Mediterranean blues
  from: Offshore Engineer
  by: Dr Roger Knight and George Venturas
  Tuesday, April 29, 2008

The sharp rise in the price of a barrel of oil over the past year has also had a fundamental effect on the price of natural gas. How these price trends will affect developments in the Mediterranean region is examined by Dr Roger Knight and George Venturas of energy analysts Infield Systems.

While oilfields do exist in the Mediterranean – the giant Bouri field in Libya has been producing since 1988 – the vast majority of offshore field developments in the region are natural gas based. This situation is likely to continue into the future.

On the oil front there has been good news and bad news. Italy’s pioneering deepwater floating production Aquila project is nearing the end of its productive life in the southern Adriatic, but nearby the Giove, Medusa and Rovesti discoveries could well benefit from the higher oil prices and a new floating project in the Adriatic with satellite subsea tiebacks is possible.

The bad news on the oil front concerns Regal Oil’s Kallirachi discovery in the northern Aegean Sea. After months of uncertainty, this discovery has turned out to be a spurious one. Far from the possible 227 million barrels of recoverable reserves that were announced to investors in 2003 it was found to be dry.

The changing fortunes of the countries with offshore activity can be seen clearly in Figure 1.

Price catalyst

Egypt represents over 30% of Mediterranean capital expenditure going forward and has recently agreed to pay higher natural gas prices to a consortium of British Gas, Eni, RWE and Hess for natural gas received from the West Delta Deep Marine and adjacent blocks. This move, expected to serve as a catalyst for even more exploration and production activity in the area, was made after the Egyptian authorities agreed to pay $4.5 per million BTU to BP for gas in the Raven deepwater field, an increase of nearly 70% on the previous terms.

New infrastructure is being built in Egypt with a series of LNG trains and natural gas terminals. Eni’s Santis find is expected to add 5 million tonnes per annum to the Damietta I LNG train and solidify the need for a second LNG train in the area. The occurrence of LNG trains chimes with the increasing number of regasification plants located across the sea in Spain and France, under construction in Italy and planned for sites in Croatia and Cyprus.

In Italy, the Brindisi LNG plant will import LNG directly from Egypt via short-haul LNG carriers starting in 2010, but the most spectacular project is QP’s and ExxonMobil’s Porto Levante GBS, construction of which is now complete in Algeciras. This will be the first concrete gravity based structure application for an LNG regasification terminal.

Other natural gas sources flowing from North Africa to Europe come for example via Algeria’s giant onshore Hassi R’Mel field. The $650 million Medgaz pipeline running from Beni Saif to Almeria in Spain in water depths over 2000m is expected to be operational within the next two years. Medgaz II is in its final planning stages and is expected to follow the same route to Almeria. Both Medgaz pipelines will be 24in in diameter and will be able to transport 8bcm/yr. Other projects include the Galsi pipline which will link Algeria and Italy via Sardinia and is expected to be operational by 2011. Further plans could have this extended to France in the foreseeable future.

Elsewhere, meaningful growth has coincided with the opening up of the Libyan shelf to exploration. Deals have been positive so far, while future prospects remain good due to improved political relations between Libya and the West. This relationship should be mutually beneficial with Libyan natural gas providing an alternative to Europe’s dependence on Russian gas and a readily available market for Libya’s abundant resources. Up to now it has been a combination of gas from Bahr Essalam, Wafa and Bouri fields transported through the 536km-long Greenstream pipeline which was completed in 2003 and links Mellitah in Libya with Sicily. Once received in Gela it is connected to the Snam Rete gas network.

Future routes

Other possible projects to transport gas in the region are expected to come from further east with three prospective future trunklines of note.

One is the 225km trunkline from Stravolimenas in Greece running to Otranto in Italy at a water depth of just under 1500m. This pipeline is scheduled to be installed in 2010. Another pipeline that has been touted would possibly link Libya with Pelekanos, Crete. The other notable project is the Iskanderun-to-Tel Aviv pipeline linking Turkey and Israel, which at over 500km in length would become the region’s second longest trunkline of recent times when installed post-2012.

Oil does have a future in the Mediterranean after the inauguration of the Ceyhan oil export terminal, located at the end of the $3.4 billion, 1768km Baku- Tbilisi-Ceyhan (BTC) pipeline from Azerbaijan, plus the plan to lay an overland pipeline from Burgas in Bulgaria to Greece’s north Aegean port of Alexandroupolis. Oil tanker traffic is expected to increase to even higher levels, with the Mediterranean potentially becoming one of the most strategic regions for oil and gas transport and delivery in the world, rivaling the straits of Hormuz and Malacca for volumes of hydrocarbons carried daily. OE

Click here to register to receive your own copy of Offshore Engineer each month.