1. Dr. CHARLES ELLINAS
CEO e-CNHC
Overview of the East Med Landscape
Cyprus & The Region
Global Oil&Gas
Black Sea and Mediterranean
Athens
23-24 September, 2015
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2. Contents
• East Med Overview
• The advent of Zhor
• Implications for Egypt
• Implications for the Region
• Challenges for Cyprus
• Cooperation between Cyprus and Israel
• Messages from Europe
• Looking the future

3. East Med Overview
¨ The discovery of Zhor by ENI has given Egypt a massive boost but
has turned East Med plans and thinking upside down
¨ In the meanwhile Israel is hoping to overcome its regulatory
problems soon and reconsider development of Leviathan in the light
of Zhor
¨ Lebanon is still at a standstill with no sign of moving forward yet
¨ Finally, in Cyprus the negotiations between Greek and Turkish
Cypriots are progressing well, with increasing hopes that over the
next few months we will have an agreed solution
¨ In this context, any delays in the development of the Aphrodite gas
field and resumption of exploration drilling are perhaps a blessing in
disguise as these take a bone of contention out of the limelight

4. The advent of Zhor
¨ ENI announced the discovery of the Zhor gas field in Egypt at the end
of August. If they knew about this earlier they kept it to themselves,
which allowed them to negotiate a good gas price deal with Egypt two
months earlier, in the range $3.95-$5.88 per mmBTU
¨ Zhor is located in the Shorouk block about 190km offshore and close
to the EEZ dividing line between Cyprus and Egypt. It is in 1450m of
water and the reservoir extends over an area of about 100 sq.km. Initial
estimates put it at 850 bcm lean gas, but ENI has indicated that more
gas lies beneath this reservoir which may extend quantities to 1.1 tcm
¨ Once confirmed, this could increase Egypt’s proven gas reserves by
over 50%
¨ ENI intends to start appraisal drilling in January and understandably
has placed development of Zhor on a fast track basis. First gas is
expected in 2019, with full development by 2020.

5. East Med exploration blocks
and gas fields
Zhor

6. Implications for Egypt
¨ This is a massive boost for Egypt’s economy and has the potential to
completely reverse its current energy status quo.
¨ But this is no accident or merely lack. It’s the outcome of Egypt’s new
energy policies. They embarked last year on a programme to repay the
enormous debt to the IOCs and expect to complete it by next year
¨ In parallel, they renegotiated gas prices from $2.65 per mmBTU to
prices in the range $3-$6 per mmBTU and implemented a plan to
encourage exploration and become self-sufficient in energy by 2020
¨ These measures reversed the state of paralysis caused by earlier
misguided policies which turned Egypt from an exporter to an importer
of LNG, despite their abundant oil and gas resources
¨ Egypt now imports about 6 mtpa LNG at a cost close to $20 billion.
Once it comes on line, Zhor will reduce this by 60%. Hence the fast
track development

7. Implications for Egypt
¨ In addition to Zhor, ENI discovered recently another smaller gas field
and BP has embarked on a $12 billion project centred around
development of the North Alexandria gas field which holds over 150
bcm. Dana and Shell are also committed to more exploration
¨ ENI has already announced an ambitious plan to turn Egypt into a
regional energy hub to supply Europe and beyond. This could include
gas from Israel and Cyprus
¨ But this should be viewed with caution. There are many challenges to
be faced. Cypriot and Israeli gas will cost between $6-$7 per mmBTU to
land in Egypt. By the time liquefaction, transportation, regasification
and profits are added to this costs may exceed $12 per mmBTU.
¨ This cannot compete with LNG prices in Europe and Gazprom’s current
prices of about $6.2 per mmBTU, except at a loss. And then there are
serious security risks

8. Implications for the Region
¨ Nevertheless ENI will proceed with development of Zhor and it may
have enough gas not only to supply Egypt all the additional gas it
needs for its domestic needs, and replace LNG imports, but also to
supply gas to the two idle LNG plants at Damietta and Idku, with LNG
exports to resume by 2020 0r 2021
¨ This makes Egypt self-contained, but it leaves Israel and Cyprus with
the problem of having to rethink their export plans. These centred
around selling their gas to Damietta and Idku, but as we saw earlier
this was always commercially difficult. The discovery of Zhor will
probably put an end to these. In the meanwhile negotiations continue
¨ On the positive side, the discovery of Zhor reconfirms that the East
Med is prolific in gas and could spur new interest in the region
¨ It is an opportunity for Cyprus and Israel to refocus their attention
and start thinking seriously about new licensing rounds and more
exploration to coincide with oil price recovery.

9. Egyptian domestic gas supply
by WoodMackenzie
Zhor will add 15 bcm
by 2022, but can produce
30, leaving 15 bcm for LNG
LNG imports will stop by 2020

10. Challenges for Cyprus
¨ In January Total declared that it could not locate any targets to drill in
Blocks 10 and 11 and in March it signed an agreement extending its
presence in Cyprus by one year to conduct geological and geo-
chemical surveys, but no drilling, in and around Block 11. It is hoped
that they will announce results in October
¨ In March, following drilling two unsuccessful wells in Block 9, Eni-
Kogas submitted a request to proceed with the re-evaluation of the
geological model over a two-year period and postpone drilling in the
meanwhile. This has been approved by the government
¨ Noble and its partners are not carrying out any further drilling in
Block 12 for the foreseeable future
¨ As a result, all exploratory drilling in Cyprus’ EEZ has stopped and
plans for future drilling will be delayed, possibly for two years

11. Cyprus – new licensing round
¨ The negative results from ENI and Total were a setback for Cyprus
and its ambitions, but we now need to take advantage of the
discovery of Zhor
¨ Cyprus needs to start preparing the ground for a new licensing round
by end of 2016 early 2017
¨ This should coincide with, hopefully, the successful completion of
the Cyprob negotiations and the much expected recovery in oil prices
¨ Zhor has opened up new hydrocarbon provinces, Eratosthenes and
Herodotus
¨ There are challenges though. Turkey is disputing much of this area.
Hopefully a successful resolution of Cyprob will also help resolve
this dispute

12. Cyprus’ exploration blocks
Levantine
Basin
Herodotus
Eratosthenes

13. Export options for Aphrodite
¨ Development of Aphrodite requires long term, firm, gas sales
agreements for most of its 125 bcm gas. Without these finance of the
project will be difficult.
¨ As we saw earlier gas sales to Egypt face challenges
¨ In the short term another option that could be considered is marine
CNG
¨ With southeast and central Europe still looking to diversify their gas
imports away from Russia, they offer a good market opportunity
which is within the commercially viable range of CNG ships
¨ If adopted, it could also supply Cyprus with gas for power generation.
Cyprus has the most expensive electricity in EU as it burns heavy fuel
oil. Similarly CNG could facilitate supply of gas to the Greek islands
¨ FLNG would be a longer term option, but capital intensive

14. Cooperation between Israel and Cyprus
¨ The potential loss of the Egyptian market also affects Israel. With its
loss, Cyprus and Israel have two markets left: Europe and Asia
¨ Assuming that the still lingering regulatory problems revolving around
the anti-trust issue with Noble and Delek are resolved in the near
future, Israel would need to reconsider its export options, which are
even more limited than for Cyprus
¨ At the forefront are exports to Turkey and Europe through a pipeline
through Cyprus’ EEZ, possibly linking with the Southern Gas Corridor
¨ A pre-requisite to this is solution of the Cyprob, which looks
increasingly likely
¨ It should then not be surprising that the new Israeli government and
Turkey are currently looking for a way out of their geo-political
problems. But this would require an acceptable formula to resolve the
siege of Gaza, a red line for Erdogan

15. Cooperation between Israel and Cyprus
¨ Resolution of Cyprob and the Turkey-Israel impasse would open the
way for such a pipeline
¨ It would also open the way for Cyprus to join such a project and thus
enable development of Aphrodite
¨ But the odds for this to happen are challenging and timing is an issue
¨ Another, longer term, option is to bring back to the table the LNG plant
at Vasilikos. With the combined Cypriot and Israeli gas this would be
viable, at least in term of quantities
¨ Such an option would take time to implement and by the time decisions
are taken and a plant is build it will be 2022-2024. By then based on
analyst projections LNG demand could outstrip supplies and lead to
higher LNG prices, thus making such a project potentially viable
¨ Whichever option is followed, it will require cooperation between Israel
and Cyprus, and possibly Turkey

16. Views from Europe
¨ I spent last week as part of a regional delegation and had high level
meetings with key German Ministries in Berlin and Directorates of the
European Commission in Brussels
¨ It was an eye-opener in terms of views about the East Med and gas
supplies to Europe.
¨ East Med gas is not a priority for Europe
¨ Europe wants to diversify supplies and avoid excessive dependence
on Russian gas, but not at any cost.
¨ In this context it fully supports the Southern Gas Corridor project
¨ The European position is that the energy sector should be regulated
by markets. State governments and the EU have no role in building
infrastructure, gas trading or producing and delivering energy – they
regulate. These must be driven by industry.

17. Views from Europe
¨ The major factors are gas prices and timing. Gas markets are
changing rapidly.
¨ East Med gas will have to compete with cheap gas at least to the end
of this decade if it is to gain an entry into Europe. In the end when it
comes to gas sales commercial realities prevail, not politics.
¨ Europe is interested in the East Med region, but mostly in terms of
ensuring its security and stability, and for political and economic
reasons
¨ The possibility of a gas pipeline through Cyprus EEZ to Turkey,
provided the Cyprus problem is resolved, to transport Israeli and
Cypriot gas and feed the Southern Corridor is of interest and would
receive support
¨ But East Med must secure markets, gas sales, first and meet time-
schedules

18. Looking to the future
¨ The global energy and gas scene has been undergoing rapid changes
and future policies and development plans can become rapidly
outdated unless reviewed and updated regularly. This also applies to
East Med and Cyprus.
¨ In Cyprus we may have a two-year window of opportunity to develop a
long term strategic master plan and organize future coordinated and
pro-active development of this sector.
¨ Solution of Cyprob will open up new opportunities, but also new
challenges and changes, to which we will need to adapt rapidly, once
the oil & gas sector comes under a Federal government