Interview: Dr Charles Ellinas, CEO of Cyprus National Hydrocarbons Company (CNHC)

Natural Gas Europe had the pleasure of interviewing Dr. Charles Ellinas, CEO of Cyprus National Hydrocarbons Company (CNHC), on  natural gas sector developments and projects in Cyprus and the Easter Mediterranean.

“We are looking into serious profits both for the state and the overall local economy in the coming decades.”

Cyprus is on its way to becoming a natural gas producer by 2018 according to all estimations. What can be expected from the country's gas export strategy?

Our President recently announced the go-ahead discussions with Noble Energy and to sign a Memorandum of Understanding so as to proceed with the construction of an LNG terminal in the Island. I must say that we are going to be careful when exploring our future options in any case and there things that we have to take under consideration both for use and our partners in this endeavor.

In your view how can the Cyprus-Israeli natural gas partnership be accommodated if we take into consideration Turkish obstructions?

Turkey cannot obstruct the partnership, although it has in the past sent warships in our Exclusive Economic Zone, but I think it will not go as far as to upset the European Union and its energy policy. The relationship with Israel is very strong and our President and the Premier of Israel Netanyahu met in early May to discuss and cover through all bilateral matters including those that we are touching upon now.

Also I would like to say that first of all we have our own sufficient gas quantities to proceed on our own if needed, but we want to attract the Israeli gas and look forward to the decision Tel Aviv will make most probably in the end of June 2013. The main reasons for Cyprus to fully partner with Israel and attract its gas for exports, are synergies since the unit costs would be less for both countries if economies of scale are implemented, along with boosting our political and economic links and building upon a security link as well, which I believe will be fully covered by a gas installation for exports in Cyprus.

Moreover the Island can become a hub for the region for all kinds of supporting natural gas functions and we have to take into consideration the future prospects of Lebanese offshore reserves which can in the future be served by Cyprus’s location

What is the best and worst case scenario regarding Cyprus' overall offshore gas reserves in terms of volume and investment cost?

We have six blocks 3, 9, 11 & 12 and the last one is explored now. I believe that around 40 trillion tcm of gas are to be found in total, enough to secure Cyprus needs and Europe’s as well in the future. Investments for creating the necessary infrastructure range from 6 to 9 billion Dollars and I talking around the Vassiliko area where an ideal location has been found to build an LNG terminal.  The whole investment will come from international companies and there will be plenty of interest once final investment decisions are made.

How important in financial terms can the natural gas sector be for Cyprus, especially since the Island's economy was battered by the recent "haircut" on deposits?

The role of the natural gas market will be extremely important for Cyprus and the whole region. We are looking into serious profits both for the state and the overall local economy in the coming decades and we are expecting at least 10,000 jobs to be created which is a significant number for the country, along with a swift increase in economic activity since construction and support activities for gas businesses will flourish. All of these projections are by 2016 in just three years from now.

The next milestone is when we allow gas to Cyprus by 2019 and achieve autonomy for electricity domestic consumption thus saving immediately 500 million Euros.

From 2020 we’ll sell to the markets, but I’ll have to note that for the first years profits will have to make up for the original investment. Therefore net profits will begin en mass by 2023 and continue for the long-term.  

Once construction begins it will be a boost for at least a decade before real cash flow of gas begins, making that energy commodity a huge business for the island. Moreover support activities will commence this decade and last for a few decades and Cyprus strives to be the logistics and supply base for the EU and the East Mediterranean gas industry which is another boost of the economy.

If it’s possible it would be interesting to lay down the timetable concerning the exploration and exploitation process both for the Block 12, as well as, the rest of the offshore concessions.

First of all for Block 12 we will have results by the end of October 2013 and as I mentioned there are talks with Noble Company regarding the LNG installations. A final decision will be undertaken by 2016 and then contracts will be designed. First gas in the Island is expected in early 2019 and first exports to international markets in 2020.

Block 12 we will have results final by end of October we have discussions with noble for LNG installations final decision by 2016 be taken and then design contracts

Moreover, Noble has indications for further explorations by next year and other companies are looking into drilling by 2014, so by then we’ll have more details to tlak about and most probably new discoveries and more business opportunities.

In 2017 Noble will start the construction of the first phase and similar timetables with ENI, Kogas and Total expected as well.

The most dynamic phase of the local gas market will begin after 2016. 

What are the pros and cons of the East Med pipeline and how does Nicosia plan to accommodate such a project both in technical and political terms?

First off all it is in the interest of the EU to have a preliminary approval of this pipeline project this year, since we are talking about a long-term project. I should say that for Cyprus the main priority is the LNG terminal. Although the pipeline is still on the table as a great alternative, but we need to take into consideration the long-term needs of the markets and to assess the costs as well. So we want to showcase for our EU partners the advantages of a pipeline project, which could be constructed after we have excluded our main aim which is LNG terminal. Already for the latter an ideal location has been found and preliminary research for costs and technical figures has been made. The coming months are going to be crucial since corporate players will also show their interest on the project and we are confident on that level. 

Prior to undertaking his position he was Director of Mott MacDonald and the Managing Director of Mott MacDonald’s Oil, Gas & Petrochemical business world-wide, with over 35 years of experience in the sector. He was responsible for overall management and providing a focus for the Group’s oil, gas and petrochemicals engineering and project management activities worldwide. This work won recognition through many major awards, the most recent being the Offshore Project of the Year Award at the December 2012 Oil & Gas Middle East Awards for the Zakum Water Injection project.