Cyprus on the Verge of Shifting East Med Gas Strategy
Cyprus is facing a dilemma with regards to its natural gas strategy, as highly credible information has been leaked over the past few days to local media suggesting a significantly reduced amount of gas for Aphrodite Block 12. This would effectively terminate the chances of establishing an LNG terminal and cooperation with Israel looks like the only way out.
The findings of the first appraisal drilling by Noble Energy point to less than 5 tcf in Block 12, which greatly diminishes the prospects of constructing an LNG terminal that requires 5.5 tcf in order to be economically viable.
Moreover, local sources are putting numbers closer to 3 tcf of gas in place, making the whole investment perilous when considering the high depths involved and the capital needed to create necessary infrastructure. Furthermore, the Cypriot government through its energy authorities has made known that a second appraisal drilling will take place, no sooner than March 2014 and it could be delayed up to a year from now. On the other hand other sea blocs could contain smaller reserves of 1-2 tcf that could be joined with Block 12 to revitalize the LNG terminal project. This would no doubt derail plans for at least another 4-5 years.
Cyprus has drafted a last minute emergency plan in order to deal with these developments. It intends on negotiating with the Noble and Delek in order to provide further incentives to continue with their offshore investment program.
It will also accelerate initiatives to have four research drills from early 2014 onwards by Eni, which has already bought licenses to conduct exploration.
Most importantly, Nicosia is going to push forward with a comprehensive energy collaboration with Israel that would transport gas from Tamar and Leviathan to Cyprus for export to international markets.
At the moment, Tel Aviv has approved no decision of such kind, although it is widely assumed that 400 bcm could be exported worldwide and Cyprus believes that this is enough to boost its own LNG terminal viability prospects for the long term.
In mid-October, a delegation headed by the Cypriot energy minister Yiorgos Lakkotrypis will visit Israel to conduct talks. In the event of a positive response, Cyprus will push forward an international campaign to raise capital needed for LNG infrastructure and then negotiate percentages with interested companies.
Should Israeli response be negative, Cyprus could delay any LNG decisions until further explorations take place offshore Cyprus and if those prove successful, it would then proceed by itself in establishing necessary infrastructure.
In this event, Eni, as it was previously mentioned, would be allowed to rapidly drill in the Cypriot offshore zone, where it is estimated to stay for 24 months and conduct eight exploration drills, four each year in the sea blocks numbered 2, 3, and 9.
Total SA is set to conduct two exploration drills in early 2015. Concurrently on 9th of October it will sign a Memorandum of Cooperation with the Cypriot government for its future involvement in the LNG terminal and thereafter be able to participate in the aforementioned negotiations between Nicosia, Noble and Delek.
All in all, prospects for creating an LNG sector in the Eastern Mediterranean takes yet another twist and illustrates the complexities of offshore exploration. Judging by the latest developments it is more than certain that any definite assessment regarding the prospects of an LNG terminal in Cyprus should not be expected before the end of 2014.