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Oil and gas in the Eastern Mediterranean

2018 Roundup

by Mona Sukkarieh

This year saw the translation of international oil companies’ interest in the Eastern Mediterranean—following the discovery of Zohr, in Egypt, in 2015—into concrete projects, and the confirmation of the region’s potential, with a new and promising discovery in Cyprus. Egypt received its final liquified natural gas (LNG) shipment in September and is aspiring to become a regional gas export hub, following an impressive increase in production and the signing of agreements that could see the transport of gas from neighboring countries to feed its LNG plants for re-export.

At the start of the year, Lebanon signed its first offshore exploration and production agreements and is preparing to invite companies for a second bidding round in 2019.

Meanwhile, in Israel, the development of the Leviathan and Karish gas fields are on track. The country also launched its second offshore licensing round, counting on improved conditions this time around. This year also saw the confirmation of regional cooperation among those countries that already enjoy relatively good relationships, and reminded us that heightened political tension in this part of the world could evolve into a confrontation at any time, with a direct impact on companies’ operations.

Geopolitical risks, market conditions, and prospects for monetization will affect the attractiveness of the region’s resources. The decisive factor will, ultimately, be their competitiveness. Here is a quick overview of the major developments and milestones that marked 2018 in the region and an analysis of what to expect in 2019, 10 years after the first major discoveries in the Levant Basin.


The high point for Lebanon was the signing of two exploration and production agreements (EPAs) in January with a Total-led consortium (including Eni and Novatek) for blocks 4 and 9. The exploration plan was approved in May, and preparations are underway for Total’s first drilling in Block 4, expected toward the end of 2019. It will be followed by drilling in Block 9, which will be more politically sensitive, given that it will be conducted some 25 km north of the disputed maritime border with Israel.

The drive toward strengthening transparency in the sector continued in 2018 with the publishing of the EPAs in April (Lebanon is the first country in the Eastern Mediterranean to disclose signed agreements) and the adoption by Parliament in September of an oil and gas transparency law.

In June, Lebanon and Norway agreed to move onto Phase 3 of the Oil for Development Programme, which extends from 2018 until 2020. The initiative has been providing technical support to Lebanese authorities since 2006, particularly in the establishment of the legal and regulatory framework governing the sector.

Lebanon is also completing plans to import LNG for power generation. In May, the Ministry of Energy and Water launched a tender for up to three floating storage regasification units (FSRUs), after publishing the list of the 13 companies and consortia that prequalified to bid. The tender closed on November 21. Eight offers were received from the following bidders: Gas Natural Fenosa; BW, Vitol, Butec, Almabani, Rosneft; Excelerate, Shell, BB Energy; ENI, Qatar Petroleum Int. Ltd.; Golar Power Ltd., CCC sal; Total; Petronas; and the Phoenicia energy consortium (Gunvor, Exmar, EGC Egypt, Petrojet, Maridive, Primesouth). A final decision is expected by early 2019 but will have to wait until after a government is formed.

In May 2018, the government approved the LPA’s recommendation to prepare for a second licensing round. According to a tentative timeline published on the LPA’s website, the tender will be launched by the end of 2018. The absence of a government could be problematic if cabinet formation drags on indefinitely, since there is an intention to amend some of the documents governing the second licensing round, including the prequalification requirements, tender protocol, and the model EPA. If all goes according to plan, the prequalification round will take place between January and April 2019, with the results to be announced in May. Prequalified companies will have six months, between May and October 2019, to submit their bids, and EPAs are expected to be signed by the end of 2019. Delays in forming the government already threaten these deadlines.

Speaking of deadlines, the LPA’s mandate was set to expire on December 3. By law, it is possible to renew the mandate once. It was clear after the first few months of 2018 that this was where we were heading, as the selection process for a new board takes place over many months and no action was seen on this front. In the absence of a government to renew the mandate, Energy Minister Cesar Abi Khalil issued a decision extending the LPA’s term, putting an end to a subject that the LPA, the energy ministry, and the government had evaded publicly discussing throughout 2018.


The year started off on a high note with drilling and a discovery by Eni in Cyprus’ Block 6, and is ending with a promising drilling in Block 10 by ExxonMobil.

In February 2018, Eni announced the discovery of Calypso in Block 6. The field holds an estimated 6-8 trillion cubic feet (tcf) of natural gas and confirms the extension of a “Zohr-like” play into the Cypriot EEZ. An appraisal drilling in 2019 will give a clearer image of the reservoir’s potential. A few days after the February announcement of the discovery, the Turkish Navy prevented Eni’s drillship, the Saipem 12000, from reaching its next drilling target in Block 3. Turkey’s reaction was an unprecedented turn after years of issuing statements and harassing and monitoring drillships and surveyors. Until that point, Ankara did not go so far as to cause the interruption of drilling operations in Cyprus’ EEZ. The Saipem 12000 ultimately retreated, and Eni had to postpone the drilling in Block 3 (and a number of other drillings elsewhere in the Cypriot EEZ) to an unspecified date.

Exploratory drilling resumed in Cyprus on November 16, with two back-to-back drillings by ExxonMobil in Block 10. Turkey, which does not have direct claims to Block 10, did not intervene to interrupt Exxon’s program. But, as Ankara believes that the island’s resources are jointly owned by the Greek and Turkish Cypriots and does not recognize what it calls unilateral actions by the Greek Cypriot administration, it strongly objected to the drilling. Early results of Exxon’s drilling will start to emerge by the end of the year. A significant discovery could be a game-changer on more than one level for Cyprus—new discoveries could make the exploitation of offshore resources more viable than it has been so far, given the modest projections for the Aphrodite field. For various reasons, it has been a challenge to monetize Aphrodite. The fact that resources remained unexploited kept tensions between Greek Cypriots and Turkish Cypriots below a certain threshold. If the exploitation of offshore gas resources is made possible before a solution to the Cyprus dispute is brokered, it will strengthen the Greek Cypriots’ hand in the negotiations. This might explain Turkey’s aggressive behavior following the discovery of Calypso. Ankara’s measured response to Exxon’s drilling can be interpreted as a result of the location of the drilling (no Turkish direct claims on the block) and the profile of the company (American). However, a more aggressive approach, similar to the February 2018 incident in Block 3, is not out of the realm of possibility elsewhere in the Cypriot EEZ.

Nicosia is proceeding with its plans undeterred. On October 3, Energy Minister Yiorgos Lakkotrypis announced that Block 7 (parts of which fall within what Ankara considers its continental shelf) would be on offer for a month. Instead of a proper licensing round, the government decided to grant the license for Block 7 to companies that hold licenses in adjacent blocks, due to geological considerations related to the discovery of the Calypso gas field by Eni in nearby Block 6. Only three companies were invited to bid: Eni, Total, and ExxonMobil. In late November 2018, the energy minister announced that a joint offer was submitted by Total and Eni. A final decision on the award is expected in early 2019, and possibly even before the end of 2018. The political calendar (possible resumption of negotiations) could incite Cypriot officials to speed up the process (this could explain the swift one-month window given to companies to express interest in the block). Heading to the negotiating table with a new set of faits accomplis (new award, new discoveries) would consolidate the position of Greek Cypriots, who could then brandish revenue sharing as a carrot to entice Turkish Cypriots into a deal.

Next to Block 7, Block 8 could witness some changes. Currently, Total is the operator of Block 11 and Eni’s partner in Block 6. However, the company voiced its intention to expand activities in Cyprus, expressing interest in farming into Block 8, currently licensed to Eni. As mentioned above, Total recently submitted a joint offer with Eni for Block 7.

Further south, the government and companies are at pains to find solutions to develop Aphrodite. Cyprus and Egypt signed an intergovernmental agreement in September for the construction of a pipeline that could ultimately carry gas from the Aphrodite gas field to Egypt for liqueficaction and re-export. Aphrodite’s right holders seem to think that this option does not secure a reasonable return on investments and would like to revise the terms of the production sharing contract with Nicosia in order to secure a bigger share of revenues. Cypriot authorities have shown willingness to discuss the issue. An additional obstacle for developing Aphrodite could be the fact that a small part of the reservoir extends into the adjacent Ishai license in Israel. Cyprus and Israel have been negotiating a unitization agreement for years but have yet to reach a deal.

In the meantime, and until Cyprus can produce its own gas, authorities are planning to import LNG, launching a tender for the procurement of an FSRU in October. The deadline to present offers is on January 18, 2019, and the completion of the LNG import terminal is expected by November 2020. A second tender will follow in 2019 for the supply of LNG. Critics claim the project is costly and will increase the price Cypriot citizens pay for electricity, already among the highest in Europe. The Greek firm Energean Oil & Gas has proposed a supposedly less expensive alternative that involves transporting gas by pipeline from gas fields it operates in the northern part of Israel’s EEZ. However, the offer was not accepted as it was unsolicited and was not submitted as per the terms of the tender. An important element to take into consideration is the fact that gas from Karish and Tanin is earmarked for the domestic Israeli market and that Energean needs to apply for a special approval from Israeli authorities to export gas from these two fields.

As is now standard, 2019, like the years before it, will see a series of meetings focused on the proposed East Med pipeline. An intergovernmental agreement is expected in February 2019, but a number of factors need to change to make the project commercially viable.


The development of Leviathan is proceeding smoothly. Almost 70 percent of the project has been completed, and the first gas is expected to be delivered on schedule by the end of 2019.

The first half of 2019 will see considerable activity in the northern part of Israel’s EEZ. In March 2018, Energean announced that it had secured $1.2 billion in funding to develop Karish and Tanin, and made a final investment decision for the Karish project the same month, after signing a series of gas sale purchase agreements with industrial groups and independent power producers, by offering unexpectedly low prices. In June 2018, Energean announced that it will drill an exploratory well in its Karish license by the end of March 2019. The Greek company refers to it as “Karish North,” and this has already caused alarm in Lebanon over the potential for rising political tensions stemming from drilling near the disputed maritime border. The drilling will be followed by three development wells in Karish Main, with first gas from the field scheduled for 2021.

After years of speculation as to which route Israeli gas was going to take to reach export markets beyond the region, the Egyptian option was quicker to materialize than the rest. Noble Energy and Delek Drilling announced on February 19 the signing of two agreements with Egypt’s Dolphinus, worth about $15 billion, to supply gas from Leviathan and Tamar to Egypt, both for local consumption and re-export. Gas is expected to flow to Egypt in the first half of 2019, 10 years after the discovery of Tamar, Israel’s first major gas discovery. The deal is a major breakthrough: It marks a successful conclusion to years of multi-tracked negotiations to export Israeli gas to Egypt. From an Egyptian perspective, the deal is an important step toward turning the country into a regional gas export hub, but approval depended in part on finding a solution to the $1.7 billion in compensation that Egypt is required to pay to Israeli companies following the halt in supplies in 2012. Egyptian media started reporting in November 2018 that a deal had been reached to considerably reduce the fine and extend the payment period. Another important milestone was the acquisition, by Noble Energy and Delek, of a 39 percent stake in the East Mediterranean Gas pipeline, which will eventually be used to transport the gas to Egypt.

Another, much more modest but still noteworthy export agreement was signed with two Jordanian companies. The Tamar partners signed a deal with Jordan Bromine and Arab Potash for additional volumes. The agreement will go into effect in the first quarter of 2019 and could reach $200 million.

In early November 2018, the Israeli Ministry of Energy and Water Resources announced the opening of a second offshore licensing round. Israel is hoping to generate more interest than it was able to attract in the first bid round, which was completed last year and is banking on an apparent improvement in market conditions and better prospects for exports. Nineteen blocks in five zones are open for bidding, all are located in the southern part of Israel’s EEZ. Bids are due in June 2019 and the announcement of winners is expected in July 2019.


Egypt’s natural gas market has been undergoing fundamental changes over the past four years, and 2018 has been no exception. In 2017, the Egyptian Parliament adopted a gas market law, and an implementation decree was approved in February 2018, establishing a gas market regulatory authority and paving the way for the private sector to import natural gas directly, an important step toward becoming a regional gas transit hub. Less than a week later, Noble Energy, Delek, and Dolphinus announced the signing of a deal to export Israeli gas to Egypt. The first natural gas import licenses were expected to be delivered by the end of 2018, but the Natural Gas Regulatory Authority has postponed the issuance of licenses because the private sector was still “unprepared.”

In September, Egypt received its final shipment of LNG, a significant milestone for the country, which will save the country around $1.5 billion a year. Cutting LNG imports was made possible when production from Eni’s Zohr reached 2 billion cubic feet per day (bcf/d). This figure is expected to reach 2.7 bcf/d in 2019. Zohr’s capacity, along with various other new fields, pushed domestic gas production in Egypt to a record 6.5 bcf/d.

Also in September, Eni started drilling in its Nour concession. The public is anticipating a large discovery, although Eni has denied the wild estimations reported in the media. More details will be revealed toward the end of the drilling work in December, or early in 2019.

A series of new awards is expected in 2019. Last May, the Egyptian Natural Gas Holding Company (EGAS) launched a bid round putting 16 concession areas on offer: 13 blocks in the Mediterranean Sea and three concessions in the onshore Nile Delta region. The deadline to place bids was originally set for October 8 but was postponed to November 29. Another tender for Red Sea exploration blocks will be launched by the end of 2018. A new model contract, offering investors friendlier terms in future agreements on undeveloped frontier areas, such as the Red Sea, is expected in the first half of 2019, and will take effect once the Red Sea tender is awarded.

Egypt is also proceeding with payments to international oil companies (IOCs), a further sign of the sector’s good health. By July 2018, arrears stood at $1.2 billion, down from $2.1 billion in February, and from a high of $6.3 billion in 2012. Cairo intends to fully repay IOCs by the end of 2019, although this is not the first time a target date was provided.

On the subsidies front, further reductions to fuel subsidies spending were envisaged by the 2018-2019 budget, down to EGP 89 billion, but Egypt could end up spending much more—as the increase in oil prices since the budget was approved indicates—depending on prices throughout the year (the current budget assumes oil prices at $67 per barrel). This could disturb plans to phase out fuel subsidies in 2019. The public’s tolerance for higher prices will affect a political decision to pursue or postpone plans to reach this target in 2019.

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Mona Sukkarieh

Mona Sukkarieh is the cofounder of Middle East Strategic Perspectives (http://www.mesp.me), a Beirut based political risk consultancy

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