Recent Views on Cypriot Gas
Natural Gas Europe had the pleasure to be a guest at the third Mare Forum that took place in the historical city of Paphos in Cyprus on Tuesday 24th June. The conference gathered politicians and executives from the oil, gas, shipping and maritime industries who engaged in a constructive dialogue mainly centered around oil and gas exploration and production, distribution and transportation of Eastern Mediterranean gas to Europe and the world and regional and world geopolitics.
The various presentations, comments and discussions were aimed at answering the following questions: will Cyprus enter the offshore business, will Cyprus realise its ambition of becoming an energy hub in the next decade, can East Med gas compete with forthcoming cheap shale gas delivered in the international market and what is the best medium term mode of transportation in the Eastern Mediterranean?
The general tone was positive: the participants agreed that Cyprus needs to make additional discoveries of natural gas to allow for the construction of an onshore LNG facility in Vassilikos. Cyprus has made through Texas-based Noble Energy one discovery to date: the Aphrodite field that has a mean of 5 Tcf. John Tomich, Country Manager for Noble Energy in Cyprus, stated that the onshore LNG terminal in Vassilikos needs to have at least two trains to compete for share capital in a portfolio. He added that for a two-train onshore LNG terminal to be commercially viable in Cyprus, at least 12 Tcf of gas need to be found in Cyprus’ EEZ. The number is not unrealistic: Solon Kassinis, managing director of Kassinis International Consulting Ltd. and previous Executive Vice President of the Cyprus National Hydrocarbons Company Ltd. (CNHC) updated the audience on ENI/Kogas’ plan to start drilling by the end of the summer followed by Total who is expected to commence exploration activities in 2015. Noble Energy will also drill wells in Block 12 of Cyprus’ EEZ and conduct Mareanother appraisal drilling in Aphrodite added Kassinis. The results of the companies’ activities will be crucial in determining the final investment decision for the LNG project.
An onshore LNG terminal is not the only option for Cyprus said Angelo Lo Nigro, market development manager at D’Appolonia. He mentioned 3 other possibilities: a floating LNG facility (FLNG), the pipeline option and compressed natural gas (CNG). To each of these scenarios is attached a spectrum of challenges such as cost, technical difficulty, youth of the technology or geopolitics. Exporting gas via Egypt's unused LNG export terminals was also mentioned as a possibility by some of the panelits.
A pipeline to and/or through Turkey was discussed. The same reservation was brought up: a pipeline to Turkey will require a fair and just solution to the Cyprus problem first. A pipeline through Turkey was considered as a no-go by some of the speakers as it would give Turkey control over Cypriot natural gas.
The panelists highlighted the hydrocarbon importance of the Levant basin bringing up figures from seismic surveys covering the Eastern Mediterranean waters. Israel’s biggest discoveries are the Tamar field (10 Tcf) and the Leviathan field (now estimated as almost 20 Tcf). Cyprus is expected to make additional discoveries in the short term. Lebanon’s seismic surveys covering only 45% of its waters reveal its waters could contain up to 95 Tcf of natural gas. Lebanon’s hydrocarbon development is however impeded by a political deadlock in the current absence of a President.
The Eastern Mediterranean’s contribution to Europe was also discussed. Anthony Foskolos, Professor at the Technical University of Crete highlighted that Europe’s increasing natural gas demand and its quest to reduce dependence on Russia create a window of opportunity for the sale of natural gas. While it has been argued that the Eastern Mediterranean’s proven reserves are negligible and cannot compete for the European market, the speakers were confident in their belief that the region holds substantial amounts of the hydrocarbon that could potentially constitute a significant option of diversification for Europe.
The geopolitical problems in the Eastern Mediterranean were not dismissed. Dr Theodore Tsakiris discussed the various geopolitical challenges that the Eastern Mediterranean region will have to face before it can effectively develop its hydrocarbon reserves and position itself as an emerging natural gas power in the energy industry that could supply the hydrocarbon to export markets. The division of Cyprus has to be resolved in a fair and just settlement before any possible collaboration with Turkey can be explored. The maritime boundaries must be drawn to ensure that companies can operate without fearing a state dispute over the ownership of the hydrocarbons in the explored areas. Lebanon and Israel have yet to end their conflict over the delimitation of their respective EEZs. Marianna Charalambous who holds an LLM in Oil and Gas gave a presentation explaining how maritime boundaries are defined by International Law and the various methods for countries to delimitate the borders of their seas.
Karen Ayat is an analyst focused on energy geopolitics. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat