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Private Equity Scrambles To Buy Assets In This Emerging Oil & Gas Hotspot

A little known investment vehicle-based in Cyprus is raising US$5-10 billion for acquisitions of underutilized natural gas assets in the Eastern Mediterranean, Bloomberg’s Yaacov Benmeleh wrote this week, noting the assets included production facilities operated by supermajors such as Exxon and Shell spanning Egypt, Israel, and Cyprus.

The firm, Cynergy Group, is negotiating the fundraising with “some of the most respected global family offices, private equity firms and sovereign funds,” its chief executive told Benmeleh. As to why it is focusing on this particular region in its natural gas investment push, Mike Germanos said asset consolidation would do the industry good as now there were too many assets that were either underutilized or straight away idled.

It is an odd fact that natural gas production assets and LNG plants could be idled at a time of soaring demand growth for natural gas but the Eastern Mediterranean is a special case politically, which is reason enough for investors to steer clear of it, and also legally, according to the Bloomberg report. At the same time, however, it is an attractive natural gas destination.

Major discoveries of gas have been made in all three of the countries collectively referred to as the Eastern Mediterranean in the report. Egypt has the ambition to turn into a major regional player in natural gas after the political situation began to calm down after the Arab spring rebellion and trouble with fundamentalists, and earlier this year it even resumed LNG sales after a five-year pause. The resumption of exports took place at the Idku LNG plant, which Bloomberg’s Benmeleh listed among assets that could become targets for Cynergy Group.

While Germanos did not name any assets he and his team had in mind when the money was raised, some of the others that could be considered underutilized or idled include the giant Leviathan gas field in Israel as well. It is one of the largest gas discoveries in recent years and has led Israel to stake a claim in the regional gas market. Operated by Israeli Delek Group and U.S. Noble Energy, Leviathan holds an estimated 605 billion cu m of natural gas and production at some 1 billion cu ft (28.3 million cu m) daily to date. Leviathan is definitely a tasty morsel for anyone interested in gas.

There is also another LNG plant in Egypt among assets that Cynergy Group might be interested in—Union Fenosa’s and Eni’s Damietta project—as well as two gas fields in Cyprus.

The Damietta plant was idle for seven years after the feed of gas was cut off in 2012 after the revolution that wreaked havoc on gas production in the country. LNG production and exports from Damietta were only resumed earlier this year because Union Fenosa agreed to drop a US$2-billion arbitration it had filed against the Egyptian government (the largest stakeholder) for losses suffered during the period of suspension of operations.

Related: China Set To Defy U.S. Sanctions On Iran

In Cyprus, two recently discovered fields could draw the attention of Cynergy Group, according to Bloomberg’s Benmeleh. The first is the Aphrodite field, just 30 km from the Leviathan in Israeli waters. The field is part of Block 12, which is estimated to contain some 3.6-6 trillion cu ft of natural gas. The operators, including Delek again, along with Noble Energy, and Shell, recently struck a gas supply deal with the Egypt LNG facilities to get the gas from Aphrodite to international markets.

The second discovery, Glaucus-1, was made by Exxon and Qatar Petroleum earlier this year and is ranked the third-largest gas discovery off the Cypriot coast. It contains an estimated 682 million barrels of oil equivalent, of which about 90 percent is natural gas.

There are assets to pick from, certainly, and Cynergy Group may be just the first of several investment projects for the region. The largest discoveries in the Eastern Mediterranean are relatively close to each other and the deal between the operators of the Aphrodite field and Egypt LNG plants suggest partnerships are an obvious way of utilizing these assets in a mutually beneficial way.

This means lower costs and internationally competitive LNG. Amid tightening competition, this should be quite an attractive idea despite Israel’s chronic geopolitical problems and the equally chronic hostility between Cyprus and Turkey, which has already spread to natural gas exploration after Turkey decided to start drilling in Cypriot waters.

By Irina Slav for Oilprice.com

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