Eastern Mediterranean Gas: Increasing Discoveries, Demand and Interest

Interest in eastern Mediterranean gas increased during the year 2022; Due to the high European demand following the embargo imposed by these countries on Russian oil supplies, due to the invasion of Ukraine.

What helped increase interest was the encouraging results of discoveries and the increase in production in a number of countries in the region, and the emergence of the role of gas as a “green” fuel that serves as a bridge between the current hydrocarbon era and the future hybrid era of energies. These factors led to an increase in interest and investments in eastern Mediterranean gas as an alternative source that helps replace Russian gas for Europe, similar to Qatari, American, Algerian, Nigerian and Mozambican gas.

Egypt ranks first in its gas production in the eastern Mediterranean, with a production rate of about 2.1 trillion cubic feet per year in 2018, followed by Israeli production with a much lower rank of about 276 billion cubic feet annually, then Turkey in third place with a much lower score of about 16 billion. cubic feet per year, according to the US Energy Information Administration. It is expected that production will increase from the three countries, in light of the recent discoveries in each of them, and the development of old fields.

In mid-January, the Italian oil company Eni and its American partner, Chevron, announced the discovery of a “huge” gas field in the Nargis block in Egyptian waters. Eni expects to develop the Nargis field and link its infrastructure to another nearby discovery. The size of the field reserve has not yet been announced, pending the completion of the drilling program (which requires drilling at least 4 exploratory wells to get an approximate picture of the reserve).

Like other major international oil companies, Eni has increased its investments in Egyptian waters to include stakes in North Rafah, North Turquoise, Northeast Arish, and Bellatrix-City East blocks. Eni has been operating in Egypt since 1954, through a local company, and Eni’s oil production is the highest among international companies in Egypt, as its share of production is about 350,000 barrels per day of crude oil.

Eni discovered the giant Zohr field, located 190 km north of Port Said, in the Mediterranean waters, and developed the field within two years. Zohr is the largest gas field in Egypt and the Mediterranean, with a maximum production capacity of 3.2 billion cubic feet per day, while Zohr’s production ranges around 2.7 billion cubic feet per day. Eni’s share in the field is 50%, Russia’s Rosneft 30%, and British Petroleum 20%. Zohr is considered the main pillar of the Egyptian gas industry, which constitutes the most important source of energy for the country (for housing, factories, electric power generation, and even some means of transportation, in addition to exports). In view of the high annual increase in the country’s population; As the population of Egypt increased to about 109 million people, and then increased gas consumption, which ranges around 1.94 trillion cubic feet annually, during the period between 2012 and 2021.

When announcing the financial results for the third quarter of 2022, American Chevron President Pierre Breber said, in light of the global gas crisis: “We are working to expand our opportunities, especially in the eastern Mediterranean.” He added, “This time is very suitable for signing contracts to export gas, and we are qualified to expand our gas supplies.”

Chevron is a partner in two of the largest offshore Israeli gas fields, as it owns 39.66% of the Leviathan field and 25% of the Tamara field, as it acquired these shares when selling the assets of the American company Noble, which discovered the two fields. Chevron is currently working with its partners, according to the “Mays” oil bulletin, to increase the field’s production capacity from 1.2 to about 2.4 billion cubic feet per day, with the possibility of exporting new supplies through Egyptian liquefied gas stations. And the head of «Chevron» adds that «expanding production from these fields is low-cost and achievable. The change in the picture is that a few months ago, the regional markets were crowded with gas supplies, but now the picture is much better, as customers are more willing to sign contracts. This is very important in the gas industry.
However, the LNG export industry from the eastern Mediterranean and other LNG exporting countries is facing difficulty in reaching final agreements with the Europeans. In view of the dispute over the period of contracts that must be signed by the importing European countries, given the exorbitant investments in developing gas fields and building infrastructure for refining and shipping liquefied gas in specialized factories and tankers, which cost billions of dollars, which usually requires import contracts that extend for about two decades or more. European countries are calling for shortening this period for limited years, fewer than the number of fingers on one hand, given their development of energy alternatives and their increase in imports of US liquefied natural gas, and hence the obstacles in the current negotiations.

Observers are looking forward, in light of the increase in European gas demand following the Ukraine war and the European boycott of Russian gas, for Chevron to sign a memorandum of understanding to expand the production capacity of the Leviathan field. The largest Israeli gas field, and the signing of a memorandum of understanding to link production from the Cypriot “Aphrodite” field with a reserve of 4.2 trillion cubic feet, which crosses Cypriot and Israeli waters, as “Aphrodite” in Cypriot waters is about 30 kilometers from the Israeli “Leviathan” field.
Chevron’s production from Israeli fields increased by about 15%, to reach its share of about 597 million cubic feet per day, in the third quarter of 2022, according to the “MES” bulletin, which adds that Israel’s production of natural gas has exceeded two billion cubic feet per day.

The demand for Israeli gas has increased, in recent months, to rise to 723 million cubic feet per day, which paved the way for increasing its exports of liquefied gas. A memorandum of understanding was signed, during the past year, between Egypt, Israel and the European market to increase exports of liquefied gas from the two terminals. In addition to the signing of a second memorandum of understanding between Chevron and Egypt, to export gas from the regional Chevron fields to meet Egyptian domestic demand, in addition to exporting through the two Egyptian gas liquefaction terminals.

Exxon Mobil also announced its purchase of two blocks in Egyptian deep waters adjacent to the blocks in which it had bought stakes in the waters of southern Cyprus. This expansion of the company is in line with Chevron’s strategy in the eastern Mediterranean, which assumes that there is an increasing demand for gas, and therefore investments by major oil companies must be huge to meet the increased demand.

Last year, the French company Total Energy announced, after signing the Lebanese-Israeli maritime border agreement, that it would start drilling in 2023 for the Lebanese “Qana” field, and there is a possibility that the state company “Qatar Energy”, “Total”, will participate in the drilling operations. And development in the part of the “Qana” field that crosses Lebanese waters towards Israeli waters.

Moreover, the Israeli authorities are still preventing the Palestinian Authority from developing the “Gaza offshore” field, which was inaugurated at the time by the late President Yasser Arafat.