THE GOVERNMENT has begun negotiations in earnest with the companies and consortiums awarded offshore gas exploration licences.

Yesterday Commerce Minister Neoclis Sylikiotis held talks with representatives of Total E&P Activities Petrolieres, given the licence for offshore block 11.

A day earlier he had met with a team from the ENI-KOGAS joint venture picked for blocks 2 and 3.

Officials told the Cyprus Mail that talks with the consortium comprising Total, Novatec and GPB Global Resources BV (a Gazprombank subsidiary) – awarded Block 9 – would take place in early December.

The negotiations are aimed at getting the selected companies to improve their proposals in terms of both the technical and commercial facets

Full-blown talks could take weeks or months before exploration contracts are signed.

Block 9 is considered to be the ‘prime cut’ of the four prospects, having received eight bids in total.

But questions are being asked after it emerged that the government altered the order of ranking of the bids for block 9, eventually picking the Total-Novatec consortium despite its bid being graded fourth or fifth.

The government has denied anything untoward in changing the order of ranking for block 9, arguing that its final decision took into account additional parameters, such as matters of national security.

Two separate assessments of the bids were made: one by the French consultancy Beicip Franlab, the other by the energy service of the commerce ministry. But the final decision rested with the Cabinet, on the recommendation of the commerce minister.

There have been rumblings that some of the companies not picked are considering challenging the competition process.

Oak Delta NG Exploration Joint Venture, the Israeli-led group that bid for block 3 and was not picked, said yesterday it was disappointed with the Cyprus government’s decision but would not be taking legal action.

But Dr Eli Barnea, CEO of Sigma Explorations Holdings Limited – which has a 75 per cent stake and is the designated operator in the joint venture – said he is lobbying the Israeli officials to exert pressure on Nicosia “at the highest level”.

The joint venture’s proposal for block 3 incorporated the construction of a power plant on the island for exporting electricity to Israel and generating electricity for Cyprus’ local consumption, by linking the two countries’ grids.

“The project would have to be scrapped now after the bid decision,” Barnea said in a loaded comment.

“The relationship between the two nations should be reciprocal. If Cyprus is not interested in our energy security, why should we be interested in theirs?” he added.

Barnea said his joint venture’s technical proposal was graded the highest among the bids submitted for block 3 – yet the licence went to ENI-KOGAS.

“We are not saying that ENI-KOGAS should not have got a licence, they should, but so should have we,” he added.

“Cyprus should not make the same mistake as Israel when our government awarded several licences to Noble Energy and Delek, thereby creating a monopoly that drives prices up.”

As Barnea sees it, block 3 is potentially the most lucrative prospect because of its close proximity to the Cyprus shores – about 65km from Cape Greco.

Moreover, drilling there would cost far less – about US$40 million compared to US$100 million in other prospects – because of the lower sea depths in block 3.

Barnea argues that exporting natural gas is not the best option for Cyprus because the added value is not that high.

And according to the company’s own estimates, Cyprus would stand to make $10 per million BTU from exporting electricity, compared to just $3 per million BTU from exporting gas via an LNG terminal.

That’s because of the huge overheads associated with building an LNG terminal and accompanying infrastructures.

“Exporting gas is not for Cyprus,” said Barnea.

Published by: www.cyprus-mail.com