from possible gas reserves within offshore Block 3 is being “considered” by the

government, the Sunday Mail has been told.
The venture had bid for Block 3 but was not picked, the exploration licence ultimately

awarded to the Italian-Korean consortium of ENI-KOGAS.
But Dr Eli Barnea, CEO of Sigma Explorations Holdings Limited – which has a 75 per

cent stake and was the designated operator in the Israeli joint venture – said this

week that their offer still stands.
The Israeli-led group’s proposal on Block 3 incorporated the construction of a power

plant on the island for exporting electricity to Israel and for generating electricity

for Cyprus’ local consumption, by linking the two countries’ grids via a subsea cable.
Due to their geography, both nations are currently isolated in energy terms and

vulnerable to failures at their main power plants, argues Barnea, citing the Mari

disaster of 2011.
In that respect, a 1500MW capacity plant in Cyprus would be a win-win for everyone.
Barnea says the Cyprus government and the ENI-KOGAS consortium could be persuaded to

‘farm-in’ the Israeli-led joint venture.
One option might be for the Israelis to purchase part of the Block 3 gas from the

Italian-Korean consortium. They would then finance a natural gas-powered plant on the

island and sell the bulk of the generated electricity to Israel.
In addition to the jobs created in building a facility, Cyprus would benefit from

charging a fee for the export of electricity to the neighbouring country.
Barnea sees Block 3 as being ideal for the project, because of the prospect’s close

proximity to Cyprus shores – some 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.
Lower development costs in turn would yield lower electricity prices, making them

attractive to the Israeli market.
“With electricity, you need only be competitive on a regional basis. With natural gas,

on the other hand, you’re competing on a global level,” Barnea argues.
And electricity exports from Cyprus to Israel could begin from late 2015 or early

2016; by contrast, the option of exporting gas via a liquefied natural gas (LNG) plant

cannot be achieved sooner than 2020 or 2021.
Barnea holds that exporting natural gas is not the best option for Cyprus because the

added value is not that high. According to his 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.
The proposal is not a new one. It was brought to the attention of the Cyprus National

Hydrocarbons Company (CNHC) back in January through a detailed presentation.
And a month ago, Barnea expounded on the plan’s merits during a meeting with President

Anastasiades in Nicosia; the response from the president was “generally positive”,

says Barnea.
It’s also likely the idea was discussed between Anastasiades and Israeli premier

Benjamin Netanyahu during the former’s visit to Israel this week.
What’s changed since January is the financial crisis here, which has taken a sharp

turn for the worse.
“Before 2020 – and that’s being optimistic – LNG won’t be making a penny for Cyprus.

But if Cyprus can cash in on hundreds of millions of euros from electricity exports as

of 2016, for a period of 20 years, that’s a hell of an incentive,” Barnea says.
In the meantime, the CEO continues to lobby Tel Aviv.
Barnea aims to persuade the Israeli state to issue a conditional statement of intent

to purchase around €1bn of electricity a year from Cyprus.
And in an unmistakeable display of can-do attitude, the entrepreneur thinks he can get

that “in a month”.
To finance the approximately €5bn project, Barnea will be seeking an offtake agreement

backed by the state of Israel. An offtake agreement is a deal between a producer of a

resource and a buyer of a resource to purchase/sell portions of the producer’s future

production. It is normally negotiated prior to the construction of a facility (such as

a mine) in order to secure a market for the future output of the facility. If lenders

can see the company will have a purchaser of its production, it makes it easier to

obtain financing to construct a facility.
Offtake agreements are frequently used in natural resource development, where the

capital costs to extract the resource are significant and the company wants a

guarantee that some of its product will be sold.
Barnea also suggests the Electricity Authority of Cyprus and the Israel Electric

Corporation could be invited to co-finance and be stakeholders in the project.
Speaking on condition of anonymity, an energy official here called Barnea’s pitch

“both serious and worthy of consideration.”
What makes the proposal interesting, the source said, is that it does not rule out the

LNG project – the stated cornerstone of Cyprus’ energy plans.
“Rather, the two can be complementary,” the source said.

Published by: www.cyprus-mail.com