“Political debates are different and what is happening in the international gas market is different”
- The confirmation drilling in “Glafkos” will take place because when it confirms quantities of natural gas, the company can include it in its books as a property reserve. Moving on to development projects is another matter.
- Fitch predicts that the price of gas will fall around $ 5 / mmbtu (per thousand cubic feet) by 2022/23. With such prices it is impossible for new projects to proceed in the Eastern Mediterranean.
- In Israel, with the departure of the Netanyahu government, enthusiasm for EastMed has risen. The new government promotes the production of energy from renewable sources.
If 10 years after the confirmation drilling we could not develop the “Aphrodite” field, why should we consider that the natural gas from “Glafkos” will be utilized somewhere?
How viable can the Aphrodite gas pipeline be today? Why has talk of the EastMed pipeline stopped? These and other questions arise from the recent statements by the Minister of Energy regarding the return of the energy giant EXXONMOBIL-QATAR PETROLEUM to item 10 and the resumption of discussions on the construction of a gas pipeline from the A to the gas pipeline.
The expert Dr. Charalaipos Ellinas sheds light on everything, emphasizing that “political discussions are different from what is happening in the international gas market”.
Interview with Niki Kouleriou
“The last meetings in Egypt were a political success, but from a practical point of view the situation for hydrocarbons has not changed, it remains difficult”, points out Dr. Charalaipos Ellinas and explains:
The big oil and gas companies have been warned that they need to be prepared for a significant drop in fossil fuel demand in order to meet the Paris Agreement target of a temperature rise of no more than 1.5 ° C this century. . As a result, companies are rethinking their strategies for the future. For example, Spain's Repsol recently announced that it is leaving 11 non-manufacturing countries, including Greece, to concentrate on areas with greater competitive advantages. Shell and BP do something similar.
ExxonMobil returns to Cyprus to complete what it had already planned. The confirmation drilling in “Glafkos” will take place because when it confirms quantities of natural gas, the company can include it in its books as a property reserve. But moving on to development projects is something else. Although for various temporary reasons the price of gas is now high, Fitch predicts that it will fall to around $ 5 / mmbtu (about a thousand cubic feet) by 2022/23. With such prices it is impossible for new projects to proceed in the Eastern Mediterranean.
A project like “Aphrodite” or “Glafkos” needs about 20 years of continuous production in the quantities on the basis of which the investment decision was made to return the expected profits. The price of gas that makes these projects economically viable – as well as the EastMed pipeline – is around $ 7.50 / mmbtu. That is, no $ 5 / mmbtu project is possible. Suffice it to say that between 2015-2020 the average price in Europe was around $ 5.50 / mmbtu.
Similar challenges apply to “Aphrodite”. One thing is transnational agreements and another is investment. They are not political exercises on paper, they do not need companies that are willing to risk billions of dollars, something they do not do unless the profits are at the level they require.
The pipeline to Egypt will become Ion only if buyers of VAT are found.
Regarding the question about the pipeline to Egypt, Mr. Ellinas is categorical: The pipeline will be built only if buyers of natural gas are found, something that has not been done. They talk but an agreement does not close.
Chevron (one of the companies taken over by Aphrodite) and ExxonMobil have recently significantly reduced their capital expenditures by 2025. Their priority is to reduce their debt, invest in repurchasing their shares and increase their shares. Their shareholders.
Both companies are shifting their future production to areas of low cost, easy production, high yields and – under pressure due to climate change – lower carbon intensity. The Eastern Mediterranean does not suit them and is no longer on the list of high priority of these companies.
Drilling continues in Egypt, because the country has an internal market in high demand and pays good prices. But in Egypt they are not investing in terminal LNGs, but in new petrochemical projects, in which the demand for natural gas continues deep in Dellon.
With future demand for oil and gas being extremely uncertain – due to the impact of climate change – the hunt is for lower-cost, lower-carbon, and faster-paying reserves. These have the highest probability of commercialization. Oil companies are now pursuing “value over quantity”. The Eastern Mediterranean does not meet these requirements.
Interest in EastMed has waned
In Cyprus, priority must be given to the increase of renewable energy sources on a large scale, up to 50% of the total electricity. It is technically feasible and will contribute to a large drop in prices, which are now rising steadily.
With Europe moving steadily towards clean energy and renewables, future gas demand will continue to fall. The EU has set targets of reducing greenhouse gas emissions by 55% by 2030 and zero emissions by 2050. To achieve these targets, gas use must be reduced by about a third by 2030 and to very low levels. 2050. The EU has all the gas it needs, especially with the Nord Stream 2 pipeline starting on 1 October, with a capacity of 55 million. cubic meters per year (bcm / yr) at low prices, up to $ 4 / mmbtu – something EastMed cannot compete with. That is why the EU does not need the EastMed pipeline and discussions have stalled.
Also in Israel, with the departure of the Netanyahu government, enthusiasm for EastMed has risen. The new government is promoting environmental initiatives and renewable resources. It has announced that it is setting a national target of reducing carbon emissions by at least 85% from levels in 2015. It has also announced that it is suspending exploration permits for hydrocarbons on land.
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