Tue, 11/24/2015 - 00:00

LONDON (Nov. 24, 2015) – 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 commercializing the field, the stage is being set for a wider regional development plan catalyzing other projects in the east Mediterranean, according to research and consulting firm GlobalData. The company’s latest analysis indicates that Zohr will yield an internal rate of return of 25 percent, assuming a flat gas price of $5.88 per thousand cubic feet (tcf) and recoverable reserves of 22 trillion cubic feet, justifying a fast-track development. GlobalData’s base case analysis assumes an initial production rate of 50 million cubic feet 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 3,052 mmcfd. The base case estimate for capital expenditure is $7.69 billion, which is in line with the operator’s expectations of $7-10 billion. In comparison, the Leviathan gas field in Israel, which has 12.5 tcf of estimated recoverable reserves, is expected to cost $8.9 billion over the full cycle of a standalone project. “Reduced exploration risk and the potential to share infrastructure could see the eastern Mediterranean blossom into a key development area for international oil companies,” said Matthew Jurecky, GlobalData’s head of oil and gas research and consulting. “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 paralyzed 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. “In Cyprus, a route to commercialization for the 4-tcf Aphrodite field has yet to be found,” Pearson said. “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 $1 billion when considered as standalone projects,” Pearson said. “However, if a regional gas hub were developed, these projects would yield much more favorable economics.”