PIPELINE ECONOMICS: Gas pipeline proposals shaking up once-staid Mediterranean market
More supplies for southern Europe?
A new long distance gas export project is planned to pipe supplies north from two Libyan fields to Sicily.
Five major new gas projects are planned in North Africa and Croatia, as producers jostle to meet Europe's growing energy demands. Whether these are sufficiently profitable to justify concurrent investments is debatable, and that is exactly the subject of many pipeline presentations and discussions at the recent Offshore Mediterranean Conference (OMC 2001) in Ravenna, Italy.
Dr. Yvonne Barton, President of BG Italia, stated that BG experienced a 100% success rate over the past year in its exploration program offshore Egypt and elsewhere in the Mediterranean. "We aim to make the Mediterranean a new trading hub," she said. "We already supply 65% of Tunisia's gas demands. Turkey, where we've been present for many years, we see as a key market. We have had a role there developing distribution in Ankara."
More platforms are expected in the Croatian sector of the Adriatic to coincide with installation of the GEA overland/subsea trunkline. Ivana A is shown above.
However, BG is focusing intently on supplying gas from its Egyptian fields to Italy, where Barton claimed demand for gas was set to increase by 50% over the next decade. In anticipation, BG wants to build an LNG import facility at Brindisi in southern Italy, the part of the country currently least well supplied with energy. This plant would initially import 4 bcm annually, but with potential for up to 12 bcm as new power generation schemes take effect.
Some of these supplies could come from a new LNG export terminal which BG and its partners Shell, Edison, and Egyptian General Petroleum Corporation (EGPC) plan to construct on a site in Idku, near Alexandria. Depending on progress with supply agreements, this could be operable by 2003, with initial capacity of 8 bcm/yr. Supplier fields will likely include the consortium's various gas discoveries in the West Delta Deep Marine lease. Two of these, Scarab and Saffron, in water depths beyond 700 meters, are due to be developed and onstream by early 2003, but for delivery to the Egyptian domestic market.
Egypt hopes to build on its recent 80%-plus exploration success rate through awarding further blocks this year, under the 2001 licensing round.
The current push to liberalize Europe's gas markets favors such export schemes, Barton claimed, "but liberalization is only workable if there is investment in infrastructure to bring in competition. Security of supply is also important toward developing a European trading market, and so is diversity of supply." Regarding supply security, BG is well positioned, having discovered 10 tcf to date in the Nile Delta. Of this, 6 tcf would be available for export by 2005, Barton added. "We plan future investments of $3 billion over the next four years to bring our LNG facility in Egypt to fruition."
Hassan Akla, EGPC's Vice Chairman, said that his country's remaining gas inventory currently stands at 51 tcf. "And we expect our proven reserves to increase three to four times this amount," he added, based on the recent 80% exploration success rate throughout Egypt. He predicted further big new discoveries to come in the Mediterranean deepwater region.
The government hopes to maintain the recent momentum through its 2001 licensing round, which includes eight blocks in the Mediterranean. The closing date for bids is November 15. Egypt's own demand reached 2.3 bcm last year, he said.
Christophe de Margerie, Senior Executive VP of Exploration and Production at TotalFinaElf, forecast growth in demand for gas across the Mediterranean of 2.8% over the next decade. The predicted growth rate for the European Union countries was only 1.7 %, he added, "but it is still extremely important that we find new gas and install new transportation systems." The EU currently burns through 400 bcm/d, he said.
One of the proposed new schemes is the Medgaz system which would pipe supplies from fields in Algeria across the Mediterranean to Spain. Even though the proposed route is in deeper water than the current pipelines from Morocco, the Medgaz project economics would be better, he maintained.
Another new south-north trunkline is planned by ENI and Libya's National Oil Corporation. This would be supplied by gas from the Wafa Field 550 km southwest of Tripoli and also by the C-structure Field in ENI's NC-41 permit in the Libyan Mediterranean, 110 km north of Tripoli.
Recoverable reserves are said to amount to 1.8 billion BOE. Gas from both fields would be piped to a treatment plant in Mellitah on the Libyan coast with capacity for processing 10 bcm/yr. Of this, 2 bcm would be sold to local markets, while the remainder would be exported direct to Sicily through a new 540 km, 32-in. subsea pipeline. Edison Gas has already signed a 24-year contract for half the exported amount. The project, with estimated expenditure of $5.6 billion, is due to start deliveries in 2004.
Another planned long distance line is known as the Gas Energy Adria project (GEA), extending for 330 km west from Croatia to eastern Italy, of which 130 km would be offshore. The line could also be extended to other neighboring countries. Maximum capacity would be 5 bcm/yr.
Croatia's state oil company is INA Industrija Nafte. E&P Executive Director Z. Belosic told the delegates at OMC that the country currently produces 1.4 bcm itself and imports 1.2 bcm from Russia. Some of its indigenous supplies come from the Ivana Field in the Croatian sector of the Adriatic Sea, which was developed jointly in the late 1990s by the INA-Agip venture.
Ivana's gas is shipped to ENI's Garibaldi platform in the Italian sector, as well as to local markets in Croatia and Slovenia. To boost exports through GEA, development now looks probable for the Ika and Marica fields south of Ivana. According to Rosetti Marino, the Ravenna-based yard that built the Ivana A platform has two to three new installations under consideration. INA is also preparing for further exploration in the central and southern Adriatic. "The door is open," Belosic said.
Speakers adopting a contrary, cautious tone included Luciano Sgubini, Chairman of the Italian Petroleum and Mining Industry Association Assomineraria. He pointed out that falling investment in Italian fields was leading to declining gas prod-uction. Any plans local operators might have, he said, were being held up by Italy's complicated offshore approval procedures.
"Responsibilities in public departments are not clear. Operators cannot be sure therefore of producing, and that jeopardizes projects, reduces investment, and leads to unemployment. Without investment, we will have no new fields," he added, leading to a potential shutdown of Italian production in 13 years. "But, we should be increasing our upstream activities as the Mediterranean gas network emerges."
Giulio Paini, Managing Director of Edison Gas, pointed out that Europe was buying gas currently from just three major suppliers - Norway, Algeria, and Russia. Europe will need to take certain steps to ensure the latter two maintain their supplies long-term, he warned. This includes persevering with take or pay contracts "to guarantee these nations their markets."
"Two years ago, no one was talking about security of gas supplies," he said. "Now the EU has published a Green Book on this subject. It says that we should boost LNG, find new supply sources, and invest in a strategically based storage site to overcome any short-term supply problems. And most important, it says we need to change the relationship between the producing and the consuming countries. That means the latter will have to cooperate more in the upstream process, ensuring that proper investments are made.
"We must work with the North African countries to optimize things," Paini added. "Algeria understands that the market has changed. It is now signing agreements for integrated systems with the countries in southern Europe. They will invest in the exploration and transportation, while Algeria invests in the downstream. That process will increase exports substantially over the coming years."
Egypt's gas market
The situation was less clear cut in Egypt, Paini felt, with a competing LNG scheme being proposed in eastern Egypt by BP and ENI. Having two schemes in the same area "draws money out the window," he claimed, and could play into the hands of players in Trinidad, Qatar, and Nigeria, which are competing for further segments of the European market.
"Where are the reserves coming from?" Paini asked, alluding to the BP/ENI project. "I believe that some of these plans are built on an idea that there are more reserves than can be committed. I would be more relaxed in Egypt, if I knew what the supply/demand projection is or if I could understand better the network system where the gas could flow from.
"I would like to sit down and find out what's best for Egypt and the operators there. We want Egypt to take the right course - LNG is a 20-year project - and to be strong for the future."