Regional Report: Mediterranean

Noble Energy has used the ENSCO 5606 semisubmersible to drill many of its discovery and appraisal wells (left). Since April 2013, Tamar field has supplied natural gas to Israel’s domestic markets at the rate of 750 MMcfd (center). The PGS Nordic Explorer has acquired 12,500 line-km of 2D seismic data in support of Greece’s upcoming offshore licensing round.

Once high on promise, but low on investment, the Eastern Mediterranean is now firmly in the sights of international operators. Noble Energy’s Leviathan gas discovery off Israel in 2009 showed that prospects existed beyond the well-established reserves of the Nile Delta basin to the southwest. The big guns could no longer afford to ignore the Levant basin and surrounding acreage, especially given the world’s seemingly unquenchable appetite for gas.

Noble and its Israeli partners have since had further success, both in Israeli waters and offshore Cyprus, making a commercial find there in 2011. So, it is no surprise that a few of the majors have been attracted to the Levant basin. France’s Total, Italy’s Eni and South Korea’s Kogas now have acreage offshore Cyprus. Australia’s Woodside recently signed a non-binding memorandum of understanding with Noble in Israel.

Among Israel’s neighbors, Turkey is keen to develop its offshore reserves, both in the Mediterranean and Black Sea. The country urgently needs to replace and, if possible, expand dwindling onshore production, to cater to soaring domestic demand and to cut down on energy import bills. Even Lebanon and Syria are hopeful that their small patches of the Mediterranean will be worth exploring, given their proximity to Israel’s finds, should the investment climate in those volatile countries improve in the future. 

Thus far, the story across most of the region is about gas, rather than oil. A 2010 study by the U.S. Geological Survey (USGS) estimated that the Levant basin had mean, probable, undiscovered natural gas resources of 122 Tcf and oil resources of 1.7 Bbbl. That compares with proved natural gas reserves in Israel, Cyprus, Syria, Lebanon, Jordan and the Palestinian Territories of 18.2 Tcf and oil reserves—almost all of them in Syria—of 2.5 Bbbl, according to an U.S. Energy Information Administration (EIA) survey of those countries, published in August 2013.

While domestic gas supply is likely to be a priority, governments are also eyeing the potential for exports, either via pipeline or as LNG. Both Israel and Cyprus are already drawing up plans for LNG facilities, either floating or onshore. Turkey is likely to need most of any gas that it discovers for domestic consumption, but the country is also positioning itself as a pipeline nexus for oil and gas flowing from fields in Russia, Azerbaijan and the Eastern Mediterranean toward Europe.

The Eastern Mediterranean region is well-located to become an export hub, given the growing number of international pipelines in the vicinity and easy tanker access to Europe across the Mediterranean, and to the Middle East and Asia through the Suez Canal. But the region’s chronic political problems could prove a drag on oil and gas investment, even if much of that will be aimed at offshore projects.

Exploration in Syria and Lebanon is unlikely to make much headway, during the present war in Syria, despite Lebanon’s frequently postponed licensing round. Cyprus has made significant inroads to cultivating its oil and gas industry, despite a simmering dispute that remains with Turkey, which occupies the northern region of the island. Any aspirations that the Palestinian Territories may have to carry out hydrocarbon exploration will be affected by their relationship with Israel. Problems in Israel, itself, stem more from the failure of politicians to agree on how the country’s new-found hydrocarbon wealth should be exploited, which has resulted in delays to offshore developments that risks derailing some of the early investments.

Despite the potential pitfalls, discoveries made so far, coupled with rising global energy demand, should ensure that the region will be a hydrocarbon province to watch in coming years.

PROMISING GEOLOGY

The wider Eastern Mediterranean region comprises several basins, of which three have provided the bulk of oil and gas production to date—Nile Delta basin, Western Arabian province and Zagros province. The Levant basin is now poised to join that list of hydrocarbon producers.

Cyprus’ offshore waters cover a section of the Levant basin and a small part of the Nile Delta basin. Onshore Israel and Syria straddle the line between the Levant basin and Western Arabian province, which also covers parts of Jordan, Iraq, Saudi Arabia and Turkey, Fig. 1.  Some of Syria’s largest fields lie in Zagros Province, which extends from Turkey to the Gulf of Oman, though most of that region’s richest hydrocarbons deposits are in Iraq, Iran and Saudi Arabia.

Fig. 1. The Levant basin offers exploration opportunities for several countries in the region. Source: USGS.

The offshore Levant basin covers 83,000 sq km, with water depths ranging from 1,500 to 2,000 m. PGS conducted several seismic surveys across part of the Levant basin in 2006-2007, interpretation of which allowed analogs to be drawn from the proven hydrocarbon-producing provinces of the Nile Delta, northern Sinai, Gaza and Israel. Since then, surveys across a wide swath of the region have been carried out, as interest
has grown.

Seismic data suggest the basin contains up to 10,000 m of Mesozoic and Cenozoic rocks above a rifted Triassic-Lower Jurassic formation. Israel’s large gas discoveries, such as Tamar and Leviathan, are situated in Miocene/Oligocene sub-salt slope and fan sandstones within large anticline structures, of what is known as the Syrian Arc. They are located at total depths greater than 5,000 m.

ISRAEL

Israel’s big finds in the offshore Leviathan and Tamar fields should leave the country self-sufficient in gas for decades and leave plenty more for exports. But wrangles over infrastructure, the amount of gas that should be exported, and whether ownership of the fields breaches anti-trust legislation have already put the development timetable back and threaten to put off potential investors.

The country has limited oil reserves—some 12 MMbbl—from which just over 6,000 bopd were produced in 2012. Israel remains heavily reliant on imports to meet its domestic oil needs. However, several companies are exploring for oil, both onshore and offshore, in increasingly deep waters.   

Recent discoveries. The discovery of Tamar gas field in the Levan basin, 90 km west of Haifa, by Noble Energy in 2009, was by far the country’s largest gas find at that time, with estimated reserves of 10 Tcf. Tamar, which lies in water around 5,500 ft deep and was drilled to a TD  of over 16,000 ft, has now been commercialized. Production started in April 2013 and averaged 750 MMcfgd during 2013, according to Noble. The gas uses the infrastructure of the existing Mari-B field, discovered in 2000, for transporting and processing. Noble hopes to expand production to 1.5 Bcfgd by 2016. All of Tamar’s production goes to the domestic market.

Tamar was trumped a year later by Noble’s discovery of nearby Leviathan field, which is estimated to hold 19 Tcf of gas reserves. In December 2013, Noble announced the latest of eight consecutive discoveries in the Tamar Southwest prospect. The Tamar SW well encountered some 355 ft of net natural gas pay within targeted Miocene intervals, after drilling to TD of over 17,400 ft in 5,400 ft of water. Drilling and wireline data indicate gross resources of the Tamar SW field to be in the 640-770-Bcf range. Noble hopes to channel production from Tamar SW to its Tamar infrastructure via a 13-km tie-back, with first production in 2015. 

Development plans. The Leviathan and Tamar discoveries have rejuvenated a gas sector that had been ailing, as the Mari-B field became depleted. Sitting in less than 1,000 ft of water, Mari-B has been a mainstay of supply to the domestic market, complementing imports that used to come from Egypt. With estimated reserves of more than 30 Tcf discovered in the last five years, Israel now hopes to become self-sufficient in gas, and is actively promoting greater use of gas for transportation, the power sector and heating. In June 2013, Prime Minister Benjamin Netanyahu’s cabinet approved a plan to allow the export of 40% of the country’s natural gas.

In February 2013, Noble entered into talks with Gazprom over a possible 20-year gas purchase deal from Tamar and nearby Dalit field via a floating LNG (FLNG) facility, which Dutch-based Pangea LNG is lined up to build. Noble has also drawn up plans to use a 3.2-4.8-MMtpa FLNG vessel as an option to handle exports from Leviathan. However, delays in deciding the extent of taxes on gas exports, where gas processing facilities should be located, and how the gas should be transported, have resulted in the postponement of some drilling, and of decisions on whether to adopt an onshore or floating LNG solution.

Anti-trust probe. Another brake on development has been an anti-trust investigation into market domination by Noble and its partners. Noble holds 36% of Tamar, Isramco Negev 2 has 28.75%, and two Delek Group subsidiaries hold own 15.625% each, with the other 4% held by Dor Gas Exploration. Meanwhile, Noble is operator of Leviathan, holding 39.66%, while two Delek subsidiaries have 22.67%, each, and Ratio Oil Exploration has 15%. In January 2014, David Gilo, Israel’s anti-trust commissioner, was reportedly considering offering a compromise on ownership of Leviathan that would enable Noble and Delek Group to hold on to their stakes. This would happen if they sold off stakes in two smaller fields, according to Israeli energy industry sources.

Pipeline potential. Recently, Noble has been emphasizing the potential of using the existing regional pipeline network to export gas to Israel’s neighbors, such as Jordan and Egypt, as an alternative to LNG exports. CEO Chuck Davidson said in November that pipeline exports would be cheaper than processing and shipping LNG. Israel is also considering supplying gas to Turkey and Cyprus via a new pipeline, and is also reported to be contemplating a new pipeline to Jordan.

The first deal to be struck for Leviathan’s output underlines its regional potential. In January 2014, the Leviathan consortium said it had signed a 20-year deal, potentially worth $1.25 billion, to sell up to 4.75 Bcm of gas to the Palestine Power Generation Company, which plans to use it to feed a power station on the Palestinian-controlled West Bank. Noble is aiming to start production from Leviathan in 2017. Davidson has said that he still thinks LNG will play some part in exploitation of Israel’s gas, possibly through FLNG or by piping the gas to a proposed LNG plant in Cyprus (see also Cyprus section).   

Despite the progress, uncertainties surrounding the slow pace of offshore development have caused concerns among potential foreign investors. After postponing an investment decision regarding Leviathan and potential LNG development from 2013 to this year, Woodside Petroleum recently signed a non-binding memorandum of understanding (MOU) with Noble Energy and its partners. Through the MOU, Woodside will take a 25% interest in the licenses, which were sold by partners Delek Drilling, Avner Oil Explorarion and Ratio Oil, with operator Noble. Following completion of the transaction, Woodside would become the operator of any LNG development of the field, with Noble retaining operatorship and a 30% working interest. Gazprom has yet to conclude its deal over Tamar gas, but has said it remains keen to do so. In December, Israel and Russia signed a memorandum of understanding, which facilitates greater investment into the upstream sector by Russian firms.

CYPRUS

Noble Energy’s gas discovery offshore Cyprus in 2011, with its proximity to Israel’s Leviathan field, has prompted increased interest in the country from other foreign players, which are poised to commence drilling campaigns. Gas would enable the cash-strapped island economy, and EU member, to develop gas-fired power stations to alleviate its dependence on imports of petroleum feedstock and, if there is enough, to export it. The government also has wasted little time in promoting the island’s potential as an LNG export hub, engaging in talks with Noble and then Total on developing a land-based plant.  

Reduced reserves estimates. On striking gas with its Cyprus A-1 well on Block 12, Noble estimated that the find could hold 5-8 Tcf, with a gross mean of 7 Tcf. However, following the drilling of another well and further appraisal, Noble downgraded its gross mean estimate to around 5 Tcf in October 2013. The second A-2 appraisal well, drilled 4 mi northeast of the A-1, encountered approximately 120 ft of net natural gas pay within the targeted, Miocene-aged sand intervals.  The well was drilled to a TD of 18,865 ft in 5,575 ft of water. Noble hopes to starts pipeline supply of gas from Block 12 to Cypriot power plants by 2016. The company said in October that it was considering retrofitting an existing production facility, currently used in the Gulf of Mexico, to do the job. If that solution is not adopted, domestic gas supply could be delayed until 2019. 

A second licensing round, launched in 2012, led to the awarding of further acreage to Total (Blocks 10 and 11) and a consortium involving Eni and Kogas (Blocks 2, 3 and 9). Total signed two production-sharing contracts (PSCs) with the government to develop its blocks in February 2013. The blocks lie in water depths of 1,000-2,500 m. The company plans to start drilling in the first quarter-2015, after completing a seismic program. Eni and Kogas are also considering embarking on drilling programs shortly. They are also in talks with the government about taking up licenses for Blocks 5 and 6, according to local media reports.

Awarding these two blocks, to the west of Cyprus, could create tensions between the Cypriot government and the Turkish Cypriot community in the northern part of the island, which has been occupied by Turkish troops and supported financially by Turkey since a 1974 invasion. The Turkish Cypriot community, backed by Turkey, believes it should take a share of oil and gas revenues, while Turkey has lodged claims over some of Cyprus’ offshore acreage. The Cypriot government insists that revenues should only be shared once the island is reunified.  

LNG potential. Total’s involvement offshore improves prospects for an onshore LNG development, given Noble’s lack of experience in large-scale liquefaction, analysts say. The French company signed a memorandum of understanding with the Cypriot government in November 2013, under which it is will examine various options for selling gas from its blocks, but with priority given to the development of LNG exports.

In June 2012, Cyprus outlined plans to build a 5-MMtpa, one-train plant at Vasilikos on the island’s south coast, expandable to 15 MMtpa, if there were enough gas. The LNG plant would complement an oil transhipment terminal, being built at Vasilikos. Noble says trains could be 4-7 MMtpa each, and that the first could be operational, four years after a final investment decision (FID). The government has suggested construction of the LNG plant could start in 2016, with production possible in 2020, but the downgrades of reserve estimates for Block 12 make such a timetable look somewhat tentative. 

Prospects for early exports will brighten, if Cyprus benefits from gas finds in Israel. Israel has already mooted exporting some gas to Cyprus, which could potentially be fed into an export facility. Prospects for this may be enhanced by Noble’s pivotal role in the hydrocarbon sectors of both countries. However, if Israeli gas goes to a Cypriot LNG plant, at the expense of building one in Israel itself, it remains unclear who would be chosen to build it, given Noble has been in talks with Woodside in connection with Israeli LNG (see Israel section), while Cyprus has been talking to Total.

Noble is also considering a FLNG option for its Cypriot reserves, as it is in Israel. The company is looking at a 4-MMtpa solution, and says that it could be up and running 3-4 years after FID. However, local media reports suggest that the Cypriot government remains keen on an onshore solution, to maximize benefits to the national economy. Another possibility being studied by Noble is piping gas to onshore LNG facilities in Egypt, if the Cypriot option fails to materialise.

LEBANON

The Lebanese government is keen to emulate the success of neighboring Israel. The discovery of offshore hydrocarbons could transform an economy battered by long-term unrest and political upheavals, which remains dependent on imports to meet domestic energy demand. Lebanon consumed 105,000 bopd in 2012. The country has no proved oil and gas reserves, due to the very limited amount of exploration, to date. That could change if a proposed—and delayed—licensing round gets off the ground.

Energy Minister Gebran Bassil has said that there could be 96 Tcf of natural gas and 850 MMbbl of oil off the Lebanese coast. Seismic firm Spectrum, which has been surveying the area, said last year that it estimated offshore Lebanon could hold 80 Tcf of gas. While such figures are highly speculative, and Bassil concedes much more work needs to be done, the proximity of Lebanese waters to Israel’s Leviathan and Tamar fields seem to justify some optimism. However, that proximity could also create problems, as the two countries—still technically at war—have yet to agree on the exact position of a maritime boundary that lies right across a highly prospective part of the Levant basin.

The licensing round had been due to launch in November 2013, but it has been put back three times, due to the lack of a stable government. This is an unsettling delay for foreign firms that will already view investment in Lebanon as a highly risky proposition, compared to other opportunities in the region, especially given continued unrest in neighboring Syria. According to the energy ministry, 46 IOCs have been shortlisted to bid for licenses.

In February 2013, PGS announced the completion of a 2,200-sq-km 3D survey along the southern half of the Lebanese coastline. It covers gas-prone Tamar sand structures in the Levantine basin, in addition to potential oil-prone Mesozoic features on the Levant Margin, Fig. 2. 

Fig. 2. Extensive 2D and 3D seismic data are available in support of Lebanon’s often-postponed licensing round. Source: PGS.

SYRIA

Syria has the largest crude oil reserves in the Eastern Mediterranean region, estimated at some 2.5 Bbbl. Proved natural gas reserves are estimated at 8.5 Tcf. Most oil fields are situated near the border with Iraq, and in the center of Syria around Homs. The country’s offshore potential has yet to be explored. 

Russia, which remains supportive of the government of President Bashar Al-Assad, was an important partner in the hydrocarbon sector before the war, and its firms continue to do business with Damascus. In December 2013, the Syrian government signed an agreement with Soyuzneftegaz, under which the Russian company is permitted to explore 2,190 sq km of Mediterranean acreage—Syria’s first offshore exploration deal. Syria Oil Minister Suleiman Abbas said the contract covered a 25-year program involving several phases and would involve around $100 million of investment, all of which would come from the Russian side, according to AFP news agency. 

TURKEY

Turkey is desperate to bolster its dwindling oil and gas reserves, to cater for rapid increases in domestic oil and gas demand. Having witnessed the success of Israel and Cyprus in making sizeable gas discoveries in the Mediterranean, Ankara is eager to grab a slice of the action. The country already exploits onshore oil reserves, with virtually all production coming from the Hakkari basin, in Batman and Adiyaman Provinces in the southeast, close to Syria, Iraq and Iran. Thrace in the northwest also holds deposits, while there is optimism over the reserve potential of the Black Sea, which could hold up to 10 Bbbl. The Aegean may also hold oil, though boundary disputes with Greece could hamper exploration there. 

Oil and gas exploration in the Mediterranean and Black Sea rocketed in 2012, even outstripping Norway in terms of rigs employed by early 2013. TPAO has brought in firms that included Exxon Mobil, Petrobras and Shell to explore. However a significant offshore find has yet to be made. Turkey, which invaded northern Cyprus in 1974 and still occupies the north of the island, disputes ownership of some of Cyprus’ reserves. Some exploration off Cyprus was halted temporarily in 2011, when Turkey sent warships to the disputed area (see also Cyprus section). 

Turkey is also pressing on with its plans to secure hydrocarbon imports and consolidate its position as a major oil and gas transit hub on the route between Europe, and the Middle East and Asia. Pipelines including Blue Stream, and the South Caucasus Pipeline running from Azerbaijan, already take gas through the country.  The 1,768-km Baku-Tbilisi-Ceyhan pipeline takes Caspian Sea oil to Turkey’s Mediterranean coast. Gas from Israel’s Leviathan field may also find its way to Turkey, if Turkish gas importers, are successful in their quest to bring in up to 16 Bcm per year of gas from the project via pipeline. 

GREECE

Greece plans to hold a licensing round for exploration in the Ionian Sea and south of the island of Crete, in the first half of 2014. In November 2013, seismic surveyor PGS presented, at the AAPG conference in Athens, the results of its 2D survey in the Ionian Sea, Fig. 3. The program comprises 12,500 km of new data acquisition and includes 6,000 line km of vintage data re-processing that will be combined into a regional interpretation. The northern area is a grid of lines in the Ionian Sea over the Pre-Apulian zone. This zone is an extension of the Southern Adriatic carbonate platform with Late Cretaceous–Eocene carbonates overlain by a thick Oligocene shale seal and Mio-Pliocene clastics on top. These are analogous to the productive fractured carbonate reservoirs of the central Adriatic to the north, offshore Italy and Albania. To the south, there is a loose grid of lines around the Katakolon discovery. This area is in the Ionian zone that is analogous to the oil fields onshore Albania.

Fig. 3. Next up for the Eastern Mediterranean is a licensing round offshore Greece. Regional 2D sesmic data are available for the Ionian Sea. Source: PGS.

SOUTHERN NORTH SEA?

E&P activity is at a nascent stage in the Eastern Mediterranean. Early successes offshore Israel have enabled the country to begin fulfilling its domestic requirements for natural gas. Next on the agenda is monetization of the Leviathan and Aphrodite fields for export via LNG or pipeline. If exploration offshore Lebanon and Greece takes off (big emphasis on if), we could have the makings of a southern version of the North Sea’s E&P sector.