The gas market will become a regional market

The gas market will become a regional market

We have interviewed Emanuele Belsito, Partner and Managing Director at The Boston Consulting Group, after ENI’s discovery of a gas field off the Egyptian coast, to understand the potential implications of this discovery.

What does the gas field discovery mean for Egypt? According to the latest news, Egypt said that the field will be entirely used to meet domestic demand.

This discovery is extremely important because it makes Egypt independent from import. This discovery may change the existing scenario: the Country is currently importing gas and it was considering the possibility of importing gas from Israel. With the new field, import will only act as a safety valve. Some facilities in Egypt are not being used and Egyptians were considering the possibility of “renting” them for export from gas fields in Cyprus and Israel. After Eni’s gas field discovery, which will be used to meet internal demand, this is even more likely to happen. However it will take a couple of years to build the infrastructures required to supplement existing facilities and to start exploiting the new gas field.

What are the implications of this discovery in terms of dynamics with other Countries such as Israel, Cyprus and the Middle East?

Israel and Cyprus, which were looking at Egypt as a potential market for their gas, are losing this potential export market. We should not forget that in the next few years demand is very likely to exceed supply in the LNG market. Therefore producing Countries will have to identify end markets for their gas.

Paradoxically, Egypt is in a better position compared to major producing Countries. It can now meet its internal demand, whereas exporting Countries will have to face a market where supply exceeds demand and having an end market will increasingly play a major role.

In fact, the situation is reversing. Spot market volumes will increase, prices will level off and the peaks that normally occurred until recently will no longer be the rule.

What are the impacts on the international community?

If prices actually level off, the energy market will become a “regional” market again, within Europe, North Africa, the Middle East, with no transoceanic transport of LNG. Egypt will be self-sufficient and the other Countries will operate within regional areas. The only gas which may cross the ocean is shale gas from the United States; but volumes are not big and I do not think it will be affected by the new field.

Egypt has recently started a solar energy development plan. What impacts will this new field have on it and what economic effects will it produce?

I think the two development plans will proceed in parallel. It will still be necessary to produce electricity and the solar energy development plan is not an alternative to the gas plan. Algeria for example experienced a similar increase in domestic energy demand (while keeping gas export unchanged) and started a solar energy development plan. We do not expect Egypt’s solar energy plan to be changed because it will supplement the existing gas development plan. As opposed to gas, solar energy does not need any particular infrastructure because it is based on distributed generation.

What are the external costs associated to this discovery in terms of environmental and safety impact?

From an environmental standpoint, gas that was previously imported will now be produced locally; therefore I do not expect any differential impacts. Gas will meet pre-existing local demand, previously met with imported gas. They are not replacing a clean source with a dirtier one: we are talking about the same source. Therefore I do not see any relevant impact. The gas previously purchased by Egypt is and will remain in the market; it will be purchased by another Country. There will be no major impact on the market, probably just price rebalancing.

Eni stated that extraction will start in 2018. What are the next steps from a technical standpoint? What impact will it have on costs?

The same steps followed in any field. There will be additional drilling; it will be necessary to define the network of the production sites, install submarine pipelines and connect them to existing pipelines inland before starting production. From a cost standpoint, this field requires more investment than an onshore field, but certainly less than an offshore field where the entire infrastructure must be built.

As far as you know, is ENI’s exploration funded by the World Bank or the Italian Government? What subsidies are normally given to companies such as ENI for exploration?

I don’t know, but I don’t think there are any subsidies. When a commercially viable discovery is made, as in this case, agreements are normally signed, under which the energy company pays for exploration costs, sometimes in partnership with a local national company; when production starts the company must pay royalties to the local Government and, in many cases, part of the production is withheld as cost reimbursement.

 

Belsito Emanuele Belsito

Emanuele Belsito graduated from Turin’s Politecnico and obtained an MBA from SDA Bocconi. In BCG, he has worked in the Utilities (Power & Gas) and in the Oil sectors. He has developed strategic and business plans for major players such as the hydrocarbons Business Unit of an Italian multiutility.

In Italy, he led the team set up to analyse the gas market evolution; he also worked on electricity market models for several European Countries. He participated in several due diligence plans relating to gas infrastructures (distribution, regassificators, storage). In the Oil sector, his activities include assessment of investment opportunities in infrastructures in Europe, efficiency improvement of refineries of one of the biggest players in Europe, contract analysis, contracting strategy and logistics for a large offshore/onshore project. He has been a partner since January 2015.  

Before joining the company, Emanuele Belsito worked as Technical Services Manager with Impregilo on several projects in China, Pakistan and Iceland.


Tags assigned to this article:
energy policyEni @enfossil fuelsgas @en

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