Will Cyprus Turn to Gas Presale?
With the downsizing of Aphrodite field and further exploratory activities not yet commenced in Cyprus’ EEZ, gas presale has been considered as the island’s solution to secure the needed funds to develop its LNG facility in Vasiliko. An onshore LNG facility would grant the island the flexibility to choose the end customer and increase its attractiveness to its Eastern Mediterranean neighbors potentially interested in diverting their offshore gas via the island to export markets. The multi-billion dollar LNG facility is currently on hold awaiting additional deposits of natural gas to be encountered under the island’s seabed or the decision of Israel to pool costs and contribute in its construction.
The recent downsizing of the Aphrodite field in Block 12 of the island’s EEZ by Noble Energy has put a question mark on the viability of the project. The current estimated gross mean resources of 5 Tcf do not justify a one-train facility unless Israel joins in. Noble Energy plans additional drilling in Block 12 of the field. Meanwhile, Israel has announced its shift in export policy starting by immediate neighbors. The first deal, worth USD 1.2 billion, was signed between the Leviathan partners and the Palestine Power Generation Company to export 4.75 bcm of gas over 20 years. Israel is also planning the construction of a 15 kilometer pipeline to Jordan to supply the neighboring Kingdom with natural gas from the estimated 10 Tcf Tamar field that came online March 2013. Egypt, with continued shortfalls in natural gas and ongoing export obligations might also be a potential customer for Israel.
The regional deals between Israel and its neighbors do not however eliminate the possibility of an energy collaboration between Israel and Cyprus and/or between Israel and Turkey. Israel will still have a lot of gas to export and will not stop at its immediate surrounding. A recent MOU signed between Israel and Woodside launched talks for the purchase of 25% of the Leviathan by the Australian firm. The price was revised downwards revealing Israel’s inclination towards pipelines rather than using the company’s LNG expertise.
There is a renewed hope in the resumed Cyprus’ talks that this time the gas factor will play an important role in achieving a positive income that would allow Israel, Cyprus and Turkey to achieve an understanding and benefit from the Eastern Mediterranean gas wealth: Turkey by receiving Israeli gas, Cyprus by securing the needed funds to develop its LNG project and Israel by diversifying its export routes and monetizing its offshore riches.
Cyprus presale of natural gas is still a mere possibility. It was originally feared that such an approach would cause the sale of gas for very cheap but might now seem as a prerequisite to secure the financing of Cyprus LNG facility in the event that alternative funding fails. Total, ENI and Kogas are planning exploratory drilling off the island’s coast in 2014-2015 but it will take another few years for the work to be completed and the results to be confirmed.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat