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Zohr and the energy map of Mediterranean

An outlook for Europe's future energy landscape.

by Alessandra Pierro
07 April 2020
13 min read
byAlessandra Pierro
07 April 2020
13 min read

In Arabic, zohr means “midday”, that time when the sun is at its zenith. It’s also the name of the largest natural gas field in Egypt and the Mediterranean, and not by coincidence: even today, Zohr represents the highest point in Egypt’s energy history, a long history in which Eni has featured since the 1950s.

Eni and Egypt: 60 years of history

Eni’s adventures abroad began in 1954 in Egypt, and it was there that Eni first introduced the “Mattei formula”, encouraging decolonising countries to become active players in the exploitation of their own resources and engaged participants in the new international dialogue. Under president Nasser, Egypt became the first step on a revolutionary path which was to transform the world of oil. The first great oil field was discovered there in 1961, in Belaym, and in 1967 the first gas field was found in Abu Madi, offshore in the Mediterranean Sea. Further discoveries would join them over the years, including Zohr, which was followed by many others.

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The formula and strategy of Eni's founder.

An unexpected success

Zohr is the largest gas field ever discovered in Egypt or in the Mediterranean, facing Port Said, covering an area of 100 km2, at a depth of 1,450 m. Considering the critical issues Egypt experienced at the time – political instability and unrest from the Arab Spring on the one hand, and an oil crisis which after a few unsuccessful expeditions was in desperate need of new exploration models on the other – the discovery came as a surprise. Since then, Egypt’s oil reserves have increased by about a third and the country has been able to fulfil its own energy needs.

Eni has now finalised development plans focused on emissions reduction, renewable energy and sustainable mobility. In particular, the first service station with electric vehicle charging points powered by solar panels in Egypt was recently opened in Port Said: this is a project that Eni intends to replicate across the country, by building a further 50 similar stations in the next five years.

The story of Zohr as told by Lapo Pistelli

Naturally, the impact of the Zohr discovery resonated far beyond Egypt’s borders. There were unavoidable repercussions on the energy situation in the Middle East, and Europe remains part of this constantly evolving scenario in the Mediterranean. It’s a complex geopolitical context and the crucial details are often neglected; despite this, Eni is fortunate enough to be able to observe the situation from an undeniably privileged vantage point. Lapo Pistelli, Eni’s President of International Affairs, answered some of our questions and shared with us his clear, in-depth analysis of the issues surrounding Zohr.

 

Q: The Zohr operation was a risky one from several perspectives, but it turned out to be a safe bet. Nowadays, the field can produce 850 billion cubic metres of gas in place – it would fulfil Italy’s consumption for 12 years but for Egypt it would mean decades of self-sufficient energy resources. Considering the delicate process of redevelopment that Egypt has undertaken, what is the impact of Zohr and how much can energy autonomy influence Egypt’s development?

 

A:Egypt was the starting chapter of Eni’s world adventures. Mattei landed on its shores in 1954 and our partnership with the country has lasted for over 60 years, during which time our societies have got to know each other very well. Consistent with our mission, when we start operations in a country we do so only in a spirit of sharing, trust and respect for its human resources, and in many ways the tale of Zohr is a good example of this.

Moreover, the discovery was framed by a very particular context. Until a few years ago, Egypt was the only Middle Eastern country producing a significant amount of hydrocarbons. The first exploration dates back to 1861, at the time of Italian unification. Egypt enjoyed a period where it was both self-sufficient and an exporter of energy. But recently, two developments gave rise to various significant and complex issues. On the one hand, the absence of new discoveries and a difficult political climate slowed down exploration campaigns and deterred investments in the country, whose production curve fell sharply as its fields were depleted. At the same time, Egypt was, and still is, the only country in that region to have experienced a burst in population growth: from 1981 to 2011, the period when Mubarak first seized then gave up power, the Egyptian population increased from 42 to 85 million people. Today it amounts to over 100 million and is expected to reach 125 million by 2030. Such a wild rate of growth is accompanied, as in the whole of North Africa but unlike in Sub-Saharan Africa, by a strong demand for both base and peak load power, the latter required for economic and industrial development.

With dwindling fields and a rising population, from March 2015 Egypt could no longer remain self-sufficient and started importing energy at a high cost. Six months later, in August, Eni announced the discovery of Zohr, and here starts a “story within a story” that says a lot about Eni’s attitude: Eni recovered a licence issued by two major international companies which had explored and drilled the area for six years, without finding or detecting anything. Eni relied on two great assets, one human and one technological: excellent geologists able to think outside the box and supercomputers capable of creating models and simulations with a precision and rapidity unique in the world. We caught sight of something new in the region’s geology, took a punt, asked others to pitch in and, assuming all responsibility, made the greatest discovery of the past 20 years in the Mediterranean region.

It wasn’t enough. The second half of the Zohr story sees Eni establishing a kind of speed “world record” in starting production. You see, ours is a very peculiar economic sector: price is not determined by those who have the resources, who wouldn’t even know whether a barrel is worth 20, 50 or 100 dollars on the market. Hence, a company is left with only two courses of action: cap its costs and reduce the time to market to the bare minimum, to avoid a discovered field lying idle and worthless at the bottom of the sea. On average, industry timings from discovery to production varies between seven and eight years: in less than half the time, only 27 months later, Eni started delivering gas to the Egyptian population and since then production has ramped up at an extraordinary rate, reaching almost 3 bcfd (3 billion cubic feet of gas per day).

Everything changed for Egypt: no more gas imports, a rising interest in new exploration campaigns, and the country became the first exporter in the region. Eni kept on making major discoveries, albeit not as significant as Zohr, and continues to pursue this strategy of exploration, as Egypt relies on constant new findings to remain at the helm. Here is where geopolitics come in. Egypt has promoted energy diplomacy activities to transform the Eastern Mediterranean from a gas province (discoveries in Israel, exploration campaigns in Cyprus and the Lebanon) to a full-fledged gas hub that could generate not only resources, but also infrastructure, market agreements, political and energy deals. As a consequence, the EastMed Gas Forum was founded, which soon became a legitimate international organisation, although existing concerns – such as the strong animosity between Turkey and Cyprus and an open dispute between Israel and the Lebanon – can’t be overlooked. Yet, and despite these issues, nowadays Israeli gas travels to Egyptian facilities for processing, showing how molecules can shed their national labels and become, instead, shared resources.

In summary, thanks to Zohr, Egypt darted past its energy crisis, started attracting investments again and became once more an exporting country. To Eni this is recognition of the exploration skills which have also led us to win, several years in a row, the award for best explorer, with own technologies and expertise, in the world.

Q: Let’s have another look at Egypt’s role as the promoter of a possible gas hub in the Eastern Mediterranean.

At the time of the discovery of Zohr, the New York Times commented that the Egyptian gas field threatened to undermine energy diplomacy in the Middle East. As a political analyst, what is your opinion? How much can the new economic agreements, such as the ones we mentioned with Israel, influence the international political scene? And what are the potential risks and opportunities in reconfiguring the power balance?

 

A: It’s often tempting to add different layers of meaning to a story and pepper it with spy intrigues and conspiracy theories. But I’ll simply come to the point: Egypt’s energy history has always been considerable and the discovery of Zohr is simply further proof that the country already possessed a very mature industry in terms of human and technological skills.

Moreover, Zohr has been a positive trigger for other countries. In 2010 Cyprus discovered the Aphrodite field (yet to be developed) and is now granting new concessions for exploration; Israel is doing its best to accelerate its Leviathan field; the Lebanon’s long-standing internal political turmoil has come to an end and the country is making up for lost time by opening its offshore to exploration, to reduce the costs of energy imports. Everything is on the move again. This region finally has the chance to achieve integration through energy.

Unfortunately, the real thorny issue lies in the rivalry between Egypt and Turkey; the question is a very delicate one, as Turkey, with an equally enormous population and power needs, imports almost all of its available resources. The embargo on explorations in Cyprus’s Exclusive Economic Zone is yet another side effect of their tug-of-war. It would certainly be more effective, as well as commendable, if in future these two large countries, currently not seeing eye to eye about anything, from energy questions to the political issues of Islam and the Muslim Brotherhood, could set aside their differences and join forces.

 

Q: Considering this shifting scenery and the issues connected to historical gas suppliers, such as Libya, is it possible to speculate that Egyptian gas might become a supply source for Europe, and the Eastern Mediterranean an alternative route? If so, what would the implications of such a new dependent relationship be?

 

A: Such a route would not be an alternative, but an integrative one, make no mistake about it. Europe applies the same kind of politics as Italy, but on a larger, continental scale (conversely, it could be said that Italy is Europe’s pilot study): sources, suppliers and routes should be differentiated, so that if one should, perchance, hit a crisis, the country and/or continent wouldn’t have to suffer the consequences but use a different route or supplier instead.

At present, the pipeline supplies for Europe and Italy run from the North Sea, Russia and the southern route, specifically Algeria and Libya. A certain amount of “liquid supplies” (LNG), counting for about 15% of the total and slowly creeping up, is also available. It’s therefore only in the best interests of Italy and Europe to have an additional, integrative route from the East. Eni knows it has accomplished a great deal and has made it clear to EU institutions that migration is not the only issue in the Mediterranean and that much more is at stake, such as energy as a means for integration between south shore and north shore.

To conclude, and improbable scenarios aside, at this moment in time Europe’s supply from Russia, through pipelines and LNG, is substantial: almost 40% of the total (between 150 and 200 billion cubic metres). This state of affairs wouldn’t change even if the Middle East were to become, at some point in the future, a gas hub, as it wouldn’t supplant current routes but provide an auxiliary one. Indeed, just to get the idea, the first segment of the TAP-TANAP pipeline (which from Azerbaijan crosses Turkey and Albania and finally reaches Italy) holds 10 billion cubic metres of gas. Theoretically, the EastMed pipe would hold 10 billion cubic metres and the Idku and Damietta facilities can liquefy 18 billion cubic metres, but the Northern Stream’s volume alone is of 65 + 65 billion cubic metres. Thus, quantities aren’t comparable, although it is clear to see that the ability to draw from different sources would permit Europe and Italy not to have to rely exclusively on any single supplier.

 

The author: Alessandra Pierro

Graduated in philosophy, copyeditor and content curator.