A gigantic natural gas discovery in the Mediterranean over the weekend, hailed as a “gift from heaven,” could be both a blessing and a curse for U.S. natural gas exports expected to ramp up in the next few years.
Italian energy company ENI announced the discovery Sunday, calling it a “super giant” and the largest natural gas find in the region, and potentially the world.
The discovery in the Zohr gas field “is the largest gas discovery ever made in Egypt and in the Mediterranean Sea and could become one of the world’s largest natural-gas finds,” ENI said. The Zohr field comprises about 40 square miles.
The oil company, working through a concession with Egypt through its subsidiary, said it plans to begin ramping up production quickly. It also suspects the discovery is just one of several major finds in the region off the coast of North Africa.
The news was initially taken as a good sign for Europe, as potentially a new stream of supply for the continent and a hedge against Russian imports. If that were true, it may have thrown a wrench into U.S. natural gas companies’ plans to export their gas to Europe in a few years.
The International Energy Agency projects the U.S. becoming a major gas exporter in 2020. The industry has been lobbying for a swifter approval process for export licenses. In July, the Senate Energy and Natural Resources Committee passed a bill that would expedite the approval process. That bill is expected to go to the full chamber for a vote in the fall, aides say.
But Europe’s prospect were dashed in the last 36 hours, as Egyptian officials said the gas developed in the newly discovered field will be used for the country’s own consumption and that exporting was not being considered for the immediate future.
“This field is now in competition with the ones in Cyprus, Israel, Mozambique, Tanzania and Iran,” an analyst at Societe Generale SA in Paris, told Bloomberg News in an email Tuesday. “But as we are short of growing demand, especially in Europe, and short of money, only projects that will find a win-win solution with buyers will go ahead.”
U.S. producers are remaining quiet about the find, with a spokesman with the American Petroleum Institute saying anything the industry would have to say about the discovery now would be speculation. Carlton Carroll says he is leaving it up to the analysts to say where the market is headed.
Israel is livid about Egypt’s decision to use the gas from Zohr for it own consumption. Israel was betting on Egypt buying natural gas developed from its Leviathan field to feed the growing market.
Analysts also say Russia may be hurting if Egypt seeks to back out of a five-year deal to receive liquefied natural gas imports from Russia in favor of its own supply, according to Oilprice.com. Russia is the second-biggest producer of natural gas in the world after the United States, which has become number one in recent years.
Oilprice.com says not to expect Egyptian natural gas to explode on the energy market any time soon. The trend line points to 2020 as “an optimistic target” for Egypt to begin ramping up, Colin Chilcoat with Oilprice said. “But, even a modest return to form … presents some headaches for a Russia fighting to maintain and/or expand its market share on all fronts.”
U.S. government projections and private analysis indicate that the natural gas market is becoming increasingly competitive, with several regional players fighting for market share. They suggest the Zohr discovery is the latest in that fight.
The U.S. Energy Information Administration shows gas giants such as Qatar have made infrastructure upgrades to sustain production and exports of natural gas. Qatar is a leading supplier of natural gas worldwide.
Algeria, the reigning king of natural gas in North Africa, is seeking to make strategic upgrades to its hardware to be a more competitive supplier to Europe and surrounding nations, according to Energy Information Administration project manager Faouzi Aloulou.
The agency says the U.S. is expected to become a net natural gas exporter in 2017. The Federal Energy Regulatory Commission has approved six export terminals for liquefied natural gas, five of which are under construction. The commission shares the approval process for licensing the facilities with the Energy Department.
