Five Potential Sources of Gas for Europe

In his assessment of potential sources of gas for Europe at the European Gas Conference 2014, John Roberts, Energy security Specialist, Methinks speaks, said it was too early to judge the potential of natural gas from the Eastern Mediterranean. “We know that there's about 1TCF of reserves there, there's probably more to be found,” he remarked.

“We don't know when and how much will be approved for export, because instead of trying to think of it as 60% being for the Israeli market and 40% for export, it's far more important to realize that in practice Israel simply wants to retain a basic minimum and anything above that is available for export.

“So, in other words, as more gas is found, the percentage will change in favor of export,” said Mr. Roberts, who said it was realistic to assume that the Tamar gas field would continue to supply Israel domestically, for the next 20 years or so, while the Leviathan would be primarily used for export.

What about the Aphrodite discovery off of Cyprus? he asked. “A contraction in the size of the reserve means it's not worth developing right now, except if it is used for Cypriot domestic purposes.”

But then what about preserving a decent volume for LNG exports in the future?

Towards that prospect, he said: “Because Israel may be prepared to provide gas to Vasilikos for LNG if it's not going to be the supplier of most of the gas for Vasilikos.”

On the subject of export routes, he said there were two completely different views on maritime boundaries involving Cyprus-Greece and Turkey-Egypt and the connotations for underwater pipelines. However, given that political circumstances surrounding the Cyprus problem were somewhat better than they'd been for a while, Mr. Roberts said a twin track approach was possible that would enable Leviathan exports to go by pipeline to Turkey, which would cost an estimated USD 2 billion.

He asked, “Does it have an impact on Europe? Yes, very simply, if you put 6-7BCM/year into southern Turkey you don't need to connect it up to Europe to have an impact because of the large demand for gas in southern Turkey.”

This, he explained, would free up gas there coming from other sources.

Regarding Iraq, he said there were more definite plans to get gas into Turkey, even though estimated volumes were over optimistic, according to him.

“One does have to realize,” he pointed out, “that this is not stranded resources – this is stranded production. The investment has, in many cases, already been made, which means they want to get the gas out and they are in a position to do so if we get a positive result one way or the other for the current impasse over Kurdish oil exports.”

Then, offered Mr. Roberts, there was the gas that would come from the Southern Corridor. He started off speaking about the cost.

“We're talking about USD 50 billion for the whole chain, and it is not complete. TANAP (Trans Anatolian Pipeline) is being built with expansion in mind; TAP (Trans Adriatic Pipeline) is being built with expansion in mind and we've heard it can be incremental.”

Meanwhile, USD 4-5 billion was being spent on the South Caucasus Pipeline, but only to the full extent that it could carry the full output of Shah Deniz II in addition to Shah Deniz I. With additional source considerations, like the Absheron gas field, a loop pipeline of 200km through the mountains of Georgia might be required, at significant cost. He commented, “That's at least a couple of billion dollars.”

Without that investment, he opined, there would be no scope for such gas developments down the line, including from Turkmenistan.

Of TANAP's costs, he said they ranged USD 7.9 to 17.9 billion.

“We are talking about an awful lot of money. A report on Natural Gas Europe said it could cost as much as USD 20 billion. No wonder Statoil and TOTAL got cold feet, questioning whether there was any present value in the project; if you're BP that's part of the capital outlay that you have to pay,” he said.

Still, according to Mr. Roberts, it would be built and would be able to carry more than the initial 10BCM. “So it does provide the backbone to cover the basic core of a new artery to Europe.”

And what of Russia's Southern Corridor? He said it was another USD 50 billion project, but noted that Gazprom had been told by the Ministry of Economy to cut capital spending by 10%/year for 5 years, a cumulative total of around 40%.

“So it's going to be tight and we haven't got into the costs that South Stream itself will cost USD 10-12 billion, and that's just for the maritime section,” he explained.

His presentation read "two strings probable, four strings questionable." There was also uncertainty regarding the minority shareholders' commitment to the project, he said, judging from a major announcement regarding the project over a year ago.

Mr. Roberts commented: “When did you ever see the third sentence of a major announcement saying 'the minority shareholders maintain the right to leave the project in case their preconditions will not be satisfied in the future'? That's usually left in small print – not usually put at the end of the first paragraph.

“Yet, what is more interesting is that this is a project that is going to be built.”

The Russians, he recalled, had recently said they would be speaking to the EU about South Stream, likely seeking exemptions. “It means they will go ahead with the project under EU regulations. The Second Energy Package makes it absolutely clear that they have a right to develop an energy project on a commercial basis that ensures they get a return on their investment,” he explained.

Finally, Mr. Roberts mentioned Iran, calling it a “real oddity.” Solving the nuclear problem there, he said, was necessary but not sufficient.

“You also need reform of the domestic economy and, secondly, we have a major immediate issue in gas: in the next 3 years we have 90BCM of new capacity is coming online from four phases of the South Caspian development.

“For the first time, we are likely to see Iranian production vastly outstrip the increase in Iranian consumption. They will have a surplus to export. They now have a focus on exports and I think this is what makes the (President) Hassan Rouhani administration different from its predecessors in that it's not simply looking to provide oil for foreign currency, but gas.”

Finally, John Roberts advised not to rule out Turkey as a natural gas market for East Mediterranean gas, which would have a knock-on impact for Europe, as would gas from Northern Iraq.