Tag Archives: Israel

Eastern Med Transport Options Have to Overcome Region’s Political Tension

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Transport options for the Eastern Mediterranean’s gas discoveries are taking on a familiar political tone as Turkey, Cyprus and Greece stake out European market options.

The current debate centers around how those firms active in the Tamar, Leviathan and Block 12 gas fields, situated in the waters between Israel, Cyprus and Lebanon, will be able to export gas to the European market. Any solution would help Europe reach resource diversification goals by opening up access to some of the largest gas finds in the last decade. However, just as political tension between regional actors have led to overlapping claims to the reserves, transmission solutions have run up against long-standing animosity.

For their part, Israel has pressed for downstream and transmission infrastructure to be built outside their own borders for both security and environmental reasons. This approach has made their partnership with Cyprus all the more important to export options. This has also made the possibility of an export line through Turkey all the more complicated.

Turkey has recently expressed their interest in expanding their regional energy role, with Ambassador Mithat Rende, Director General for Multilateral Economic Affairs at Turkey’s Ministry of Foreign Affairs telling the recent Energy and Economic Summit, “Construction of a pipeline to Turkey is the best way to export Israeli gas, both in terms of economics and in terms of energy.” However, this spirit of outreach does not extend to any collaboration with Cyprus. Turkey recently stated that they would boycott those companies that partnered with Cyprus for similar regional exploration efforts.

What Turkey may be pushing for is a re-purposing of the dormant ITGI (Interconnector Turkey-Greece-Italy) pipeline. After bidding to take on Caspian gas to the European market, the ITGI was shelved amid fears that Greece stakeholders would not be able to financially support it. However, the project’s director of international activities, Dimitris Manolis, told Reuters that he could see the project re-purposed for the Eastern Mediterranean gas finds, offering a link through Greece and Italy by 2018 or 2019. The ITGI would be an upgrade and extension of existing pipelines, estimated to cost $1.6 billion.

A Liquefied Natural Gas solution to the export question received a boost this week with the announcement that Australia’s Woodside had taken on a 30 percent interest in Leviathan gas field, taking on any LNG efforts on the project. Texas-based Noble Gas will be the upstream operator for the effort.

Image: Edison.com

Originally Posted: Newsbase’s Euroil Monitor

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Egyptian Downstream Impact Being Felt

As Egypt’s natural gas potential quickly emerges as one of the country’s strongest forces for recovery, its downstream sector is coming under increasing scrutiny as the reality of questionable capabilities and cancellations start to take effect.

Highly dependent on domestic natural gas reserves for both electricity production and export revenue, Egypt has placed the country’s promising sector at the heart of the post-Mubarak recovery. However, despite a steady increase in interest in exploration and production efforts from outside energy firms, Egypt’s downstream operations remain a sore spot for natural gas sector growth, affecting both needed earnings and domestic energy demand.

The most glowing example of this comes with the country’s pipeline system through the Sinai Peninsula, which has remained a volatile point of militant activity since the fall of the Mubarak government in February 2011. Since then, the pipelines allowing valuable exports to Israel and Jordan have been attacked on 15 occasions. These delays were followed by a cancellation of exports to Israel after the controversial nature of the two countries’ trade agreement became clear. The fragile state of Egypt’s Sinai pipelines claimed its first business victim recently when Israel’s Ampal filed for Chapter 11 due to the loss of revenue as a result of the halt in trade this past April. The company held 12.5 percent of EMG, the institution responsible for delivering Egyptian natural gas to Israel. While the company’s ability to meet debt obligations began as early as December 2011 thanks to the repeated attacks, the April cancellation proved to be the final straw for the firm, according to the Egyptian Ahram Online.

In addition to launching a military offensive in the region to help quell unrest, the Egyptian government is looking to outside funding options to help improve the downstream outlook. Some relief may come from a recently announced $18 billion investment pledge from Qatar, $10 billion of which has been set aside for gas, power, iron and steal plants, according to The Chicago Tribune.

Cairo’s largest energy challenges are rooted in the country’s generous oil and gas subsidy program, which increased 40 percent last year to cost the state $16 billion, or one-fifth of its operating budget, according to Reuters. However, the country’s downstream operations have also become an obstacle to recovery as outside interest has focused on E&P efforts, including a recent $10 billion BP plan over the next five years according to Bloomberg, instead of infrastructure investment.

Originally Posted with Newsbase’s Downstream Monitor

Image: Bloomberg

 

 

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Enthusiasm for Eastern Med Gas Still Strong Despite Pitfalls

In the short time since news first broke that the Eastern Mediterranean held enough offshore natural gas to keep the region’s energy need met for decades, the area has become a hot bed of tension thanks to conflicting claims and revenue sharing agreements. Recently, local actors Israel and Cyprus has signaled efforts to move production plans forward, but despite advancements, accessing the region’s potential remains fraught with political and security pitfalls.

Set in waters between Israel, Lebanon, Syria and Cyprus, the Levant Basin holds an estimated 120 trillion cubic feet in accessible natural gas to those who can access it.

However, its deep set placement and differing geological challenges have set limitations on just who can take a realistic chance on reaching the reserves from their respective waters. Combined with unclear maritime borders between some regional neighbors and deep political and diplomatic divisions, the limitations have created an often-tense environment for relevant regional actors. Further, foreign firms hoping to take part in exploration efforts that might demand a local partnership have found themselves at odds with both competing countries and collaborators in other parts of the world.

According to a Bloomberg Businessweek report, Fadel Gheit, an analyst at Oppenheimer & Co. told them that, “the world’s largest energy companies like Royal Dutch Shell Plc (RDSA), Chevron Corp., and Exxon Mobil Corp. will be deterred from investing in Israel because of interests they have in the rest of the Middle East.”

While they hold no official claim to the waters in the Levant Basin, Turkey has recently stepped up exploration efforts of their own, stating that they hold authority over waters to the north of Cyprus. Further, Greece has stepped into the discussion with offers to act as a transport hub for natural gas bound for the European market.

On the national level, uncertainty about how best to move forward could also spell further delays, including how best to split earnings across the many political factions in Lebanon and how to address growing environmental concerns in Israel. The latter concern has strengthened the argument for partnering with Cyrus to host Israel’s LNG facilities.

None of these concerns appear to have immediate solutions, though few seem to be dampening enthusiasm for the Eastern Mediterranean’s true natural gas potential.

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Egypt Sees Some Hope in Nat Gas Tenders, But Will it Be Enough?

Following earlier reports pointing to an expansion of Egypt’s energy exploration and production, Cairo announced last week that they would offer a tender for a collection of on and offshore blocks for natural gas efforts taken on by international partners. The tender was announced after winning approval from the country’s Defense Ministry, clearing the way for the Egyptian Natural Gas Holding Company (GASCO) to begin offering the tender this week and for the next several months.

The exploration effort follows in the footsteps of a number of regional neighbors who have launched similar offshore natural gas efforts, including Cyprus, Lebanon and Israel. Those blocks included in the tender will be located very near or on the country’s maritime border with Israel, offering access to an estimated 223 trillion cubic feet of reserves, according to a United States Geological Survey analysis of the area. Of the 15 total areas included in the tender, 13 are offshore and six are located in waters bordering Cyprus and Israel.

The announcement comes as the country tries to stabilize both their energy and political situation, the latter of which has received a blow in the last week after former president Hosni Mubarak was sentenced to life in prison. Further, the political void he left behind is expected to be filled by either a former Mubarak military official or conservative Islamic candidate  – neither of which appeals to the country’s center or the revolutionary groups the led last year’s protests.

Meanwhile, the country’s energy sector is still reeling from cuts in exports and production brought on by a series of attacks on pipelines in the Sinai and an investigation into corrupt sales practices under the Mubarak government. While Cairo has been able to get deliveries of customers in Jordan back on line, the situation led to an eventual suspension of natural gas deliveries to Israel.

More than just lost revenues, the decision to cancel Egypt’s 20-year deal to supply natural gas to Israel is now resulting in a lawsuit filed by investors in the East Mediterranean Gas for violations of bi-lateral investment treaties, according to a Bloomberg report.

Despite such criticism, the government may have little choice than to support new production deals under the pressure of mounting debt and wavering interest from existing project partners. According to Australia’s The National, the Egyptian government has accrued about $4 billion in debt to international energy firms due in part to large-scale purchases to allow for heavily subsidized domestic sales.

Concerns about that debt and the ability of Cairo to ensure the money to pay for it have been credited for three major fuel shortfalls so far this year, the latest of which saw petrol stations and other sources closed or facing substantial delays last week. According to the Ahram Online news site, the country relies on imports for only 10 percent of its energy needs but has consistently faces funding obstacles, made worse by the unstable environment that has followed the government hand-over.

According to a recent Bloomberg report, the situation has required the country’s finance minister to announce a planned $100 million injection to help the local market meet domestic needs.

The actual shortage has been linked to a number of explanations, from the high consumption of the agricultural sector to a more conspiratorial angle that points to former Mubarak officials planting seeds of instability before the country’s run-off election in mid-June, but the end result and solutions are the same. Egypt needs to increase domestic production and address their liquidity challenges and they need to do it fast. Until they do, suppliers will continue to be wary about signing on to provide for the Egyptian markets or take part in an upcoming $1 billion tender.

The country’s fuel situation reflects a much larger challenge on the part of the new government and whoever wins this month’s runoff to offer some assurance to international lending institutions.

“After the outcome of the first round (of the election), we are much more bearish,” an economist at a major foreign bank, who did not wish to be identified told Reuters. “We see a lot more instability, but the major risk is the long-term outlook. This result does not unlock the situation.”

The report went on to say that Egypt would need a minimum of $11 billion over the next year “to stave off a balance of payments crisis and a potential devaluation of its currency”, making any appeal to foreign investors all the more important to weathering the fiscal storm ahead.

While the active development of the country’s natural gas reserves would undoubtedly help alleviate some of that debt and ease the country’s domestic energy demand, it is far from clear whether foreign companies view Egypt as a safe bet. Lingering uncertainty about the county’s stability and ability to ensure a stop in attacks in the Sinai have continued to hinder interest as Cairo struggles to sell themselves as a reliable energy bet.

Image: Jafria News

Originally Posted at Newsbase’s Afroil Monitor. All rights reserved.

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Egyptian Energy Presses Ahead Despite Criticism

Despite extensive efforts, Egypt has struggled to get their economy back on track in the year since widespread public protests led to the ousting of long-standing president Hosni Mubarak. Political instability and uncertain investors have kept needed international funding at bay, as Cairo works to establish a solid foundation for the country’s first new government after decades of Mubarak leadership. The country’s coveted tourism sector remains weak and despite enormous reported potential, Egypt’s renewable industry has been slow to start as investors and international financing agencies adopt a ‘Wait-and-See’ attitude.

Still, despite the stagnate pace of growth and economic recovery, one sector of the country’s economy has continued to shows signs of life – Egypt’s oil and natural gas producers. According to United States National Public Radio report this week, the country’s General Petroleum Company, the government office charged with making final decisions on exploration and production agreements, has continued to add to the country’s 148 standing partnerships.

The continued rounds of licensing for both on and offshore efforts comes despite strong criticism aimed at how such efforts were carried out under the Mubarak government, with critics leveling complaints at a perceived lack of transparency about pricing and the amount of domestic reserves set aside for exporting.

The continued lack of transparency surrounding the natural gas deals has critics worried that even with Mubarak gone, the Egyptian government may still be allowing the kind of controversial agreements that led to a wave of protest earlier this year. The backlash came soon after an investigation uncovered payment agreements with Israel and Jordan for Egyptian natural gas that assured under-market prices in exchange for benefits for local government officials. While Jordan was quick to work out a renegotiated deal, contested trade agreements with Israel added to existing strain between new political leaders in Cairo and its eastern neighbor.  The situation was further complicated by a series of now 14 attacks on natural gas pipelines in the Sinai region of Egypt, halting exports again and again. Energy relations between the two countries showed little sign of improving after Cairo cancelled a 2005 export agreement with Israel, who currently depend on Egypt for 40 percent of their energy needs.

More than just lost revenues, the decision to cancel Egypt’s 20-year deal to supply natural gas to Israel is now resulting in a lawsuit filed by investors in the East Mediterranean Gas for violations of bi-lateral investment treaties, according to a Bloomberg report.

Despite such criticism, the government may have little choice than to support new production deals under the pressure of mounting debt and wavering interest from existing project partners. According to Australia’s The National, the Egyptian government has accrued about $4 billion in debt to international energy firms due in part to large-scale purchases to allow for heavily subsidized domestic sales. This comes despite the country’s own 78 trillion cubic feet of proven natural gas reserves. This debt has recently increased, according to the report, due to late payments as a result of the country’s recent political instability.

Further complicating the situation for the government and local partners, the country’s recent uncertainty and apparent high cost of operating in Egyptian territory has pushed some international firms to reassess their presence there. In November of last year, Royal Dutch Shell handed back an offshore block, stating that the high costs of operating there overshadowed the possible rate of return.

Still, many firms are looking past the country’s current predicament and ahead to a potentially calmer new year, including Houston’s Apache and the UK’s BP, who are hoping to capitalize on a 2010 offshore effort. In fact, it is the government’s willingness to pursue new deals despite the country’s current challenges that has Apache feeling confident about the months ahead.

“Our operation has continued [uninterrupted] and supported by government partners as evidenced by the issuance of new…leases,” Apache President and Chief Operating Officer Rodney Eichler said, according to a Dow Jones report. “We are optimistic for Apache’s future in Egypt.”

Given the financial limitations of the country’s current government, anything more than new licenses may be too much to hope for. Burdened by significant budget shortfalls, the Egyptian government will be unlikely to consider any price renegotiations with existing production partners, regardless of the additional risks now associated with operating in the country.

However, regardless of either company’s intentions or interests, existing deals could soon come under scrutiny should critics chose to build on the investigation that put a spotlight on the Israeli and Jordanian deals.

“Some terms that are now in question are part of the 2010 deal with BP for the extraction of deepwater Mediterranean gas,” reported NPR. “While many details of the deal have not been made public, it has many critics.”

A similar threat of agreement reviews has foreign partners on edge in Libya, where the country’s transitional government has pledged to take a closer look at those oil and gas agreements completed under Gadaffi.

Originally Published at Newsbase’s Afroil Report. All Rights Reserved.

Image: Modern Egypt.info

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Egypt Seeks Pipeline Solutions but Little Official Support

As Egyptian security and political forces have sought ways to combat attacks in the Sinai Peninsula that have led to 13 pipeline delays since the fall of Hosni Mubarak last year, it has become clear that ensuring the transport line or finding ways to ensure existing deliveries may not be as important as once thought – at least in terms of trade with Israel.

This month saw the country’s People’s Assembly vote to cut off natural gas exports to Egypt’s neighbor in response to allegations that the outgoing Mubarak government had sold to Tel Aviv at under-market prices, angering a government body that has already expressed their intention to review and revise all existing relations with their neighbor.

The move comes following a months-long deterioration of the security situation in the Sinai region of the country attributed to Bedouin groups, which has included both attacks on the pipeline and a third case of kidnapping last week. While unlikely to signal a wider halt to energy exports, some analysts have pointed to the shutdowns and lack of political will as a signal of greater internal use of Egypt’s energy resources.

So far, according to an off the record comment from a state official, the attacks have caused upwards of $160 million in losses for the Egyptian government, according to the country’s Al-Ahram newspaper.

Opened in 2008, the pipeline in question was meant to provide for 20 to 25 percent of Israel’s energy needs, but the country has so far expressed little concern for the long-term consequences of a prolonged or complete halt in deliveries, pointing to the potential of offshore reserves to make up the difference. However, according to a USA Today report, the pipeline shutdown could do much to damage relations between the two countries.

Emerging as the unintended victim of both the attacks and the lack of Assembly support for the situation, Jordan has been left to find viable alternatives to the loss of imports. Recent shutdowns due to the now 13 attacks have resulted in widespread energy shortages. Even efforts to curb their dependence on the pipeline have resulted in spikes in costs as the country’s shifts away from natural gas towards electricity plants that use diesel or crude.

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Sinai Pipeline Safety Suffers As Egypt’s Nat Gas Sector Falls

A twelfth attack on natural gas pipelines linking Egypt with vital trade partners in Israel and Egypt has case a spotlight on growing instability in the eastern Sinai Peninsula and the ability for the new government to keep things under control.

Attributed to a new group called Ansar al-Jihad by Israeli media outlets, the most recent attack saw deliveries of natural gas to two of Egypt’s most important trade partners, threatening an economy already reeling from a collapse of the tourism sector. Governments in both Jordan and Israel have expressed their intention to seek out alternative fuel resources as the attacks highlight the limitations of the new government to address the impact of armed opposition groups in the region.

After earlier attacks on pipeline projects earlier last year, Cairo sent several thousand troops to the Sinai to combat these groups, but have been hindered by diplomatic restrictions and a lack of support from local residents.  Until recently, the Sinai Peninsula remained largely peaceful, but also mostly ignored by much of the Egyptian establishment in Cairo. Although the region represented the border between Egypt and Israel, Cairo’s military presence in the area was restricted according to the 1979 peace treaty between the two countries. Before sending in troops to help protect the pipelines, leaders in Cairo had to seek permission under the 1979 agreement. Further complicating their mission, the Sinai’s mostly Bedouin population has long expressed their discontent with the country’s leadership, offering a vacuum of influence in the region. While legislative solutions have been proposed to address the lack of support for the Sinai population in terms of economic and development guidance, short term solutions to ensuring regional and pipeline stability have only come in the form of additional troops.

The attacks reflect a broader growth of instability in the region, including an increase in kidnapping and incidents between local groups and the Egyptian military. This growing tension also serves to add pressure to diplomatic and trade relations between Israel and Egypt, which has seen public attacks on the Israeli embassy in Cairo as well as the country’s border area.

Image: MSNBC

 

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Greece’s Natural Gas Gambit

Despite facing significant cuts to government spending amid a debilitating economic crisis in Greece, government officials in Athens are pushing forward with plans to establish the country as an energy hub and transport center in the coming years. With plans to host three pipeline projects meant to transport natural gas to the European marketplace, Greece has been working to strengthen working ties with regional partners, promising support and completion despite worries regarding where project funding will come from.

Last week, Environment, Energy and Climate Change Minister Giorgos Papakonstantinou travelled to Jerusalem to discuss the role Greece could play in transporting natural gas from wells in the Eastern Mediterranean to European customers, pledging support for the Israeli offshore efforts in conjunction with Cyprus. The first member of the new Greek government to visit Israel, Papakonstantinou’s comments were welcomed in the capital but could put him at odds with another pipeline partner, Turkey. Officials in Ankara have insisted that the Israeli-Cyprus drilling efforts are illegal and should be halted and reviewed. However, this has not stopped Athens from suggesting there was no problem with supporting both the Israeli effort and the ongoing ITGI pipeline, which partners Greece and Turkey, or any other joint projects to transport natural gas from the Aegean Sea.

Other efforts to establish Greece as a transport and pricing hub include the completion of the long-delayed Burgas–Alexandroupoli pipeline in conjunction with Bulgaria and the construction of an LNG regassification plant in the north of the country. Doubts about the country’s ability to pay for any of these efforts due to widespread cuts to government spending have been addressed with pledges of foreign partnerships and earnings from a privatization campaign, which is to begin before the end of the year. If available, Greece could also benefit from support from European Union member states as the country’s role as a transport hub could aid in the planned reduction in dependence on Russian natural gas.

Domestically, Greece’s energy potential remains limited though exploratory efforts have been launched to test the country’s potential reserves. In addition to seismic studies off the western coast and around Crete, the Greek government also ordered the local Institute of Geology and Mineral Exploitation to begin studies into the country’s shale potential. However, even if shale deposits are found in Greek territories, the high initial costs associated with shale extraction could restrict any efforts to access the reserves without substantial contributions from foreign project partners.

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