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    Total, Noble, Delek and Avner Interested in Participating in Cyprus' LNG

Summary

Cypriot Commerce and Energy minister Giorgos Lakkotrypis signed an MOU with Texas-based Noble Energy and Israel's Delek and Avner, an agreement that moves Cyprus closer to monetizing its offshore resources.

by: Karen Ayat

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Total, Noble, Delek and Avner Interested in Participating in Cyprus' LNG

On Wednesday 26 June, Cypriot Commerce and Energy minister Giorgos Lakkotrypis signed an MOU with Texas-based Noble Energy and Israel's Delek and Avner, an agreement that moves Cyprus closer to monetizing its offshore resources. The onshore LNG plant will be built at Vasilikos in Cyprus. The LNG plant will initially process natural gas from the Aphrodite Field and other fields that may be discovered in Block 12 of Cyprus’ Exclusive Economic Zone into LNG for export and delivery to international markets. The LNG plant could be expanded to accommodate additional natural gas discovered in Cyprus’ EEZ, either in Block 12 or in the other blocks licensed to date (Blocks 2, 3, 9, 10 and 11) or may be licensed in the future, as well as natural gas from neighboring countries. While Noble Energy has a working interest of 70%, Delek and Avner have a working interest of 15% each.

Total France is also interested in participating in the LNG facility. The company signed on Tuesday 25 June an outline deal to invest in a second LNG train in Cyprus. The LNG terminal is estimated to cost USD 9 billion in total including an estimated USD 3 billion cost for the second train. Cyprus is expected to start building its LNG terminal by 2016 and reach the international markets by early 2020. Total announced in February 2013 that it has signed two production sharing contracts for Blocks 10 and 11 with the Republic of Cyprus. The PSCs were awarded as part of the second offshore exploration licensing round, launched by the Cypriot government in 2012. The licenses extend over 2,572 square kilometers and 2,958 square kilometers respectively, southwest of Cyprus, in water depths ranging from 1,000 to 2,500 meters. Total is expected to start drilling in 2014.

Eni and Kogas are the other major players involved in the development of Cyprus’ offshore gas. In a press release dated January 2013, Italy’s Eni announced it was awarded three blocks offshore Cyprus whilst leading a consortium formed by Eni (80%, as operator) and the Korean company Kogas (20%) in an international competitive tender. Blocks 2, 3 and 9 are located in the Cypriot waters in an area equivalent to 12,530 square kilometres.

With the appraisal drilling results of the Aphrodite well in Block 12 expected to be announced by Noble in September, Cyprus is keen to ensure the adequate infrastructure is in place to process and sell its newly found riches. Given its small population, the island’s energy consumption is modest. Cyprus is hoping that an LNG terminal would create jobs in the island, turn it into an energy hub that would accommodate and process gas from Israel and Lebanon and bring in the much needed cash. Cyprus has accepted in March 2013 a EUR 10 billion bailout from the eurozone and the IMF in return for severe austerity measures that are deeply affecting the economy and the people of Cyprus. Unemployment in Cyprus has increased to an alarming 15.6% in April 2013 from 11.8% in 2012 and is expected to peak at 16.9% in 2014 (The Republic of Cyprus Statistical Service).

Neighboring Israel has recently voted yes to export 40% of its gas but has not yet formulated an export strategy. It remains unclear which routes it will adopt to transport and deliver its resources. In the absence of a coastal site for an LNG facility, Israel could consider transiting through Cyprus. Cypriot officials believe that Lebanon, scheduled to launch its exploration phase in early 2014 and potentially almost equally gas rich, could also use Cyprus’ services.

Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.

Follow Karen on Twitter: @karenayat