Egypt’s Zohr gas field could boost other East Mediterranean projects

With the giant Zohr gas field in Egypt expected to come online by 2018, and President Abdel Fattah Al-Sisi agreeing to remove any political obstacles to Eni commercialising the field, the stage is being set for a wider regional development plan catalysing other projects in the east Mediterranean, according to research and consulting firm GlobalData.

Fast-track development

The company’s latest analysis indicates that Zohr will yield an internal rate of return of 25%, assuming a flat gas price of US$5.88 per thousand ft³ and recoverable reserves of 22 trillion ft³ (tcf), justifying a fast-track development.

GlobalData’s base case analysis assumes an initial production rate of 50 million ft³ per day (mmcfd), consistent with other producing wells in the vicinity, and that approximately eight wells will be brought onstream annually until 2026. Peak production would be achieved in 2026 at 3052 mmcfd.

The base case estimate for capital expenditure is US$7.69 billion, which is in line with the operator’s expectations of US$7–10 billion. In comparison, the Leviathan gas field in Israel, which has 12.5 tcf of estimated recoverable reserves, is expected to cost US$8.9 billion over the full cycle of a standalone project. Matthew Jurecky, GlobalData’s Head of Oil & Gas Research and Consulting, comments: “Reduced exploration risk and the potential to share infrastructure could see the eastern Mediterranean blossom into a key development area for international oil companies.

“With the resource potential more clearly established, above-ground issues, such as political challenges and collaboration between operators, become key.” Lydia Pearson, GlobalData’s Upstream Oil and Gas Analyst, says that high-profile political challenges have paralysed other regional projects, such as West Delta Deep Marine in Egypt and Leviathan in Israel, but there are reasons for other nations in the east Mediterranean to be optimistic going forward.

Pearson comments:

“In Cyprus, a route to commercialisation for the 4 tcf Aphrodite field has yet to be found. A proposed floating liquefied natural gas facility has struggled with commerciality, but leveraging scale and infrastructure with Zohr would boost returns and mitigate risk at both projects.

“In Israel, GlobalData estimates Tanin and Karish to have poor project economics, hovering around a full-cycle value of negative US$1 billion when considered as standalone projects. However, if a regional gas hub were developed, these projects would yield much more favorable economics.”

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