The oil and gas industry can deal with low oil prices, up to a point, by making itself more efficient. In contrast, there is little it can do about geopolitics and one of the places that is most evident is the Mediterranean.
The region has long been home to oil and gas production, but it has been facing geopolitical unrest in north Africa, major new gas basins bringing pivotal nations into energy independence in the eastern Mediterranean, with new and old energy powers, such as Russia exerting its influence, highlighting the risks of energy reliance.
All of these issues and more are set to be discussed in the opening plenary session of Offshore Mediterranean Conference (OMC) in Ravenna, Italy, today (25 March), chaired by Eni CEO Claudio Descalzi.
One of the speakers is Bruno Lesoeur. As CEO of Italy's Edison, sitting in the center of it all, Lescoeur has a keen eye on the potential and challenges in the basin.
He spoke exclusive to OE, which is media sponsor of OMC, about some of the opportunities and challenges in the basin.
OE: Has the role of gas in the Mediterranean energy mix changed since OMC Ravenna 2013?
“The Mediterranean has demonstrated itself to be one of the most dynamic areas in the world-wide gas business. In the Northern Mediterranean countries, gas is being considered the fuel of transition towards a decarbonized future, even if the economic downturn is preventing gas consumption growth in absolute terms. The current drop in oil prices will probably boost the demand for gas as a substitute for coal, provided that it doesn’t hamper the investments needed to grant the necessary security of supply.
“At the opposite end of the scale, gas has fueled the sustained growth of Southern and Eastern Mediterranean countries. If we look at the North Africa Region, for example, Egypt is a developing country with an interesting growth rate which has produced in recent years an increase in natural gas demand at 6% on average per year.
“During 2014, Egypt consumed 51 billion scm of gas – which represents more than 50% of the national primary energy mix - becoming the second largest gas market in the Mediterranean. In the same way, but for different reasons, Israel is also boosting natural gas penetration in the market, monetizing its domestic resources.
“In the last decade several Tera cubic feet of gas have been discovered in the Israeli offshore and the country has now reached gas supply independence registering and increase of the gas role within the mix. Turkey is also a fast growing country with increasing gas consumption. Moreover Turkey is gaining a strategic role in the future gas transits from east to Europe."
OE: What are the main opportunities in the Mediterranean for the offshore upstream industry in the next 3-5 years?
"The Mediterranean region still offers a lot of opportunities in the upstream, but the oil and gas industry should gear up to cope with the decrease of oil prices. I believe that if we bring efficiency to our operations, we will not restrain the development of supply from and for the region. The Eastern Mediterranean is one of the most interesting areas: I’m thinking of the Israeli offshore, Cyprus and the entire East Mediterranean region, which includes Egypt and the Lebanese offshore, where a new exploration bid round has been announced.
"Egypt will continue to play an important role in the industry, especially now that the country is well under way on the path of reforms and is making efforts to re-attract foreign investment, that will further develop the hydrocarbon potential. Finally, some Mediterranean countries are demonstrating a renewed interest for exploration and production: this is the case with Greece, Montenegro and Croatia, which last year launched new bid rounds and assigned exploration licenses in the Adriatic Sea. Obviously we hope that Italy won’t miss this opportunity for developing oil and gas in the Adriatic Sea, enhancing the country’s security of supply and economic development."
OE: What do you think will have the biggest impact on offshore oil and gas developments in the Mediterranean in the next 18-24 months, geopolitics or oil prices?
"The drop in prices will have for sure a significant impact in the short and medium term, but I think the industry is able to cope with that by working in a more efficient way. In comparison, geopolitics is not manageable at all. We should take in consideration that Eastern Mediterranean is the region destined to play the leading role in the offshore oil and gas developments in the next two years.
"Just think about the gas independence reached by Israel, which is now preparing to become an exporter to neighboring countries and therefore also to Palestine; think about the opportunities that are opening up offshore Cyprus and also at the open issues with Turkey.
"It is evident that geopolitics will be the main driver, also because the cost of producing gas in the Mediterranean offshore is definitely more competitive than many other alternatives in the world, like deep water or in Arctic environments, as well as having the higher net back given by the proximity to large consuming markets.
"In the recent past, Europe has directly experienced an exacerbation of international turmoil and the consequent impact on gas supply: the worsening of the conflict between Russia and Ukraine and the escalation of fighting in Libya have revealed significant risks related to the supply from the two countries.
"It is therefore essential to diversify gas supply, both in terms of routes and producing countries. Taking advantage of Italy’s position at the heart of the Mediterranean to provide new answers to European gas needs."
OMC continues until Friday. Find out more: www.omc2015.it
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