Paul Cochrane reports from Damascus
Petroleum Review August 2009
THE EURO-MASHREQ gas pipeline that runs 1,200 kilometers from Egypt through Jordan and Syria to Turkey has taken 20 years to come to fruition. The end is in sight however, with the project awaiting a final tender for the last leg through northern Syria. But while the pipeline is already pumping gas from Egypt to its eastern neighbours, there are currently doubts over Egypt's ability to meet burgeoning demand, while secure distribution contracts still have to be inked.
The pipeline (its acronym is EAM) is set to be fully finished and operational by 2011-2012 - later than expected. The reason for the delay is the re-tendering of the 62 kilometre leg between Syria's second largest city Aleppo, in the north of the country, with the Turkey border town Kilis.
In October, 2008, a US$71 million contract was awarded to Russia's Stroytransgaz, but annulled earlier this year. “The Aleppo-Kilis phase is being re-tendered due to the fall in energy prices and Syria hoping to get a better deal through a competitive tender,” said Richard Kupisz, team leader of the Euro-Arab Mashreq Gas Co-operation Centre (EAMGCC) in Damascus.
The bidding process is currently under technical evaluation and expected to be signed in the later half of the year. Once underway, the pipeline will take an estimated 18 months to complete. “The route is not very difficult, a smooth terrain. In the past we laid one kilometre or more of pipe a day, so once in operation, goes quite quickly,” said Naeem Danhash, Project Director of the EAMGCC. “The only issue is the big values.”
From Kilis, a 15-kilometre, 12-inch pipeline is needed to connect into the Turkish grid, where it could potentially tie into the proposed Nabucco pipeline. Danhash said the reason the Aleppo-Kilis route is to be completed before the 180-kilometre Furglus (east of Hama in central Syria) to Aleppo link in the pipeline, is that it is the fastest way to link to Turkey. He said the gap will be offset by the current Syrian grid, with the current Furglus-Aleppo pipeline to be expanded from 24-inches to 36-inches to boost capacity. “Syria is keen to import gas via Turkey, so the government is funding most of that [development] along with the Arab Fund for Economic and Social Development,” said Danhash.
The final stage, to secure contracts between producers and consumers, has yet to be completed, raising concerns over the financing of the EAM. “What is important for financiers is sales contracts from governments - it could be between Egypt and Bulgaria, or Lebanon and Iraq - but we don't have that,” said Danhash.
The pipeline’s route to Lebanon, which splits from the Homs to Banias route (on the Syrian coastline), and runs 32 kilometers to Tripoli in northern Lebanon, has been completed for about five years. Kupisz said that the Lebanese government has drawn up a draft agreement with Egypt for 600 million cubic metres (mcm) of gas per year for delivery this August. But the EAM is still awaiting certification from Beirut, attributed to continuing political animosity between the Lebanese and Syrian governments. With a new Lebanese parliament elected in June, there is high expectation that Beirut will green-light the flow of gas via a swap arrangement, with Syria using Egyptian gas and then pumping Syrian gas to Lebanon.
In Syria, domestic consumption of gas transported from Egypt will be primarily purchased by the Syrian Gas Company. Onward arrangements to Lebanon, Turkey and Europe have not been arranged yet, with Kupisz saying it was still too early to do so.
“In Turkey, at least 70 licences have been issued for private gas distribution, so more likely to be a private company that will get the distribution licence [for the EAM in Turkey],” said Kupisz.
Looking at supply issues, the two main gas suppliers in the EAM are Egypt and Syria, with Egypt the crucial provider.
At present, Egypt exports 2.5 mcm/d through the EAM, with 2mcm/d earmarked for Jordan and 0.5mcm/d to Syria. “Officially this should be increased to 6mcm/d and afterwards to 9mcm/d, but nobody knows [if this will happen],” said Kupisz.
Syria produces 21-22mcm/d of gas, with some 4-5mcm/d used for gas injection into fields or as burn off, leaving around 16mcm/d for electricity generation and industrial use, said Ziad Ayoub Arbahe, an energy consultant in Damascus. At present this is sufficient, but with power plants to come online in the next few years and electricity demand growing by 10 percent a year, Syria will need to offset the supply gap.
Such uncertainties have clouded the viability of the project to deliver adequate gas requirements, one of the issues that has plagued the neighbouring Nabucco project, which would pipe gas from central Asia via Turkey to Europe.
“Neither the Mashreq pipeline or the Nabucco pipeline are in a position to be realised, and neither has received enough financial backing,” said Graham Coop, general council at the Energy Charter Secretariat in Brussels.
The success of the EAM hinges on Egypt being able to ramp up gas output to meet rising demand for a ballooning population (currently estimated at 79.4 million but projected to reach 100 million by 2021), meet other export commitments, and develop future projects, such as the possible expansion of the Spanish Egyptian Gas Company (SEGAS) LNG complex in Damietta, and the framework agreement with Italy's ENI to build a second liquefaction train.
“There is enough gas [for Egypt] to meet current commitments, but for the major projects, these need to be underpinned by further discoveries,” said Craig McMahon, a North Africa analyst at energy consultants Wood MacKenzie.
It is currently a matter of what Cairo considers a priority: using energy as a political tool within the Levant, or exporting gas to Europe according to fluctuating seasonal demand and for higher prices.
“For Egypt the pipeline is one option, but it could equally expand LNG infrastructure, so there are a number of competing actors,” said McMahon. Cost preferential agreements have been signed between Egypt and Jordan, Syria and Israel. But with Cairo keen to access hard currency, such markets might not be always economically preferential. Adding to this is the geological complexity and depth of Egypt's gas fields, seriously boosting the cost of extraction. “If Egypt has the potential to sell gas through LNG and at international gas prices, why not do it?” said McMahon.
While the guaranteed success of the EAM is still in doubt, developments could secure gas volumes if the countries involved become full members of the Energy Charter Secretariat. The Energy Charter treaty promotes four main areas: trade on World Trade Organisation principles, freedom of transit, energy efficiency and investment protection. If countries violate the treaty, sanctions can be imposed. Asked whether current observers Jordan and Egypt signed up as full members this would benefit the EAM, Coop said: “It would certainly add security to the project and for the European Union.”
While analysts question Egypt's ability to extract enough gas, McMahon is actually optimistic Egypt will provide. “There is every reason to be optimistic, although we need further exploration success and to see those wells drilled,” he said. “But it is hard to imagine increases from Egypt in the shorter term.”
All is not lost
All is not lost however if Egypt is neither legally required to pump gas via the EAM or able to meet demand. An estimated 40% of Syria has not been prospected for gas. “Potentially we could find huge reserves,” said Arbahe.
Piping gas from Qatar and Iraq to Syria, and from Iran via the Nabucco network are other options. “If a pipeline comes from Iraq or Qatar there would be a principle pipeline, and a viable network,” said Arbahe.
Iraq is considered the most viable option, with the Akass field in the west of the country only 50 kilometres from the Syrian network. “They have spare capacity, and the Akass region is not a big market, so it is logical to go to Syria,” said Kupisz. A contract has been signed for 1.5mcm/d to be processed in Syria for domestic or export use, but is currently under a new licensing round in Iraq.
Longer term, gas from central Iraq could be connected to the EAM pipeline, potentially able to provide 30mcm/d over time.
“International oil companies are looking at it, and attracting great interest, although Iraq's infrastructure is not developed,” said Danhash. “But the medium to long term prospects for Syria to become a gas hub are excellent.”
"The Iraqi supply could ultimately be the answer," concluded McMahon.
Photo courtesy of the EAMGCC