EMGC '17: Eastern Med gas monetization demands regional cooperation

By Adrienne Blume, Editor, Gas Processing and Executive Editor, Hydrocarbon Processing

NICOSIA—Gulf Publishing Company's fourth Eastern Mediterranean Gas Conference (EMGC) 2017 continued on the afternoon of March 14 with sessions devoted to gas monetization options and foreign investment initiatives.

Strategies for gas monetization. During the conference's second session, executives from companies at work in the region shared offshore development strategies, updates on pipeline proposals and regional power requirements.

Tim Crome, Technology Manager for the TechnipFMC's Global Front End Group, expounded on the advantages of an integrated approach to offshore developments.

To drive value for clients, TechnipFMC is working to accelerate and integrate technology innovations, to unlock possibilities to transform project economics, and to develop better integrated offerings across all operations. The company's integrated approach also allows for mitigation and reallocation of commercial risks.

TechnipFMC was appointed as concept and engineering design contractor for the Karish and Tanin FPSOs. The company's integrated scope for the vessels includes the FPSO hull and topsides, subsea hardware and umbilicals, infield and export pipelines, and risers systems.

TechnipFMC was also awarded transportation and installation (T&I) and construction contracts for ancillaries and diving for Noble Energy's Leviathan Project. The scope of work includes transport and installation of umbilicals, subsea deepwater construction (with the exception of pipelines), and diver tie-ins at the platform.

EastMed pipeline holds promise for EU supply. Next, Matteo Restelli, Development Director for IGI Poseidon SA, presented an update on the EastMed pipeline project and its strategic value to the EU.

Mr. Restelli noted that multiple export options, as well as multiple markets, must be considered. The Turkish market is close and growing quickly. The EU market is also nearby, and would benefit from security of supply, as it may need more than 100 Bcm of additional net imports to satisfy its gas demand by 2030.

A pipeline could be built to carry gas to Egyptian LNG projects, or to Turkey, or to Italy via the TANAP-TAP pipelines. The present discoveries in Israeli and Cypriot waters are sufficient to support multiple export options that are not mutually exclusive, Mr. Restelli said.

Pre-FEED studies performed in 2015 and 2016 confirmed that the EastMed pipeline project is technically feasible, economically viable and commercially competitive. A direct export route to the EU, within EU borders, would entail a reduced risk profile from both a producer and a consumer perspective.

The estimated cost of the EastMed pipeline, according to a joint analysis by TechnipFMC and IHS, is $5 B.

Diversification to face volatility. Senior Marketing Manager for GE Oil & Gas Giacomo Matarazzo rounded out the second session with a talk on the monetization of Eastern Med gas reserves. Around the world, 700 Tcf of conventional gas resources have been discovered in the last 10 years. The ratio of gas to oil discoveries is roughly 60:40. "This is not a change that is temporary," Mr. Matarazzo said. "It's a long-lasting trend. We have 50 yr of resource available."

However, Brent oil prices dropped by $80/bbl in less than 18 months, and have recently stabilized in the $50/bbl range. European gas hub spot prices have mirrored 60% of the Brent volatility.

To face this volatility head on in the gas sector, different solutions can be implemented in different markets. For example, FLNG allows for a reduction of offshore expenditures and the exploitation of scattered fields.

"We will have a reference [for FLNG projects] after this year," once Shell's Prelude and Petronas' PFLNG1 FLNG vessels start up, the manager noted.

LNG is suitable for gas projects greater than 10 Mtpy, although economy of scale is critical. "Small-scale LNG is a big opportunity for gas," Mr. Matarazzo said. "With small-scale LNG, we can attack the mining industry and local power production. Also, CNG is one solution to lower power intensity."

Small-scale LNG and CNG can open pathways to the diesel substitution market, but they are limited to local markets, the senior manager explained.

Pipelines are the best solution for short to medium distances, although they have their downsides. "The real problem with pipelines is that they kill flexibility," Mr. Matarazzo said. "They're subject to geopolitics. So [pipelines] cannot be considered as a unique solution. They require neighborhood cooperation … If you start fighting with your neighbor, you cannot move your apartment," he quipped.  

"We also think CAPEX is a real problem to solve to make this industry sustainable at $50/bbl oil," Mr. Matarazzo said. GE is working to reduce project CAPEX through digitization, which he named as the biggest industry trend for the next decade.

The senior manager's statements echoed those of GE Oil & Gas executives at the company's annual meeting in Florence, Italy, in January, for which Hydrocarbon Processing (see coverage) and Gas Processing (see coverage) were on hand.

Panel discussion: Spurring investment in Eastern Med gas. Day 1 of EMGC 2017 concluded with a lively panel discussion on foreign investment in the region, moderated by Gerald Butt, Senior Correspondent for the Middle East for Petroleum Economist.

Panelists included Dr. Naji Abi Aad, Chief Operating Officer of Petroleb; Marios Tannousis, Deputy Director General of the Cyprus Investment Promotion Agency; and Libor Krkoska, Head of Office of the European Bank for Reconstruction and Development.

Panelists discussed investment opportunities and challenges with regard to regional cooperation, infrastructure needs and country-specific energy and economic requirements.

Dr. Abi Aad noted, "Every country in this region needs to find solutions, and [explore] its own energy sources to help its economic growth." He also opined, "Regional cooperation in the Eastern Med is like walking in a land full of mines. If you don't have one problem, you have another."

Mr. Tannousis took a slightly more optimistic view. "Confidence is of significant importance for investors," he said. "Investors like to have security and stability in the environment in which they function. It is true that every country has its issues, but we have confidence that things will be positive. However, we do need stability in the region to succeed."

Mr. Butt asked how potential investors could be persuaded to invest in the Eastern Med. "The [Cyprus] government is very determined to continue with the growth of the economy," Mr. Tannousis answered. "We are determined to continue with our investment framework. So, we give a lot of attention to the security and stability of investment in Cyprus, and to the energy prospects."

"Investors always ask questions about how things are going to be in the future in terms of corporate taxes, or other matters that will affect their operations," the director general continued. "In the last year and a half, we have embarked on a very high-level journey as the economy has improved. Cyprus has proved resilient, and has bright prospects."

Dr. Krkoska discussed how Cyprus' favorable tax structure, economic stability and positive outlook will encourage foreign investment in the country's gas developments.

"I feel that stability in the region is adequate to support investments in Egypt, Lebanon, Cyprus and other countries," the bank head said. "However, investments are needed for distribution infrastructure and to develop the future energy mix," particularly with regard to the incorporation of renewables, he noted. "These are questions that are more difficult to answer than the question of stability in the region."

EMGC 2017 continues. Stay tuned for more coverage from EMGC 2017, taking place in in Nicosia, Cyprus from March 14–15.

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