New discoveries and higher oil prices have set off a quest for exploring for more gas in the Eastern Mediterranean, with Lebanon among the latest to join the race.
The country, which has been historically energy deficit and dependent on fuel imports that added to its debts, launched its first licensing round for offshore gas in 2017, with exploration work set to begin this year by consortium led by French energy major Total.
In May, the Lebanese Petroleum Authority, the government agency overseeing the upstream licensing rounds announced plans for a second one this year.
Egypt and Jordan, meanwhile, have both finalised gas supply agreements from the Leviathan field in the Mediterranean Sea, operated by the US-based Noble Energy.
Khaled Z Irani, a former Jordanian energy minister, said that imported gas supplies would be critical to ensuring power requirements are adequately met.
Jordan, which sits on top of some of the world’s largest oil shale reserves will look to develop them in tandem with its ongoing renewable energy programme. The country could also potentially tap Lebanese gas, if discovered and developed, via a planned Iran-Iraq-Syria pipeline that may link with Lebanon.
"It's always an option because the pipeline has reached Syria. This will be a good network to be able to import and export within the whole region," Malek Kabariti, also a former minister for energy in Jordan, told The National.
“Already more than 70 per cent of electricity is produced using imported gas," he said.
Attarat Power, a Jordanian affiliate of Estonian-owned Enefit, announced in March that its plan to build a $2.1 billion oil shale-fired power plant in Jordan had secured financing from a consortium of Chinese banks.
"The direct burning electricity plant has already been commissioned. Jordan will continuously import gas not only to produce electricity but also to develop a network for municipal use and industry,” Mr Irani said.
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Stephen Fullerton, research analyst, Mena upstream at Wood Mackenzie, said hopes of turning gas into cash was driving ambitions in the region.
"At the moment in the East Med there is a dash to commercialise gas discoveries. Large volumes of gas have been discovered in Egypt ... and Cyprus, with all companies involved looking for export routes.
“There is exploration ongoing in the region as well, which has the potential to yield yet more discoveries,” he added.
Plans for exploration come on the back of large-scale discoveries in the Eastern Mediterranean that have become game-changers for the economies of Egypt and Cyprus. A 2010 US Geological Survey estimated that the Levant Basin in the Eastern Mediterranean could hold as much 122 trillion cubic feet of gas, which equals the total reserves of Iraq, the Middle East’s second-largest crude producer.
Early interest in the potential for Levantine gas followed discoveries of the Tamar and Leviathan gasfields at the turn of the decade. Egypt followed suit, with Italian major Eni striking gold in 2015 when it discovered the Zohr gasfield, which has the potential to put an end to the North African state’s power woes and transform it into a gas export hub. Eni is also pushing ahead with exploration work this year in the Nur field off the coast of Sinai, which some suggest could hold up to three times the volumes of gas in Zohr, which is itself estimated to hold 850 billon cubic feet of gas. Eni, which has had a successful exploratory venture in the Mediterranean, announced in February that it had found a “Zohr like” gas discovery offshore Cyprus, which could potentially yield promising amounts of gas.
Lebanon, which prioritised its stalled gas exploration programme soon after it formed a government early last year, received bids by a consortium of Total, Eni and Russia’s Novatek.
While the initial round cannot be described as “successful”, it is not surprising that Lebanon had chosen to initiate a second round this year as oil prices surged to three-year highs, noted Carole Nakhle, chief executive at London-based Crystol Energy.
“[Lebanon] managed to attract one consortium of oil majors. This reduces the risk perception for other investors who may now be more encouraged to bid,” Ms Nahle said.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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