethnic divisions. Turkey has said it’s open to collaboration to exploit the region’s resources and market the fuel abroad.

‘Affordable Gateway’

“Potential cooperation may at last bring peace and stability to the region,” said Ayse Berris Ekinci, acting deputy director for energy at Turkey’s Ministry of Foreign Affairs. “Turkey represents the safest, most feasible and affordable gateway for the eastern Mediterranean natural gas resources to the European markets.”

Turkey’s state oil producer Turkiye Petrolleri AO struck an agreement with Shell in November to explore off the city of Antalya, away from Cypriot waters. Turkey has also received interest from companies including Exxon Mobil, BP, Chevron, Total and ConocoPhillips (COP) to explore in its east Mediterranean waters, according to the Energy Ministry.

EU Presidency

Cyprus is due to take over the EU’s rotating presidency on July 1, potentially boosting its clout in negotiations. The island’s Aphrodite discovery is only 65 kilometers from Israel’s Leviathan field, the world’s biggest offshore gas find of 2010. The Tamar field off Israel, discovered a year earlier, is due to start output next year.

“The latest discoveries will certainly be a source of dialogue between the countries,” said Rob West, a London-based oil analyst at Sanford C. Bernstein & Co. “It’s just not clear whether the dialogue will involve disputes over resource entitlement or rather cooperation.”

Claims over gas fields in the region’s Levant Basin extend to Lebanon, Israel’s northern neighbor and 100 miles across the sea from Cyprus.

Lebanon says that some Israeli fields DO stretch into its waters and has asked the United Nations to intervene to prevent a conflict over exploration areas as the country gears up for its first offshore oil and gas bidding round this year. Lebanese Resistance group Hezbollah, which soundly defeated Israel and the despicable USA in 2006, has repeatedly pledged to protect the nation’s offshore and onshore resources and all the country.... Israel, as customary since 1948, with ZIOs stealing other people's land is wrongly claiming 850 Sq Kms from Lebanon's clear and unambiguous EEZ.....

Peak Oil Off, Great Game On....

Matthew Hulbert

Peak oilers have had a pretty hard time lately. Not only have global unconventional finds flattened Hubbard’s ‘peak’, more and more conventional plays are cropping up. ‘Running out’? We have more than enough of the black stuff to incinerate ourselves several times over. Such supply side bounty has been well documented in the Americas – not just in the US and Canada, but across Latin America, offering a second pass at resource riches. Head all the way over to Australia, and you’ll see a dazzling display of unconventional technologies rapidly increasing kangaroo LNG production. The North Sea can squeeze out a few more drops; Europe can finally get it’s ‘energy sovereignty’ back from shale plays, all while the Arctic offers Russia untold oil riches. Anywhere you look, the narrative is the same. But just when we thought the global hydrocarbon map was complete, another serious player has cropped up, and it comes in the form of East Africa. This is the new African oil rush, and the race to secure regional riches between East and West is on. Nobody wants to lose: Peak oil is dead, the Great Game is back.

What’s particularly interesting about East Africa finds in Kenya, Tanzania, Mozambique, Madagascar, Ethiopia and more established fields in Uganda and Sudan, isn’t just the size of the finds, but the fact that European players have been leading the charge to secure concessions. Looking at the map, you’d think this would become a pure play ‘Chindian’ affair between China and India; sign upstream deals, load tankers, ship hydrocarbons directly across the Indian Ocean to home markets. Both Beijing and Delhi have been busy bidding for assets, but European players aren’t taking this lying down. Having lost the Middle East, seen North Africa take a turn for the worse, Latin America slip, and Russia on edge, East Africa is fast becoming a key priority for European boardrooms. Forget wildcat minnows, if East Africa is going to feed Asian markets, it’s European ‘super-majors’ that want to control the terms, taps and prices entailed.

Madagascar was stitched up by Exxon and Norway’s Statoil back in the early 2000s, every time BG Group now drills in Tanzania, gas is found. The British based company has unearthed 7 trillion cubic feet of gas on the trot, with Statoil sitting on even bigger finds, toping a billion barrels of oil equivalent. The same fields stretch down into Mozambique where Italy’s ENI have found 1.3boe matching similar finds made by US outfit, Anadarko. The key question being asked is not whether this is commercially attractive, but where to locate LNG export plants to monetise new found gains. Little wonder that a bidding war for CoveEnergy working in Mozambique has opened up. Royal Dutch Shell is showing considerable interest, not just in Cove’s Rovuma Offshore plays, but its world-scale LNG proposals to ship a minimum of 16tcf onto global markets. BP has expressed similar interest in Tanzanian LNG plants.

Higher risk markets such as Somalia and Ethiopia hold undoubted hydrocarbon promise, particularly in the Omo River Delta (Southern Ethiopia) but it’s further inland where things have really taken off: Uganda, and more controversially, Sudan. UK Independent, Tullow, has done most of the heavy lifting in Lake Albert (Uganda) alongside Total of France with belated contributions from CNOOC. Initial trickles of oil will start to flow next year, but the Albert basin has already unearthed a billion barrels of proven reserves, figures that could go significantly higher when surveys are conducted on the Congo border. That’s while the main plays China had secured in the region have turned horribly sour in Sudan. Separation between North and South has wiped out the vast bulk of Sudan’s 350,000b/d production: Word on the Juba Street is that a European hydrocarbon presence might be a good way of getting the diplomatic ball rolling.

That’s not gone down well in Beijing, but the real geopolitical clincher for the region is Kenya: it’s the swing state that will settle where regional control between East and West ultimately rests. In part, that’s because Nairobi has struck its own oil. Tullow is plugging away in the Rift Valley; serious offshore plays are being looked at in the Lamu Basin by US independent Apache, while trickier deep-water blocs have been taken by Total (France), BG Group and Ophir Energy. Thirty onshore and offshore areas are already under license, with a further eight deep-water tracts coming up for auction. But Kenya’s core strategic resonance isn’t just as a resource holder, but more as a transit state. Landlocked Uganda has little option but to ship its resources to Kenyan ports, and the same dynamic now applies to South Sudan – not unless a miraculous deal can be struck between Khartoum in the North and Juba in the South. Kenya will be the default energy hub linking East African production to international markets.

This is where China might be able to claw back some lost technological and geopolitical ground from Europe – notably by paying for the infrastructure involved. Sudan will need Chinese money to weld new pipes to the Uganda border towards Kenya, while Nairobi has already touted the so-called Lamu Port South Sudan Ethiopia Transport Corridor Project to act as a crude maritime and refining hub. Although unashamedly pitched as a project ‘in search of Chinese money’, if Beijing considers itself to be on the back foot securing equity deals, rather than paying top dollar to secure new concessions from smaller European players, sinking cash into Kenyan infrastructure could be a strategically astute move. What China has missed on upstream positions, it could regain in terms of ‘vertical integration’ – directly tying Kenyan exports into Chinese maritime presence across the Indian Ocean.

This underlying competition certainly isn’t lost on host governments. With Europe, the US, India and China all trying to cement their stakes in the East Africa, Uganda had been ramping up capital gains taxes from Lake Albert spin-offs, prompting protracted tax disputes between the parties involved. Mozambique has made clear 12.8% capital gains will be paid on the forthcoming Cove sale; similar taxes are likely to crop up in Tanzania and Kenya. Broader political instability, particularly in Sudan, Ethiopia, and Somalia will remain problematic, as will the omnipotent threat of piracy in the region. But irrespective of these minor foibles, there is no way big European oil is going to turn its back on elephant fields littering East Africa. What’s more, future potential remains huge. Fewer than 500 wells have been drilled in the region, compared with over 35,000 in the rest of Africa to the North and West. Oil remains the biggest prize, but with Asian LNG demand on the up, gas plays have become a highly attractive option.

Like it or not, East Africa has just added another serious swathe of hydrocarbon prospects to the global economy. Irrespective of whatever pace the donkeys nod and gas flows, it underlines the fact we are re-entering a period of hydrocarbon plenty. Hydrocarbon assets aren’t ‘stranded’; we aren’t living in a carbon constrained world. The question for East Africa isn’t whether oil will be pumped and gas condensed, but who will be the main market players doing it between East and West. The really bad news for the ‘peak oil faithful’ is that commodity prices might not become more expensive in future. High benchmark prices today, continue to drive investment into technological innovation for cheaper extraction tomorrow. Little surprise that future oil prices are dipping under spot market dynamics: East Africa has merely added an attractive prospect for bullish supply side expectations. Peak is dead. The Great Game lives on….

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