CNOOC in Aphrodite: Boosting Cypriot Hopes
Recent news that China National Offshore Oil Corp. (CNOOC) is negotiating to buy a 30-40% interest in Block 12 of Cyprus' Aphrodite gas field may be a real shot in the arm for the natural gas industry in Cyprus, according to Charles Ellinas, CEO at ECP Cyprus National Hydrocarbons Company Ltd.
“It's interesting,” he says. “It's a positive development because it means, more or less, that if successful there's a guarantee the gas from Block 12 will go to China. CNOOC is in a position to invest and they will also be buyers of the gas.”
Mr. Ellinas calls this an optimal situation, recalling that Noble Energy had started the process of looking for suitors like CNOOC last year and by mid 2013 had a shortlist of potential participants. He says that a deal with CNOOC has a reasonable likelihood of happening as the company is well-set financially and interested in LNG, as evidenced by a recently inked 20-year, 1.5 million ton LNG deal with BP.
However, Europe shouldn't worry that all of Cyprus' gas will go to the Far East, according to him, as Block 12 only contains about 5 TCF of gas. Next year, exploratory drilling will show how much gas the other five Aphrodite blocks contain, and indications are good, a substantial portion of which is likely to go to Europe. “Europe is definitely going to be on the horizon for these guys because by 2024-25 the Far East will become largely saturated. But everything will be decided on price.”
Another recent bright spot in Cyprus was the announcement last month by oilfield services giants Halliburton and Schlumberger that they would use the country as a base for operations in the Eastern Mediterranean. Mr. Ellinas says it's a sign of things to come.
“The other exciting development is that the East Med is going to carry on and increase in size, a lot of installations will end up being in East Med in the next 10-20 years. They will need a service industry to support them all the way from exploration to construction and operations.”
With the chaos in Syria casting a shadow upon Lebanon, and the latter not having a good relationship with Israel, Mr. Ellinas asks: “Where are these companies are going to base themselves other than Cyprus?”
“The fact that Schlumberger and Halliburton are coming there – and Weatherford is already there – these three will pave the way. Cyprus is the logical place and could end up being a regional service center for the region.”
Meanwhile, the fate of the Vasiliko LNG plant upon which Cypriot hopes have rested recently, still do not look so good.
He explained, “Cyprus does not yet have enough gas to build an LNG plant. The decision on Leviathan which will be announced later in the year, and could bring the Vasiliko plans back on line, probably does not include Cyprus”.
However, there are positive movements in Cyprus’ EEZ, says Mr. Ellinas, who reports that ENI will begin exploration later this year, while Total is scheduled to start it next year.
He explains, “They will probably complete their exploration rounds by 2016 and then spend time analysing results and making decisions on development plans. The problem is that by the time they go and finalise their development plans the ground shifts even more: There are too many changing parameters in the region and in the world gas markets. One is that by then you may not catch the Far East markets, and then Europe is going to be the main market. This is not a bad thing and may be a strong political card for Cyprus within the EU, but gas prices are low and will dictate development choices.”
He notes that, following the Ukraine crisis, Europe has been searching for potential new sources of secure gas. Cyprus offers such an opportunity. But European prices, he says, at $9-10/MmBTU may be too low to be able to support a land-based LNG terminal. Floating LNG may be a solution, according to Mr. Ellinas.
“And certainly Noble and Delek Drilling, as far as Leviathan is concerned, in one of the phases they are definitely going for is FLNG. Should they build an FLNG for Leviathan, the FLNG for Cyprus for Block 12 will be about the same size and will probably come about the same time, so there is every reason why, if it is not land-based LNG Noble will go for FLNG.”
According to him, indications are that by that time unit costs could be 30-40% cheaper by utilizing FLNG.
He explains, “The reason is that you only need one vessel. Right now with a land-based liquefaction facility you need an FPSO (floating, production, storage, offloading), you need a pipeline, and you need a land based facility before you export it. With FLNG you stick one vessel on top of the gas field then off you go - you export.”
He says this makes a tremendous difference.
However, for the East Med gas scene, Mr. Ellinas says the big change was the announcement by Delek that they had signed a memorandum of understanding with Union Fenosa to supply 2.5 TCF of gas for liquefaction at an existing LNG plant in Egypt.
He comments, “Following the election of Al-Issi in Egypt, if security improves for example by the army taking firm control, and the project becomes reality, it opens a completely different avenue for liquefaction because we have two terminals in Egypt not being used. And you know Egypt is now about to sign an FSRU agreement to import LNG because they don't have enough gas.. Egypt does not have enough gas to export as LNG.”
“The LNG terminals are sitting there largely idle,” he continues. “There is a lot of gas in the region. Why build new terminals or new FLNGs when you have cheap LNG terminals available? It's possible that for Leviathan that could be one of the export options.”
For Leviathan gas, he says, it is also a choice of whether to go to Turkey or Egypt. “Turkey is looking for its own gas; it's not looking to get gas from the region to Europe. And Leviathan has been in advanced discussions with Turkish companies who are prepared to put the investment and build the pipeline. For small companies like Delek and Noble if the Turks are going to put in the investment and build the pipeline that is a huge benefit, a temptation, because to develop Leviathan the investment is massive and if this part of the investment goes their way they don't have to worry about it and then it helps the project finances and the profits could be quite high.”
Given the recent visit to Cyprus by US Vice President Joe Biden, possibly to be followed by Secretary of State John Kerry, Mr. Ellinas opines that the US likely wants to find a solution with such a pipeline, with the main aim of getting Turkey back on board to be able to contain Syria.
“So a pipeline like this, of this size is quite significant, it could carry anywhere between 7 to 10 BCM of gas - it's as big as TANAP and is equally important,” he remarks. “In a solution like this neither Erdogan nor Netanyahu have to condescend to each other, because it would be a commercial deal and yet, once you have the pipeline it ties the two together. But it requires the consent of Cyprus as such a pipeline will pass through its EEZ. Hence the urgency for a satisfactory and lasting solution of the Cyprus problem.”
Iranian gas, he says, will eventually make its way to Europe, but only via Turkey. Hence Turkey has a very important gas transit role as far as the EU is concerned.
Mr. Ellinas explains, “Europe wants Turkey to be close to it and not to become another third party, another Ukraine in the future, so all of these reasons I think are driving towards sorting the Cyprus problem out of the way, which is good for everybody, including Cyprus. As far as the gas developments in the region these are being driven by what happens in Leviathan. What they do there will have far reaching consequences for the region.”
With all of these developments, Cyprus' hopes for the Aphrodite field recently looked like they had been left behind, until the recent announcement of interest by CNOOC which opens up new possibilities.
Drew Leifheit is Natural Gas Europe's New Media Specialist