1. Israel Energy and Business Convention 2016
The Importance of East Mediterranean’s Hydrocarbon Resources: Export Options and Challenges
Tel Aviv, November 21-22, 2016
A Presentation by Costis Stambolis,
Executive Director
Institute of Energy for S.E. Europe (IENE), Athens
INSTITUTE OF ENERGY
FOR SOUTH EAST EUROPE

2. Contents About IENE East Med gas resources
The European gas market: current situation and outlook
Export options for East Med gas
The need for economic and political alliances
The Cyprus- Greece- Israel connection
Conclusions

3. IENE Background
Established in July 2003 as a non-profit and non-governmental organization by a small of energy group professionals active in the broad energy field
Headquarters: Athens, Greece
Active in all countries of SE Europe (see map)
Objectives
To provide a forum for the presentation and discussion of energy and environmental issues
To encourage public dialogue on energy and related issues backed by fully documented studies and analysis
To participate in the formulation of energy policies at national, regional and international level, especially in SE Europe
To provide professionals and the public at large with factual and unbiased information on energy and the environment

4. The SE Europe Area Defined
Core Countries: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, FYROM, Greece, Kosovo, Montenegro, Romania, Serbia, Slovenia, Turkey
Peripheral Countries: Israel, Lebanon, Syria, Egypt, Italy, Ukraine, Moldova, Hungary

5. The East-Med

6. Assessment of resources in East Mediterranean
According to US Geological Survey (USGS) the Leviathan Basin potentially holds about 122 tcf of natural gas and 1,68 bil. Bbl of oil and the cone of the Nile and Herodotus basin holds another 223 Tcf of gas and 1,76 bil. bbl of oil. A total of 345 tcf of gas or 9,6 tcm and 3.44 bbl of oil.

7. Some Key Facts on East Med Gas Discoveries
Over the last 10 years a series of ground breaking hydrocarbon discoveries-mainly gas- have been made all over the East Med
First there was Noa (North), then Mari-B, then Tamar and Dalit, then Leviathan, then Dolphin, Aphrodite in Cyprus followed byTanin and Karish in Israel and Zohr in Egypt
Starting with Israel, then Cyprus and lately Egypt total gas finds amount to 3.0 tcm of proven reserves and 10.0 tcm of both proven and contigent
In the Levantine Basin alone (read Israel-Cyprus) proven reserves amount to tcm and together with contingent stand at 3.5 tcm- on par with the much touted Caspian gas reserves
These reserves more than satisfy local needs in a years horizon. Hence, the question arises what to do with the excess gas that can be produced

9. Total Gas Reserves in Israel (838.0 bcm) and Cyprus (150 – 200 bcm)
Aphrodite ( bcm)
Tanin (34 bcm)
Leviathan (509 bcm)
Tamar (266 bcm)
Dalit (14.0 bcm)
Dolphin (15.5 bcm) 9 9

10. East-Med has gas for export-
Please buy our gas
Global energy markets are undergoing structural change
Ratification of Paris Climate Change Agreement
Cyprus and East Med need to find buyers for their gas
Gas glut in global market – low gas prices
Cyprus and Israel are running out of export options
Egypt is moving forward
Lebanon is stagnant
Selling East Med gas to Europe appears to be the most favorable option
Turkey may be one of the catalysts

11. Natural Gas Consumption in Europe,
including E-27
Total European Gas Consumption in 2015: 398 bcm

12. Current Gas Supply Situation in Europe
Gas demand in Europe at best stagnant – down 20% from peak 10 years ago
It may have peaked already
Key reasons are cheap coal and subsidized renewables
No prospect of these factors being reversed anytime soon
Russian gas supplies increasing due to low price, $4/mmBTU
US LNG trying to get in but with limited success
Costly to develop gas-fields dependent on exports to Europe may remain stranded

13. The future of EU gas demand

14. Indigenous production will continue to decline

15. Requirement for import will grow

16. Assumptions on European Gas Demand in 2020
As European energy demand is set to grow over the next years (but at a small pace) and as indigenous oil and gas production has reached it's limits and is already declining, there will be a need for increased imports. Today EU 28 is more than 53 per cent energy import dependent, with this figure set to increase as in addition to oil and gas there is going to be a further decrease in locally produced coal and lignite in view of stringent environmental considerations.
UK out but impacting (on the supply/demand, on the transport to Ireland, on shale gas) UK regasification capacities could be in competition with French and Belgium terminals
TTF has established itself as the most liquid hub in Europe in Even with Dutch domestic production declining we assume TTF to be the central hub in EU. ICIS tradability index provides 20/20 for TTF in 2016 and we assume this stays the same until 2020.
Flat demand at 375 bcm vs 2015 (402,1-68,3 = 373,8 bcm)
Gas supplier sourcing price: 21€/MWh TTF as oversupply and reduction in demand (efficiency) have pushed prices down
Ukraine as a transit country with around 30 bcm/y
Most gas sold spot in Europe (c. 75%)
Declining domestic production
No gross welfare losses in 2020 (vs €4.5bn estimated in 2015 by ACER) as all interconnections/reverse flows have been built to achieve this (in line with past decrease of gross welfare losses
The US is a net exporter (LNG capacity is around 70mtpa) with some of its LNG berthing in Europe
Russia stays the biggest gas exporter and the only one with spare capacity

17. Oil Prices

18. Natural Gas Prices

19. Back to the Future- Latest Developments
Total drilling in Cyprus’ block 11 early next year
ENI drilling in Cyprus’ blocks 2, 3 and 9 H2 2017
Total quite hopeful – prefers FLNG
Successful 3rd licensing round in Cyprus
Israel soon to launch its first international licensing round
Prospects look good for increased gas production

20. Assessed export options for East Med gas

21. East Med Gas Export Possibilities
Six Main Options
Exports by pipeline to Egypt for its own domestic use
Exports by pipeline to Egypt’s LNG plants for liquefaction and LNG export to Europe and Asia
Exports by pipeline to Turkey initially for its own domestic use and later via Greece to Europe
Exports by pipeline from Cyprus to Greece and then to Europe (East Med Pipeline)
FCNG to regional markets
FLNG to European and global markets

22. East Med Gas Export Options
Some Observations
For Leviathan and Aphrodite Turkey may be most cost effective export option
If export strategy not soon in place East Med gas runs risk of remaining stranded
An era of plenty energy supplies, peaking demand and Paris Climate Change agreement coming into effect will lead to low prices
Even with Turkey, Leviathan 1 & 2 still have more gas to export
Leviathan and Aphrodite have capacity to export as much as bcm/y
Need to look into global exports via LNG

23. The proposed East Med Pipeline

24. Greece as a Gateway for Natural Gas to Europe
Italy
Croatia
Romania
Bulgaria
Russia
Turkey
Greece
Montenegro
B&H
Slovenia
Serbia
FYROM
Albania
Hungary
Kosovo
LNG
TAP
SEP
East Med
IGI Poseidon IGI Onshore
IGB
Other Interconnectors
LNG Terminal
IGI
Egypt

25. Eurasia Electricity Interconnector

26. Looking to the Future
What is clear is that the global energy and gas scene is undergoing rapid changes and future policies and development plans can become rapidly outdated unless reviewed and updated regularly.
The good news is that drilling is re-starting in Cyprus’ EEZ and prospects look good. Israel is soon launching its first licensing round.
FCNG or FLNG could be game-changers in the development of East Med gas resources whereas the timing of FLNG development in East Med may be coinciding with recovery of global LNG markets.
By the time first East Med gas exports start, markets will be even more competitive than now. Exporters should from now on assess buyers intentions with low price margin expectations (NBP +$1.0 to +$1.5 max)
Political and defence alliances are key to guarantee continuous exports and hence Greece could be a trusted ally to Israel

27. Addendum- Energean Oil & Gas and the Israel Connection

28. The “SE Europe Energy Outlook 2015-2016” Study is funded by:
Sponsors
Supporters

29. Energean Oil & Gas in Israel

30. Economic and Political Connections and Alliances
Israel – Egypt – Turkey
Israel - Egypt
Ties between Israel and Egypt have strengthened significantly since 2013, and in current Egyptian President Abdel Fattah al-Sisi, Netanyahu has found a willing partner. In fact, Egypt and Israel now appear to be on the brink of a renewed strategic alliance.
In March 2016, during the Nuclear Security Summit in Washington, Steinitz met with Egyptian Foreign Minister Sameh Shoukry to discuss, among other things, the potential for Israel to supply Egypt with gas.
The Egyptian–Israeli relationship is growing as their military cooperation has extended into a larger political and diplomatic alliance. Sisi perceives Israel as a strong ally in his war against the Islamist terrorist organizations in Sinai. Both governments realize the importance of the Egyptian–Israeli alliance.
Israel - Turkey
In a surprise move on June 27th, the Prime Ministers of Israel and Turkey made a simultaneous declaration to announce an agreement for a return to normal diplomatic ties.
There are also significant economic motivations for both Turkey and Israel to normalize their relations. Despite all the tensions in their relationship, the volume of trade between the two has increased by nearly 20 percent between 2009 and 2015.
Turkey approximately needs 50 billion meters cubed of natural gas per year, and about 55 percent of this is supplied by Russia. Iran is the second largest supplier to Turkey. Given Turkey’s strategic differences with Russia and Iran, it is natural that Turkey would seek to diversify its suppliers and, in addition to Azerbaijan, Israel is a significant option in this sense.
Turkey wants to connect Israeli gas supplies to the Southern Gas Corridor (SGC)
The geopolitical significance of Ceyhan-Ashkelon Oil Route

31. Economic and Political Connections and Alliances
Israel – Greece – Cyprus - EU
Israel – Greece – Cyprus
Since 2010, the three countries are building strong regional energy, economic, political and military cooperation links
In 2014, the Greek, Israeli, Cypriot, Bulgarian and Italian governments announced their support for the “East Med Pipeline” which would be an undersea link from Israel to Cyprus and Cyprus to Greece and Italy
Greece, Israel and Cyprus’ improving relationship with the Egyptian government offers a moderating alternative to the upheaval that has beset the region
Control over the transit corridors for oil and gas from the Eastern Mediterranean is becoming very important. This is a model for successful cross-regional cooperation for the three countries and can be the basis for creating stability and the good relations on which depend energy cooperation and security in an increasingly dangerous Eastern Mediterranean.
Israel – Greece – Cyprus – EU
In a master-stroke of regional diplomacy, Israel is using its vast gas reserves to build an alliance system in the Eastern Mediterranean that has far-reaching strategic implications.
Europe’s efforts to diversify its energy sources and to cut down the heavy dependence on Russian supplies brings East Med gas to the epicenter of EU policy
Within the trilateral energy alliance (Is-Gr-Cy), Israel will be the pivotal partner, and a regional powerhouse which can affect EU policies.
The alliance with EU member states (Greece and Cyprus) gives Israel a much-needed strategic depth.
Looking ahead, the trilateral alliance gives Israel more space to negotiate with not only the European countries but also with Turkey.

32. Economic and Political Connections and Alliances
Who pays for energy security?
EU Energy Policy
Through proposed funding of €9 billion for energy infrastructure, external energy projects for which commercial viability is not yet clearly determined (but which are deemed of political importance by meeting diversification objectives) will be supported from the 2014–2020 EU budget
EU member state Cyprus, which is considered as an isolated energy system- an energy island- is entitled for sizable EU support funding. Israel could be beneficiary in the case of common energy projects
However there is a policy gap in the EU with growing divergence between EU Policies/ Directives and pursued state policies and the situation on the ground
For East Med countries to pursue the development and export of their natural gas resources they need to forge strategic alliances and introduce novel and effective marketing methods
The expanded South Corridor and associated legal and regulatory regime could provide an answer

33. An Expanded South Gas Corridor

34. Thank you for your attention