• 4 minutes Europeans and Americans are beginning to see the results of depending on renewables.
  • 7 minutes Is China Rising or Falling? Has it Enraged the World and Lost its Way? How is their Economy Doing?
  • 13 minutes NordStream2
  • 5 hours Monday 9/13 - "High Natural Gas Prices Today Will Send U.S. Production Soaring Next Year" by Irina Slav
  • 3 hours California to ban gasoline for lawn mowers, chain saws, leaf blowers, off road equipment, etc.
  • 5 hours "Here is The Hidden $150 Trillion Agenda Behind The "Crusade" Against Climate Change" - Zero Hedge re: Bank of America REPORT
  • 3 days "A Very Predictable Global Energy Crisis" by Irina Slav --- MUST READ
  • 19 hours U.S. : Employers Can Buy Retirement Security for $2.64 an Hour
  • 1 day Nord Stream - US/German consultations
  • 3 days An Indian Opinion on What is Going on in China
  • 3 days Can Technology Keep Coal Plants Alive and Well?
  • 4 days Succession Planning in Human Resources for Vaccinated Individuals in the Oil & Gas Industry
  • 8 hours Forecasts for Natural Gas
  • 17 hours Australia sues Neoen for lack of power from its Tesla battery
  • 3 days Storage of gas cylinders
  • 4 days Two Good and Plausible Ideas about Saving Water and Redirecting it to Where it is Needed.
Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set…

More Info

Premium Content

The Most Anticipated Licensing Round Of 2021

The energy markets have seen several major upsets during the 21st century yet one can state fairly confidently that the market slump of 2020-2021 has triggered the most damage of them all. This is also true for international licensing where dozens of rounds were delayed, either to 2021 or indeterminately, for fear of not generating enough interest amidst drastic CAPEX cuts and massive divestment schemes. The end result is that 2020 was the weakest year in terms of total acreage awarded to oil and gas companies since 2002 (0.35 million km2), roughly a third of what it was in 2019. The price rebound of February-March 2021 will provide a suitable springboard for new licensing round – it is this momentum that Egypt will try to capitalize on with its latest licensing round.  Egypt’s last licensing round was held in 2019, then the Red Sea auctioning saw 3 blocks allocated between Chevron (Block 1), Royal Dutch Shell (Blocks 3 and 4) and Mubadala Petroleum (Block 4). Although a much-needed step to tap into a freshly opened-up area – Egypt and Saudi Arabia demarcated their Red Sea territories only in 2017 – Cairo failed to market all the 10 blocks that were on offer. Then came another licensing round that focused on the Western Mediterranean in early 2020, the state-owned Egyptian Natural Gas Holding (EGAS) was supposed to offer 11 blocks. This endeavor never really materialized, instead Egypt’s Ministry of Petroleum and Mineral Resources awarded 7 blocks via direct negotiations to Western majors that supposedly were financially, technologically and organizationally ready to develop offshore projects in the Mediterranean. 

Related: The Future Of U.S. LNG Hangs In The Balance
The new licensing round comprises 9 offshore blocks in the Mediterranean and 3 blocks in the Gulf of Suez, as well as 12 onshore blocks managed by the Egyptian General Petroleum Corporation (EGPC) in Egypt’s main oil-producing region, the Western Desert, with bidding set to conclude on August 01, 2021. There are many reasons to be excited about new Eastern Mediterranean acreage being offered, especially blocks that are so close to the supergiant Zohr field and might potentially utilize the infrastructure already in place, however, it needs to be said that Egyptian authorities have done their utmost to promote investment into heretofore untapped frontiers. Having demarcated the Saudi-Egyptian maritime border, Egypt has signed a delimitation covenant with Greece in October 2020 and sorted out most of maritime disputes with Israel. 

As attractive as the prospect of new Mediterranean acreage would seem, there is a geopolitical catch in Egypt’s current licensing round, namely the overlapping of several offshore blocks with disputed maritime borders:

  • Block MED-W11 overlaps with Libya’s claimed maritime borders
  • Blocks MED-E4, MED-E5 and MED-E6 overlap with assumed maritime borders of Gaza (potentially Israel)

Whilst Cairo has the political clout to settle any future issues with Gaza, i.e. creating a joint scheme of developing any prospective fields by tying-in offshore output into the Egyptian LNG system, it can hardly do anything with Libya. First and foremost, there is no way of concluding a comprehensive agreement with Libya whilst it has two competing governments. Second, even if there were a unified Libya there is no guarantee Tripoli would want to conclude a covenant that it might perceive as being deleterious to its national interests. 

In addition to all the above-mentioned factors, there is also one country, taking a most active part in the Libyan conflict and generally seeking to exert its influence in the Mediterranean, a country that is almost certain to react to Egypt’s offshore licensing, Turkey. All three blocks that are up for grabs in the westernmost part of Egypt’s territorial waters (MED-W11/W17/W18) are delineated according to the bilateral agreement between Egypt and Greece, a covenant whose legitimacy Turkey fully dismisses as being “worthless” (in the words of President Erdogan) on the grounds that there should be no maritime border between the two countries. Such claims are part of a long-standing standoff whereby Ankara has argued that Greece’s islands should not be taken into account when demarcating Libya’s Mediterranean frontier. The last weeks have seen a flurry of Turkish media reports stating that Ankara is on the brink of settling Turkish-Egyptian maritime border, indicating that Turkish authorities would seek a diplomatic solution to solidify their further claims. 

Related: ExxonMobil Set To Outperform As Oil And Gas Prices Climb

Blocks MED-E1/MED-E2/MED-E3, to the north of Zohr, respect the 2003 Delimitation Agreement between Cyprus and Egypt. The Turkish-run Republic of Northern Cyprus, however, is almost certain to claim almost all of Cyprus’ exclusive economic zone. Unless prospective plays extend across the maritime border, the frontline of the Egyptian EEZ is demarcated well enough so as not to trigger any immediate reaction, though even here future drillers might opt for the “Total scenario”, i.e. drilling in diplomatically fireproof parts of the licensed territory (as it was the case with the French major in Lebanese waters). Perhaps ironically, the Israeli-Egyptian maritime cooperation is the most robust amongst all members of the Eastern Mediterranean drilling quintet. 

Simultaneously, the long-term future of onshore production in the Western Desert remains an open question. The thing is that whilst offshore acreage in the Mediterranean is expected to generate ample interest, Western majors seem to be intent on divesting Western Desert assets. For instance, Shell has sold its upstream assets (29 blocks overall) in the Western Desert to Cairn Energy and Cheiron Petroleum for $646 million in early March 2021. Before COVID hit, the Anglo-Dutch major expected to generate $1 billion from this transaction, indicating that it was ready to settle for less given the circumstances. Concurrently to the above, the US-based Apache is planning to spud almost two dozens of wildcats in the Western Desert, thus there remains hope of maintaining Western Desert production over the longer term. 

By Viktor Katona for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News