Europe has hopes Eastern Mediterranean gas reserves can help to diversify its supply sources, as well as easing Cyprus’s economic pain and potentially playing a role in healing the rift between the northern and southern parts of the island.

Charles Ellinas, executive chairman of the Cyprus National Hydrocarbons Company, said authorities would also push ahead with plans to develop a liquefaction plant to handle exports expected from 2020.

But gas from the region also comes with Middle East complications since the fields are split with Israel and Lebanon, two countries technically at war, and Turkey objects to ethnically split Cyprus tapping offshore reserves.

“I am very confident that Cyprus can provide Europe with 30 to 40% of its additional gas needs by 2025,” Ellinas told Reuters as part of a series of interviews on the gas market.

Europe’s gas demand is slightly below 500mn cubic metres a year, and Ellinas estimated the increase in demand by then to be around 100bn cubic metres (bcm) a year, although many analysts say demand will grow much more slowly.

The US Geological Survey estimates a mean 122tn cubic feet (3.5tn cubic metres) of recoverable gas lie in the eastern Mediterranean basin, as well as 1.7bn barrels of recoverable oil.

Much of it lies trapped beneath the sea bed between Cyprus, Israel and Lebanon, including two vast gas fields off Israel which are some the largest discovered in the past decade.

So far an estimated 200bcm of natural gas worth $80bn at current prices have been discovered in the Aphrodite gas field in Cypriot waters, but research suggests that developing the field would require large amounts of upfront investment into a project that may not deliver high returns.

Analysts say gas prices could fall after 2015 when a wave of new supplies become available in the US, Australia and Africa.

Consultants estimate the first phase of the LNG facility including infrastructure and one delivery chain will cost $6bn. One option under consideration for funding the project was to use the LNG sales agreements as collateral.

“Given that the ownership of gas is, roughly speaking, two-thirds Cyprus’s and one third to oil companies, these LNG sales agreements are worth a large amount of money which can provide security for loans,” Ellinas said.

Ellinas said there was a chance developing the gas could lead Turkey and Cyprus to bridge their 40-year differences.

“One of the reasons Turkey has been putting so much pressure on everybody is because of their own needs (for gas),” he said.

The gas windfall is one economic positive for Cyprus, where the terms of an EU and International Monetary Fund bailout will see the island’s €17.5bn ($22.51bn) economy shrink by more than 8% this year.

Despite its close business ties with Cyprus in other sectors, Russia does not have any involvement in the island’s attempts to develop its offshore energy sources.

“The Eastern Mediterranean is a secure, independent supply corridor. It’s probably best if Russia is not involved,” Ellinas said when asked about Russian involvement.

Cyprus has signed production sharing contracts with US based Noble Energy, France’s Total, Italy’s ENI and South Korea’s KoGas.

Ellinas said Noble was scheduled to start appraisal drilling in June to verify initial findings of between 5 and 8tn cubic feet (tcf) of gas. Total was scheduled to start an exploratory drill in 2014, and ENI by 2015 or possibly earlier.

“I have seen the estimates of ENI and Total about how much gas there is in their blocks and it is quite significant,” he said. Asked if the estimates were on a par with those of Noble, he said: “The short answer is yes.”

Ellinas, who previously held senior positions at energy firm Mott MacDonald, said the construction of a pipeline to channel the gas to markets was impractical because of sea depths, but said that could not be ruled out in the future.

For now, the island will move ahead with plans to construct an LNG terminal, which will liquefy gas and ship it.

The terminal, which is expected to be built at Vassilikos, on the island’s south, could handle gas fom Israel and Lebanon as well as Cyprus, he said.

Published by:  www.gulf-times.com

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

Sources told the Mail the decision was taken at a cabinet meeting on Wednesday, but was not immediately made known as the President intended to announce it today along with a raft of planned measures designed to jumpstart the economy.

A decision for an LNG facility had been taken by the previous administration of Demetris Christofias; the current DISY-led administration was understood to also support the project, but an official announcement was pending.

A clear commitment from the government would now allow US energy firm Noble Energy to move forward with plans to extract the gas from its offshore licence and declare commerciality on the project.

If Noble deems the project commercially viable – following appraisal drilling slated for this summer – it will undertake the cost of the subsea infrastructures (including the pipeline) to bring the gas ashore. However it all hinges on the existence of an LNG plant, which will process and store the gas for export. The LNG plant itself is to be financed by the government and other partners.

Officials say natural gas could be brought ashore for domestic consumption in late 2018, and for exports in 2019.

Earlier this week, a senior executive with Noble Energy said one option being considered by the company was to channel through Cyprus the gas to be extracted from Israel’s massive Leviathan prospect.

Gerald Peereboom, Director of LNG development at Noble Energy, made the comments at the ‘LNG 17’ gas conference held in Houston, Texas.

Israel is yet to decide its gas export policy, and there is opposition by environmental groups there against an LNG facility. At the same time, the recent thaw in Turkish-Israeli relations has seen increased talk of a gas pipeline connecting the two countries.

Speaking at an energy conference in Limassol yesterday, Charles Ellinas, the chairman of the Cyprus National Hydrocarbons Company (CNHC), said that by 2025 the island could generate 25 million tonnes of LNG a year, covering nearly 50 per cent of the EU’s additional energy needs and making Cyprus an important player on the global energy market.

The two-day Annual Cypriot-Greek Oil & Gas 2013 Summit is organised by International Research Networks. The conference is discussing all aspects of hydrocarbon exploration of both Greece and Cyprus.

Published by: www.cyprus-mail.com