-Analysis-

PARIS — Drilling operations have begun off the coast of Cyprus despite Ankara's threats against the Cypriot government. And for French oil and gas multinational Total and its Italian partner, ENI, hopes for a huge payout are running high. As IHS Markit reported earlier this year, the "Onisiforos" operation, as it's known, is expected to be "one of the most critical wells drilled globally in 2017."

It will be several months before Total and ENI have a clear picture of what exactly the Onisiforos well will turn up. But they have reason to be optimistic given other recent natural gas discoveries in the area. Egypt's Zohr gas field, thought to be the biggest gas discovery in the Mediterranean, is only six kilometers away.

According to the U.S. Geological Survey, there could be up to 3.4 trillion cubic meters of gas in this eastern corner of the Mediterranean alone, called the Levantine Basin. Not all of it will be extracted, but such natural gas reserves could be enough to sustain a country the size of France for the next 50 years, at least.

Getting to the gas, however, is easier said than done. "From a geological point of view, the Levantine Basin has the same potential as the North Sea," says Olivier Appert, who chairs the French Council of Energy. "Except it's surrounded by seven countries that have been in conflict with one another for decades!"

The project is going well, the prospect is realistic.

The case of Cyprus is illustrative of these geopolitical difficulties. The island has been cut in half since 1974. Turkey, which occupies the northern part, doesn't recognize the Republic of Cyprus (although it's a member of both the EU and UN), and contests, among other things, how the territorial waters are shared. Ankara is particularly sensitive about the area Total and ENI are drilling, going so far at one point as to dispatch warships. Still, the companies "believe the political risk is manageable," says Francis Perrin, research director at the French Institute for International and Strategic Affairs.

The great discoveries in the region began in 2009 and 2010 off the Israeli coast, first with the Tamar gas field and then with the huge Leviathan gas field, found by the American company Noble Energy in association with Israel's Delek. There were more discoveries in 2011, off the southern coast of Cyprus, where Noble Energy discovered the Aphrodite gas field. Energy companies became even more convinced that they'd found a kind of natural-gas El Dorado in 2015, when ENI discovered the Zohr field, in Egypt.

The development of the Zohr gas field is now the most advanced. ENI, after teaming up with BP (10%) and Rosneft (30%), launched a fast-track development plan and production is expected to start by the end of this year. "The project is going well, the prospect is realistic," Francis Perrin says.

seadrill sunset

Watching the sunset at Seadrill Photo: Seadrill Facebook page

In Israel, the decision to invest on Leviathan was made at the end of 2016. "The Israelis lost a lot of time in internal discussions, but it should begin around late 2019-early 2020," the expert adds.

These discoveries risk shaking up the region's fragile balance. Egypt and Israel, two countries that used to import gas, will become exporters, as future production will, eventually, largely exceed interior demand. Egypt has already launched gigantic projects off the Nile delta (North Alexandria, West Mediterranean Deepwater).

"All these new volumes will have to find buyers," says Thierry Bros, a researcher at the Oxford Institute for Energy Studies. Part of that gas will be liquefied in Egyptian installations that are currently underused. "On paper, European countries could be future buyers, given that deposits in the North Sea and the Netherlands are declining fast," says Perrin. "But they'll have a hard time competing with the particularly cheap Russian gas."


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