Cyprus hangs on to its gas bonanza hopes

By bne IntelliNews September 23, 2015

Samantha Shields in Nicosia -


The death knell for Cyprus’s gas dreams might have been sounded too soon.

Things had started to look bleak earlier in the year when France’s Total relinquished its block of Cyprus’s Aphrodite gasfield and had to be persuaded to maintain a presence in the country. Then Italy’s Eni failed to find any gas in its second exploratory drill, and it became clear that plans to build a liquefied natural gas (LNG) plant on the island had been abandoned.

However, at the end of August Eni announced the discovery of the massive Zohr gasfield in the country’s Eastern Mediterranean neighbour Egypt, eclipsing Cyprus’s Aphrodite field. And analysts say that such a huge deposit on the doorstep combined with the surprising progress of talks aimed at reunifying the divided island could open up pipeline possibilities, or even resurrect the LNG project, allowing Cyprus to establish itself as a regional gas hub.

The government is also hoping that Eni’s geological data will show that Zohr extends into Cyprus’s offshore Exclusive Economic Zone (EEZ) – a sea zone designated by the UN Convention on the Law of the Sea over which a state has special rights regarding the exploration and use of resources. “I’m upbeat and positive about this – it confirms the Eastern Mediterranean as an important hydrocarbons province and it will encourage further exploration within the EEZ,” says Adam Lomas, managing partner at consultants Castor & Partners and a former Shell executive.

Lomas added that the positive progress seen in talks between Greek-Cypriot President Nicos Anastasiades and the newly elected pro-reconciliation leader in the breakaway Turkish Republic of Northern Cyprus, Mustafa Akinci, is also raising Eastern Mediterranean hopes. “The president is now talking about when the Cyprus problem is solved, not if; and linking a solution to the economic benefits of hydrocarbon production,” Lomas says.

Zohr contains a potential 30 trillion cubic feet (tcf) of gas, dwarfing Aphrodite with its 4.5 tcf, so any chance Cyprus had of exporting gas to the Egypt domestic market is gone. But that hasn’t stopped the UK’s BG Group from starting talks with the Greek-Cyprus government on buying gas for its idle Idku LNG plant in Egypt. This gas could eventually end up being transported to Europe, which is looking to diversify gas supplies away from its reliance on Russia for about a third of its needs.

A second, also dormant, LNG plant in Damietta in Egypt is jointly owned by Eni and Segas, and Eni is trying to pull together all of its Eastern Mediterranean holdings to put together its own hub to supply Europe.

Eni CEO Claudio Descalzi told President Anastasiades during a September 10 meeting in Nicosia that the company considers the entire area of the Eastern Mediterranean to be of crucial strategic importance as a gas hub for the whole region, capable of making an important contribution to European energy security. “Eni remains committed to Cyprus and the Eastern Mediterranean, and will continue to work with the government of the Republic of Cyprus to develop the country's energy potential,” Eni said in a statement after the meeting.

Some commentators have a more mixed view of Zohr’s implications for Cyprus, seeing it as a resource that might not be developed until international gas prices rise.

Constantinos Hadjistassou, assistant professor of engineering science at the University of Nicosia, believes there are pros and cons for Cyprus in relation to Zohr. “Cyprus may have lost the potential to export natural gas to Egypt, but the Eastern Mediterranean is emerging as an oil and gas frontier that could be the next North Sea,” he says.

In further signs that the spirit of cooperation is strong, Cypriot Energy Minister George Lakkotrypis has been in regular contact with his Egyptian counterpart since Eni’s announcement, and the two countries already have an agreement in place that lays down guidelines for what will happen if it does turn out that the Zohr deposit extends into Cyprus.

A consortium comprising Eni and Korea Gas Corporation (Kogas) had asked for a two-year extension of its license to explore Cyprus’s EEZ before the Zohr find, while Texas-based Noble Energy and Israel’s Delek – which have stakes in Aphrodite – have gained permission to develop Israel’s nearby Leviathan gasfield, which has estimated reserves of 22 tcf.

Israel and Cyprus both had plans to export gas to Egypt. Charles Ellinas, CEO of consultants Cyprus Natural Hydrocarbons Company, says the two countries need to act fast and adapt to the new environment to come up with options to develop and export their gas.

Israel could potentially export to Turkey and Europe via a pipeline through Cyprus’s EEZ, or an LNG plant in Cyprus. That means Cyprus needs to cooperate with Israel and encourage Noble and Delek to carry out more detailed investigations into both these options, Ellinas says. 

The big sticking point for Cyprus’ gas plans right now is the low gas price, he explains. Russia has lowered its gas prices to Europe to about $6.2 per million BTU as a result of oil price indexation, so Eastern Mediterranean gas will have to compete with cheap gas if it is to gain entry to Europe. “When it comes to gas sales, commercial realities prevail, not politics,” Ellinas notes.

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