Deepwater drilling, LNG accords driving North Africa energy schemes

May 1, 2000
Correcting for uneven reserves distribution
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North Africa is struggling to cope with uneven natural gas reserves distribution. In western North Africa, Morocco is looking to deepwater exploration to ease dependence on Algerian gas imports. On the opposite side of North Africa, Egypt has a huge surfeit of offshore gas, but seems to lack the political wherewithal to export it. Libya also has offshore potential, but still lacks the ability to exploit it. - Vanco/Lasmo deepwater acreage off Morocco's western coast.

Government ministers, analysts, and oil company branch managers discussed these issues at the recent North Africa Oil & Gas Summit in London, organized by IBC Global Conferences. European gas markets emerged as the dominant theme. In this regard, Algeria seems the best placed supplier for some time to come. The nation's recently approved In Salah onshore development, funded by BP Amoco and Sonatrach, will feed close to 9 bcm/year through the Mediterranean trunkline system to Iberia and Italy.

Morocco growth

BG International's Miskar Field is the hub of Tunisia's main offshore gas complex.
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Morocco's onshore producing fields are small and depleting, while the nation's long-term energy needs are soaring. Like other developing countries, it is switching rapidly from coal to gas-fired power, as well as expanding its natural gas distribution network. Mounir Debbarh, Production Manager at state oil concern Onarep, projected a gas demand of 1.7 bcm in 2005, rising to 3 bcm in 2010, and 5 bcm in 2020. "Electricity consumption in Morocco is expected to grow at a rate of 6% a year," he added. "That will mean one new 350 MW plant every two years."

Although long-term gas supplies have been secured through the branch of Algeria's Maghreb trunkline that terminates in Tangier, the government is looking to discoveries offshore "to completely change Morocco's energy landscape," Debbarh said. Over the past three years, the Energy and Mines Department has issued several offshore reconnaissance permits in an attempt to boost exploration - the latest was negotiated earlier this year by Conoco for a block in the Mediterranean.

Onarep's Wafae Benhammou explained that these are one-year licenses, with possible extensions pending a review. Once those have expired, the partners can negotiate an exploration permit, valid for eight years, with a possible three-year extension should a discovery be made, followed by a 25-year development license. In production terms, a key change relates to the new hydrocarbon law passed by Morocco's parliament last year, which cuts state participation at the development phase from 50% to 25%.

Deepwater play

The most active player in the West Moroccan offshore of late has been Houston-based Vanco Energy. Vanco has been positioning itself as the leading acreage holder in the unexplored deepwater fairways off northwest Africa and Gabon. According to Vanco President and CEO Gene Van Dyke, it plans to contract a drillship for five years to examine various leads, including Moroccan acreage.

The company signed up its first reconnaissance permit in September 1998, for the Safi Haute Mer deepwater area in the Essaouira Basin. Vanco believed that this area, which had once been joined to Nova Scotia, could contain a significant expanse of tectonically modified Triassic salt. Hitherto, there had been no seismic coverage in this area west of the continental shelf, so Vanco quickly commissioned a 1,800-km 2D acquisition survey. Analysis of the processed data suggested that the deepwater play had very promising stratigraphic and structural underpinnings.

The results encouraged the company to try to farm in to Lasmo's Ras Tafelney reconnaissance permit which lies directly below Safi Haute Mer - again across the deepwater Essaouira Basin. Earlier analysis by Lasmo, based on reprocessed seismic and a new 1,100-km 2D survey, had also confirmed the presence of salt. Although a farm-in to this permit proved impossible under Moroccan law, the government sanctioned an arrangement whereby Vanco would secure a 60% working interest in a future petroleum license for Ras Tafelney, with Lasmo retaining 40%.

Seismic surveys

Both existing reconnaissance permits were also extended for another year, during which time Vanco has acquired and processed a further 3,500 line km for itself and Lasmo to aid definition of both parties' leads. The survey was undertaken by Fugro-Geoteam. "The question now is, do we do 3D?" said Van Dyke.

The 2D analysis to date shows a variety of historical play types in both permits, which have been explored with limited success in the adjacent onshore. Safi Haute Mer is a region of complex salt tectonics with basement involvement. Vanco has to date identified 23 leads in this permit which it claims could contain 11 billion bbl, with similar potential apparently on Ras Tafelney. Structures under review include:

  • Inversion structure play in the southwest corner of Safi Haute Mer. The main reservoir target is expected to be a thick interval of Lower Cretaceous sandstones. Vanco assesses reserves at 1.2 billion bbl 190 sq km. The water depth is 2,200 meters.
  • Large toe thrust structure in west-central Ras Tafelney. Several mapped unconformities suggest numerous growth episodes dating back to the Early Cretaceous. The play covers 240 sq km. Reserves from the Lower Cretaceous reservoirs could amount to 2.2 billion bbl. Water depth here is 1,700 meters.

Tunisia revises code

In Tunisia, gas production has doubled over the past decade to 100 bcf/d, said Derek Evoy, Petro-Canada's International Exploration & Exploitation Manager, due mainly to continued development of BG's offshore Miskar Field. The other main source is the El Borma Field on the southwestern border with Algeria. Industrial and consumer demand in Tunisia could climb to 335 bcf/d by 2020. State oil group ETAP estimates remaining recoverable reserves at 2.2 tcf.

Since 1990, nearly $2.8 billion has been invested in the country's gas infrastructure network. There are 12 different gas pipelines totaling 1,900 km in length and covering the most populated areas, so there are ready markets for any new discoveries (in addition to the Transmed subsea export line to Sicily).

Tunisia is aiming to boost activity through its new Hydrocarbons Code, effective since February. Among the changes, prospecting permits (including seismic acquisition options) can now be extended for a further year. Long-term production tests attract more favorable terms, and to boost economics of marginal discoveries, ETAP will not insist on participation.

Libyan investment

Loosening of sanctions against Libya has allowed its ally Agip to push ahead with the $5.5 billion West Libyan Gas Development Project. The initial agreement, signed with Libya's National Oil Company (NOC) last July, involves exploitation of Agip's reserves in the offshore NC-41 Field, 110 km northwest of Tripoli, and the onshore Wafa Field, situated 500 km west of the capital.

By late 2003, if all goes to plan, 8 bcm/year from these fields will be exported to Cap Passero, Sicily via a new 600-km-long, 32-in. subsea pipeline from Melitah. Water depths enroute will be up to 700 meters. A further 2 bcm/yr will be produced for Libyan domestic needs. Recently, ENI contracted to supply half the exported quantity to Italian energy group Edison Gas over a 24-year period.

Charles Claypoole of Frere Cholmeley/ Eversheds, speaking at the conference, noted Italy's coincidental keenness last year to bring Libya out of the cold. This included a visit by Italian Foreign Minister Lamberto Dini to Libyan leader, Colonel M. Gaddafi in April 1999 (the same month that the Lockerbie suspects finally arrived in The Netherlands), followed by an invitation this year to Gaddafi to visit Brussels (subsequently revoked) by the European Commission's Italian President, Romano Prodi.

Many foreign oil companies, and some from the US, would like to resume large-scale operations in Libya. Dr Naji Abi-Aad, a Senior Adviser to Libya's Observatoire Mediterraneen de l'Energie (OME), said that his government and NOC were also working on fresh investment incentives, with a new Petroleum Law expected to be approved later this year. Proposed legislation includes release of acreage held by national operating firms, with nearly all Libya's offshore acreage possibly opened for bids, including blocks in water depths of 2,000 meters. The new terms also place greater emphasis on income tax exemptions and more flexible conditions for employing expatriates in Libya.

Gulf of Sirte

Abi-Aad cited the offshore Gulf of Sirte - thought to be natural gas prone - as one of the more prospective regions, adding that foreign partners could be brought in to further development of established projects such as the Bouri oilfield. Libya plans a series of new gas processing plants to drive indigenous demand, which is forecast to quadruple from the 1997 value of 5.3 bcm to 22 bcm in 2010.

More gas is also needed for injection into the country's aging onshore oilfields. Another project mentioned was a 2 bcm/year export pipeline to Tunisia, in discussion since 1996.

However, Claypoole cautioned non-US companies that were eyeing opportunities, suggesting that in this American presidential election year, there was little political mileage to be gained by candidates perceived as taking a "pro-Libya" stance.

Egypt's 100-year supply

Egypt's natural gas reserves potential was recently revalidated at around 120 tcf, said Andrew Brown, MD of BG subsidiary Nile Valley Gas. "These estimates are believed to be enough gas to supply the expanding domestic market for around 100 years."

Unfortunately for Egypt, its nearest export markets in the eastern Mediterranean are also coveted by operators in the Middle East, Caspian, and Russia. Agip's planned "Peace Pipeline," taking gas to Gaza and Israel via northern Sinai, may also be disrupted by the recent spate of gas discoveries offshore Israel.

BG International and BP Amoco have alternative plans to export Egyptian gas as LNG, but these depend on commercial accords being concluded between Egypt and Turkey. Egypt's Energy Ministry also has to resolve its dilemma over gas pricing for the export market.

BP Amoco's gas discoveries include the Hap'y, Baltim, and Temsah fields in the Nile Delta. According to John Brown, VP Finance Planning and Economics at BP Amoco Egypt Gas, LNG to Turkey remains the company's favored option. He also claimed it was more price-competitive than some of the pipeline schemes being proffered.

A protocol between the two governments was signed in February to ship Egyptian LNG to Izmir on Turkey's west coast. The location is advantageous, Brown said. It is at the end of any proposed pipeline scheme from the Middle East. BP Amoco's gas from Shah Deniz in the Caspian is being targeted at a landing point in eastern Turkey.

There are no geopolitical issues to grapple with in Turkey. The one big question is whether national distributor BOTAS can raise sufficient finance for its gasification plans. On the Egyptian side, commercial arrangements need to be effected between the gas field operators, EGPC and the government. "However, we don't see this as a stumbling block," Brown said. "We think the Turks will now want to focus on establishing gas sales contracts."

In the western Mediterranean, Spain also is looking to diversify its supply sources. By 2005, he said, when the proposed LNG scheme should be under way, and Egyptian gas may be available at the right price, especially from its shallower water fields.

Dolphin project may spur additional gas links

In time, further competition to North African gas export schemes is expected from Qatar and Iran, which share the world's largest offshore gas reserves across the Persian Gulf median line - the North Field and South Pars reservoirs.

This March, the United Arab Emirates Offsets Group, Enron and Elf formed sanctioned the Dolphin project, aimed at taking Qatari gas to sothern markets on the Arabian peninsula. This $8-10 billion investment involves developing a new portion of the North Field plus construction of an 800-km pipeline from Qatar to Abu Dhabi, Dubai and eventually Oman, with throughput of 15 bcm a year by 2003.

At a recent Middle East conference in London organized by The Centre for Global Energy Studies, H.Ghanimi Fard, acting VP for The National Iranian Oil Company, suggested that Qatari gas could also be connected easily to the Iranian transmission network via a 150 km subsea pipeline to the Iranian port of Assaloieh.

Nasser Jaidah, Director of Oil & Gas Ventures at Qatar state oil company QGPC, went further, stating that Qatar wants to be a major player in global gas supply. "Our problem is that we need the gas price to be high enough for Qatar to get a certain rate of return on its depletable resources. But, we also need a low price to encourage demand for gas and to support exports in our area."

He estimated remaining reserves at North Field at 380 tcf. Qatar plans to produce 12 bcf/d by 2005 which includes 5 bcf for the Dolphin pipeline. Asociated LNG plants onshore Qatar are furnishing 25% of the market in Korea and 20% in Japan, he said. "The potential of India, Taiwan, and China will also have to be pursued, despite increasing competition from Australia. However, Qatar's competitiveness in the European market does not look encouraging - we would have to bring our gas production prices down to compete with other sources."

QGPC continues to review gas-to-liquids techniques, he added, particularly with Exxon-Mobil, Sasol, and Phillips. "We need security of supply from GTL (gas-to-liquids) to succeed, but it must also compete commercially with pipelines and LNG. For that to happen, we need to look at maximizing every MTBU we put into any of these schemes.

GTL is a 21st Century technology, so there's still time for a price breakthrough, although the membrane technology must be further improved. The advantage of the process is that you get good quality, clean naphtha. If we are to see GTL in action, it may come five years from now, and probably first in Qatar."