HOUSTON (Jan. 11, 2017) – Driven by the success of Eni’s major Zohr Field gas discovery offshore Egypt in 2015, companies are rethinking the Eastern Mediterranean region’s gas potential, according to new analysis from IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions. Total’s announcement that it will drill a 2017 exploration well in its deepwater Block 11 located offshore Cyprus indicates the growing interest in the wider region.

“The Zohr gas discovery in Egypt was a play opener for the region—it has caused companies to rethink the region’s gas potential and take a closer look at the geology,” said Graham Bliss Ph.D., senior director of plays and basins research at IHS Markit, and lead author of a series of analyses examining upstream energy competition in the Eastern Mediterranean. “Zohr’s success clearly encouraged Total leadership to re-examine Block 11’s potential, since it is contiguous with the Egyptian Shorouk Offshore Block, which is home to Eni’s Zohr Field.”

The IHS Markit Basin Insights Service, as well as the Critical Wells Insight Series, highlights why companies and governments are intensely interested in the geologic potential of this block and the results of Total’s exploration well to be drilled later this year. IHS Markit believes that this well will be one of the most critical wells drilled globally in 2017 for the E&P industry, especially given the slowdown in exploration drilling worldwide. The IHS Markit analysis, Bliss said, underscores the potential impact that this well and the changing competitive landscape could have on the future development trajectory of the hydrocarbon sector in the Eastern Mediterranean.

Total’s Offshore Cyprus Block 11 is located to the north of Zohr’s Egyptian Shorouk Offshore Block, which, Bliss said, is the first time in the region that a carbonate, rather than a sand, reservoir was targeted. “The carbonate reservoir that comprises Zohr is of particularly high quality,” Bliss said. “As such, it will likely enable development using a minimum number of wells and, therefore, reduce costs and enhance project economics.”

The Zohr Field is one of the largest conventional gas discoveries of recent years. It has in-place resources of 32 trillion cubic feet (TCF) of dry gas, with possible recoverable resources of about 20 TCF, according to Eni statements. To date, Eni has drilled five wells on the Zohr structure, which have confirmed a large gas accumulation and the existence of a very high-quality reservoir, IHS Markit said. The Zohr Field Phase 1 project is due to come on-stream in 2017.

“The existence of a carbonate reef play, which Zohr has proven to be, is very different from the turbidite sand-play discoveries in the Israeli Levantine Basin and the Egyptian Nile Delta Basin,” Bliss said. “If the Zohr carbonate play extends northward into Total’s Block 11, then the potential for a significant discovery in Block 11 exists, resulting in profound implications for the region. A major find would provide competition with offshore Israel gas fields to fulfill Egypt’s rising gas demand, and within the complex jigsaw puzzle of gas supply and demand in the Eastern Mediterranean, could even potentially lead to gas exports to Turkey,” Bliss said.

IHS Markit research has also concluded that direct pipeline exports from the Eastern Mediterranean to Greece are potentially commercially viable.

The competitive landscape in the region has already begun to change in anticipation of the potential, the IHS Markit report said. In November 2016, BP purchased a 10 percent equity stake in the Shorouk Offshore Block (including Zohr) from Eni, with the option to acquire a further 5 percent stake.

This purchase consolidated BP’s strong position along the northern margin of the Nile Delta Basin, but by itself did little to diversify the range of players in the Nile Delta offshore where BP, Eni and Shell dominate, according to Catherine Gifford, Africa plays and basins research lead at IHS Markit. “The transaction does nothing by itself to vary the number and type of companies active in the basin,” Gifford said. “The success of this basin, and its subsequent further contribution to Egypt’s economy, largely depends on the continuing commitment of these few companies. There is little open acreage that could be offered in future licensing rounds, subject to acreage relinquishments, but of course there is the potential for farm-ins.”

Gifford said that a Total discovery in Block 11 would add Total to the list of leading players in the region. Further, in December 2016, Rosneft (in which BP holds a 19.75 percent interest) purchased a 30 percent interest in the Shorouk Offshore Block from Eni with the option to acquire a further 5 percent stake.

The December 2016 announcement of results from Cyprus’s Third Offshore Licensing Round confirmed the interest of established and new companies in the Eastern Mediterranean region’s growing gas potential. Eni extended its key role in the region with its award of Offshore Cyprus Block 6 (northwest of Block 11) with partner Total, as well as for Offshore Cyprus Block 8 (northeast of Block 11). ExxonMobil won the bid for Offshore Cyprus Block 10 (which Total had previously relinquished).

The ranks of larger companies in the region have now swelled to include Total, ExxonMobil and Rosneft, in addition to the established players—Eni, Shell and BP.

While gas is the primary target for the Total Cyprus Block 11, the IHS Markit analysis said there is some potential for a deeper, but unproven, Cretaceous target, which could have oil potential.

In terms of commercialization of natural gas, while a number of options exist, Bliss said the most likely outcome for a significant Block 11 discovery is export to Egypt to supply its growing domestic demand. Historically, gas prices in Egypt have been low, but recent deepwater developments like Zohr suggest a likely gas price of between $4 per million cubic feet (MCF) to $6 per MCF for a Block 11-type of development if gas was to be exported to Egypt.

“There is the potential for competition between Cyprus and Israel for gas sales to Egypt,” Bliss said. “A new, substantial gas discovery would also provide additional options for Cyprus to commercialize its Aphrodite discovery, since infrastructure investments could support multiple discoveries.”

Bliss said that, technically, Cyprus could export any gas finds to Turkey, but given the split between north (Turkey) and south (Greek), Cyprus, this is, at present, unlikely, but the regional geopolitical landscape is not static. Turkey’s desire to reduce reliance on Russian imports and Turkey’s interest in importing both Israeli and Cypriot gas could provide an important boost to the island’s reunification discussions. The reunification meetings this week in Geneva mark one of the few times since 1974 that the Turkish government and Greek Cypriots have sat down together at the negotiating table.

“More natural gas in Cyprus, coupled with Cyprus-Turkish risk and Israeli gas-monetization options, favors the creation of Egypt as the regional commercialization hub for all the Eastern Mediterranean,” Bliss said. “This is due to both its domestic market potential, and its established liquefaction capacity, which enables export of incoming gas. Depending on the outcome of Total’s drilling program in Block 11, 2017 could be a significant year for the region, and we could see competition and investment really begin to heat up.”

To speak with Graham Bliss or Catherine Gifford, please contact Melissa Manning at melissa.manning@ihsmarkit.com . For more information on the IHS Markit Basin Insights Service, as well as the Critical Wells Insight Series , please contact clare.fletcher@ihsmarkit.com .

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