ENI/KOGAS to Commence Exploration Activities in Cyprus' EEZ
The ENI/Kogas consortium will commence exploration activities offshore Cyprus in the weeks to come. The consortium holds drilling licenses for Blocks 2, 3 and 9 of the island’s Exclusive Economic Zone. The activities will last between 12 to 18 months depending on the findings, according to a statement by the Minister of Energy of the Republic of Cyprus Yiorgos Lakkotrypis.
The island of Cyprus is largely depending on the results of the findings to finalise its export strategy. Building an onshore LNG terminal to facilitate the transportation of gas to export markets remains the island’s top priority. An LNG plant in the coastal area of Vassilikos could also allow the processing of gas from the larger Levant Basin, an area believed to contain up to 122 trillion cubic feet (Tcf) of natural gas.
A final investment decision has not been taken to date due to the insufficient quantities of gas discovered thus far under Cypriot waters. Noble Energy, the Texas-based company that discovered the Aphrodite field in 2011, announced in October 2013 that the field holds between 3.6 and 6 Tcf of natural gas, less than the original estimates of 7 Tcf. Noble Energy plans to conduct another appraisal well in the field to confirm the quantities. While the estimates are not negligible, the Cypriot government was hoping for more. Energy experts advance that Cyprus need to discover as much gas to commercially justify the LNG project. Aside from ENI/KOGAS scheduled operations, TOTAL will be searching for gas in Blocks 10 and 11 of Cyprus' EEZ in 2015. Noble Energy will also be conduction further exploratory work in Cypriot waters.
Cyprus hopes that the inflow of revenue from the future sale of gas will boost its economy in a time of financial crisis. The long term strategy for Cyprus is to turn the country into an energy hub. In fact, international companies such as Halliburton have elected Cyprus as their base of operations in the Eastern Mediterranean. Cyprus would not only process gas from neighbouring countries for processing and shipping but also position itself as a center for education and training on energy matters.
Cyprus also strives to constitute an alternative source of natural gas for Europe. While the quantities discovered to date in Cyprus’ EEZ may not challenge Russia’s grip over the European market, or be developed in time to provide a solution to Europe's quest, Cyprus may discover additional volumes in the future and assist Europe in its efforts to diversify its sources of supply. Cyprus’ EU membership provides a unique opportunity as the island benefits from the support of the EU in its transition towards energy production.
All of the above will largely depend on two key elements: the discovery of additional quantities of natural gas and the implementation of a healthy business environment and regulatory framework to attract international players and retain them. A high level of collaboration between government, industry, academia and civil society is essential.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Email Karen on karen@minoils.com. Follow her on Twitter: @karenayat