Development of the giant Zohr natural gas reservoir in Egypt is proceeding at a dizzying pace. At the end of last week, Italian company Eni successfully completed its third drilling, and said that the amount of gas in it was 20% higher than expected. The Eni CEO asserted that the gas from the reservoir could begin flowing at the end of next year.
Last August, Eni reported a giant gas discovery in Egypt. Its initial estimate for the reservoir was 30 TCF (trillion cubic feet) of gas.
Various consultant companies, including HIS, gave initial estimates for the coefficient of the production, in other words, the quantity of gas that could actually be produced from the reservoir of 77%, plus or minus 25%. The reserves that can be produced were therefore estimated in a wide range of 17-27 TCF.
High rate of sulfur in the reservoir
Eni has since completed two drillings, however, and additional drillings mean a more complete and reliable picture of the reservoir, including it size, depth, and the quality of the gas in it.
Reports from Egypt say that the company estimates that actual production from the reservoir could be up to 30 TCF (for the sake of comparison, drilling at the Israeli Leviathan offshore reservoir can produce up to 22 TCF).
"The company is progressing at a rapid pace," claimed Eni CEO Claudio Descalzi at a conference of the International Energy Agency (IEA) at the end of last week in Paris. He said that production from the giant reservoir would begin already at the end of 2017, adding that the company had several challenges, but did did not explain what these were.
Sources inform "Globes" that one of the challenges is apparently the high proportion of sulfur in the reservoir, which makes it more difficult to develop. A high proportion of sulfur may require separate development to remove it, which will obviously make development more expensive. In any case, a senior company source said that the company would begin its fourth drilling next week, and was planning to complete six drillings by the end of the year.
According to estimates given by the company to the Egyptian press, the initial stage of development will cost $5 billion. The company plans to complete 16 more drillings at an investment of $7 billion by 2020.
Still no final contract with Israel
The Egyptian press also published the terms of the gas agreement signed by Eni with the Egyptian government. Under the agreement, 40% of the gas price will to first to the company in order to cover its expenses. The remaining 60% will be divided between the company (65%) and the government (35%). The gas price was not published, but estimates are $5.88-6 per mmbtu.
The rapid development of the Zohr reservoir casts doubt on Egypt's need to import Israeli gas. The two countries have already signed two memoranda of understanding for exports of Israeli gas to Egypt, but neither has resulted in a final contract.
Eni, which is a partners with Spanish company Union Fenosa in a gas liquefaction facility in Egypt, will probably prefer exporting the gas it found in the Zohr reservoir, rather than gas from the Israeli Tamar reservoir, and Royal Shell, which acquired British Gas, will find it difficult to buy Israeli gas from Leviathan, given its business in Arab countries.
The gas from Zohr, however, is still not enough to satisfy the demand for gas in Egypt. This demand stands at 60 BCM (billions of cubic meters) annually, of which Egypt is supplying 50 BCM itself (40 BCM from local production and 10 BCM in imported liquefied natural gas (LNG). The gap between the gas supply and demand can therefore still be supplied from the gas reservoirs in Israel or Cyprus.
Published by Globes [online], Israel business news - www.globes-online.com - on April 17, 2016
© Copyright of Globes Publisher Itonut (1983) Ltd. 2016