Woodside to Join Noble, Avner and Delek in the Cyprus LNG Project

Although not originally party to the MOU signed between Texas-based Noble Energy, Israel’s Avner and Delek and the Cypriot government, the Australian giant Woodside Petroleum is considering participating in an LNG terminal in Vassilikos, Cyprus. An LNG project agreement is expected to be signed by December 31 of this year. Such an agreement would cover the terms of the development and the commercial structure of the LNG, the conditions of the involvement of third parties and the possibility of expanding the LNG to accommodate gas discovered in other areas of Cyprus’ EEZ or in the EEZs of neighboring countries.

Woodside, with its extensive expertise in LNG operations, would add value to the consortium. The LNG plant in Cyprus will initially process natural gas from the Aphrodite Field in Block 12. It will also receive gas 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 in the future to accommodate additional natural gas discovered in other blocks of Cyprus’ EEZ as well as natural gas from neighboring Israel and Lebanon.

Earlier this year, in February 2013, Woodside signed a deal with the Israelis to acquire 30% of the Leviathan. Discovered by Noble in 2010, the Leviathan represents the largest exploration success in Noble Energy’s history with gross mean reserves of 18Tcf. Woodside had set a June 30 deadline for completing the deal. Although the size of the Leviathan would justify the building of an LNG facility in Israel, Israel’s internal debate over export quotas and whether to export gas or to keep it for domestic use might have turned off Woodside who preferred to partner up with Cyprus.

Last Sunday (23 June), the Israeli cabinet approved an export quota of 40% in an attempt to achieve a balance between the need to satisfy investors (and keep exploration activities going) and bringing in the Shekels from the sales of gas to export markets and ensuring the country has enough gas to satisfy its domestic needs for at least 25 years. Recent protests against gas exports led the cabinet to reduce the proportion of gas to be exported from the 50% recommended by the Tzemach committee to 40%. The cabinet’s decision was still not unanimous and threatened to be contested in front of the High Court of Justice.

Cyprus had a rough start to the year when the EUR 10 billion bailout from the eurozone and IMF imposed on the debt-crippled country tough austerity measures that deeply affected its economy. Noble is currently carrying out an appraisal well in Cyprus’ Block 12. Results are expected to be announced by September 2013. The planning of the LNG is moving forward and could allow Cyprus to realise its ambition of becoming a regional energy hub. The successful completion of the project would mean that Cyprus would have access to international markets by 2020 and potentially process gas from neighboring Lebanon - still behind in the game - and Israel - still unsure of how and where to export. 

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

Follow Karen on Twitter: @karenayat