Chevron to Increase Sway Over East Med LNG

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Chevron’s influence over the future of East Mediterranean LNG looks set to increase after partners in Egypt’s Idku liquefaction plant failed to agree on further development of the main gas field feeding the facility. Cairo’s ambitions to become a regional gas export hub linking Africa, the Middle East and Europe remain undimmed, despite declining output from its mature fields. So unless another major discovery is made in its Nile Delta or in new acreage in the West Mediterranean, Egypt will again look to source gas from fields elsewhere in the East Med -- scene of some of the world's largest gas finds in recent years -- where Chevron now plays a leading role (WGI Sep.30'20). Shell Says 'Yes,' Petronas 'No' Egyptian Petroleum Minister Tarek el-Molla had asked the two Idku operators, Royal Dutch Shell and Malaysia’s state-run Petronas, to come up with a development plan for the West Delta Deep Marine (WDDM) field. This feeds gas to Idku, in which TotalEnergies also has 5%. But Petronas balked at the cost of developing the mature field, whose reserves could otherwise run down as early as 2024-25, says an industry source who used to work for one of the partners. "Right now, there is no clear cut answer on where feed gas will come from for Idku," the source says. "The presence of Chevron in East Med LNG will make Shell’s life harder, I think." Another source at one of the partners confirms that while Shell was prepared to invest in a 10th development phase at WDDM, Petronas was not, and an Egyptian ministry deadline to reach agreement has passed. "The development is not feasible any more." Earlier 9a and 9b phases raised output to some 300 million cubic feet per day (3.1 billion cubic meters per year) in 2020, but the field is in terminal decline. Production averaged 400 MMcf/d over the first four months of 2021, but full-year output is forecast to be closer to 360 MMcf/d. Shell inherited the field through its 2016 acquisition of BG, which also struggled to stave off decline. In 2013, for example, output was averaging 1.3 billion-1.4 billion cubic feet per day (WGI Aug.28'13). LNG exports from the 7.2 million ton per year Idku had started improving after shaking off the impact of Covid-19 last year, when they tumbled 61% to 1.34 million tons, according to the GIIGNL trade group. Exports totaled around 630,000 tons in January; by May, they had fallen to 200,000 tons, according to data firm Kpler (WGI May5'21). Chevron in the Spotlight The problems at home mean that Chevron’s future Phase 2 development of its 22 trillion cubic foot (620 billion cubic meter) Leviathan field offshore Israel will take on greater urgency for Cairo. That could potentially put the US firm at the heart of an emerging East Mediterranean regional gas play that could involve LNG exports. In total, Chevron sits on 35 Tcf of gross recoverable discovered resources as operator of Israel's Leviathan and 11 Tcf Tamar fields, and the 4.1 Tcf Aphrodite off Cyprus, courtesy of its takeover of US-based Noble last year. As operator of Idku, Shell would naturally like to control its own supply. It may hope to discover feedstock in its new West Mediterranean acreage, but the "government may not be willing to wait,” the industry source says. Shell confirmed last year that it had acquired operating stakes in the North Marina and North Cleopatra exploration blocks and a nonoperated stake in the Total-operated North Ras Kanais Block in the West Mediterranean. It also has operated stakes in Blocks 3 and 4 in the Red Sea, and in Blocks 4 and 6 in the West Nile Delta. Cairo Looks Further Afield In pursuit of its long-cherished goal of becoming a gas trading hub for the East Mediterranean region, Egypt has this year redoubled efforts to secure future gas supply for Idku and for the 5.5 million ton/yr Damietta, its other LNG export plant operated by Italy's Eni. In February, it agreed to pursue an intergovernmental agreement with Israel for a new offshore pipeline linking Leviathan to one of the two plants. It has not been decided which, but the industry source says that both are connected to the Egyptian gas grid. With a 35% nonoperated stake in Aphrodite, Shell is still hoping the Cypriot field will be developed to feed Idku. Cyprus and Egypt have agreed a government-to-government deal, but no agreements have been reached on volume or price. A final investment decision is still awaited, but Cyprus says first gas is provisionally scheduled for 2025 (WGI Jan.27'21). The source at one of the partners believes East Med regional gas is the only option for the Idku partners unless another major discovery is made near WDDM. According to another industry insider, Petronas' refusal to invest was sparked partly by concerns that Cairo might end up putting gas earmarked as LNG feedstock into the grid to ease domestic shortages -- as it did almost a decade ago, when Damietta was forced to close and Idku exports were cut to a trickle. But the partner source says Petronas wouldn't consider quitting WDDM or Idku. “It is a core business to them from a global perspective.” Tom Pepper, London

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