articles | 21 October 2015

ENI regional gas hub includes Cyprus

ENI’s vision for a gas hub in the eastern Mediterranean includes Cyprus, Energy Minister Giorgos Lakkotrypis said recently.

He was asked to comment on an announcement put out by ENI a day earlier where the Italian energy giant said it is discussing with the Egyptian government the possibility of setting up a hub in the eastern Med for the transit of natural gas within the region.

ENI released the statement after a meeting between their CEO Claudio Descalzi and Egyptian president Abdel Fattah al-Sisi in Cairo on Sunday. There, the two sides agreed to fast-track production of the newly-discovered Zohr field, believed to hold 30 trillion cubic feet of natural gas.

The Zohr discovery was announced in late August. Since then, Descalzi has been talking up a possible gas hub in the Mediterranean uniting the resources of Egypt, Israel and Cyprus, adding that this could open new pathways between Africa, the Middle East and Europe.

Although Lakkotrypis was responding to reporters’ questions here, he was quick to piggyback onto Descalzi’s remarks.

“This is a discussion we had with the CEO of ENI during his meeting with the President of the Republic. He laid out to us his vision for the region, which includes Cyprus and Egypt,” the minister said.

“At the moment, they (ENI) had made a huge discovery in Egypt’s Exclusive Economic Zone, which is targeted at the local market, and of course they are holding talks with the Egyptian government on the issue, as I held discussions (in Egypt) last week.”

Egyptian media outlets meanwhile were rehashing that the Zohr field could go on-stream as early as 2017 – highly implausible, given that the nascent project lacks any development plan or financing. A more realistic date for the start of production from Zohr is 2019 or 2020.

Energy analyst Charles Ellinas, who is sceptical about grand ideas on paper, tweeted: “The idea of a #gas-hub in #Egypt exporting #East Med gas may be constrained by gas price commercial realities.”

And: “Realisation of these plans is subject to #gas price commercial realities – how low #Delek can go.”

Ellinas linked to a report appearing on the Natural Gas Europe website, according to which Delek – the Israeli partners in the Tamar and Leviathan gas fields – have all but ruled out Israeli gas exports to the local Egyptian market.

The report explained why it is currently not viable commercially for Delek to export to Egypt: “Since export Brent linked prices, at the current oil prices, are expected to be much lower than prices at the local Israeli market (currently about $5.5 MMbtu), which are supposed to be the benchmark for taxation purposes, Tamar partners will have to pay higher taxation rates than the real price requires.”

Similar price constraints apply to Cyprus, as Ellinas told the Mail a day earlier. For the time being, the cost of producing from deepwater wells is prohibitive, given the low price that oil – to which natural gas is linked – can fetch on the market.

Meanwhile, French oil and gas major Total are said to be poised to officially request an extension on their exploration license in Cyprus’ Block 11. The license is set to expire in February 2016.

Lakkotrypis earlier said that Total were keen to renew their license, following the discovery of the Zohr field, which lies just 6km from the boundary of Block 11.

Source: Cyprus Mail

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