The Aphrodite field is located in Block 12. Its development could be disrupted by new acreage on offer.
The development of Aphrodite, Cyprus’s biggest gas field to date, will continue to be stymied by the lack of a route to market for its gas and the hunt for much bigger discoveries, sources have told Interfax Natural Gas Daily.
Noble Energy, Delek Group and Shell (which merged with BG Group in February) are expected to submit offers on Friday in Cyprus’s third licensing round. Eni and Total, which also hold blocks in Cyprus’s offshore area, are also expected to submit bids.
The round has drawn interest from IOCs looking to secure acreage near Egypt’s massive Zohr discovery, which has been described as a game-changer for the East Mediterranean oil and gas industry.
Apart from the distraction of other acreage, the development of Aphrodite is being held back by events in Israel. Noble, a partner in Israel’s Leviathan gas field and a joint licence-holder in Aphrodite, has been focused on moving the Israeli project forward despite challenges to its development.
As Leviathan is much larger than Aphrodite, the Israeli field is drawing on Noble’s limited investment funds.
"Every dollar in Noble’s pocket will be spent on Leviathan, which has 22 [trillion cubic feet: 623 billion cubic metres], not Aphrodite [which has 127 bcm]," Abboud Zahr, managing director of DEP Levant Oil & Gas, toldInterfax Natural Gas Daily. "For the same investment they will get much more gas in Israel."
More importantly, it is unclear who would buy gas from Aphrodite and how it could be transported to market. Cyprus has considered a number of options, and if there are many more discoveries it may decide to build an LNG export plant. However, marketing gas from Aphrodite alone would not warrant a land-based LNG facility.
Cyprus could turn to FLNG, but this would be expensive. Alternatively, it could pipe gas to Egypt to serve local consumers – although production from Zohr would erode this market – or export the gas as LNG using Egypt’s spare liquefaction capacity.
"This would be an option," said Zahr, adding that the US model for LNG capacity blocking could be used, but it would first need to be decided whether the IOCs or Cyprus would be responsible for negotiating sales. Secondly, the role of the Egyptian government in negotiating the terms would need to be clarified, he said.
High costs
While exporting to Egypt may offer a solution, the pipeline and liquefaction costs would be high and Egypt has hinted that it would seek very favourable terms.
"There is still the cost issue because by the time that you take the gas, liquefy it and send it to Europe the price is double European gas prices," Charles Ellinas, a Cyprus-based independent energy consultant, told Interfax Natural Gas Daily.
Cyprus’s cheapest option is its most politically contentious. Israel plans to build a pipeline across the Cypriot exclusive economic zone (EEZ) to sell gas to Turkey. Cyprus has said it will try to block any attempts to build a pipeline across its territory while its dispute with Turkey remains unresolved. However, if Cyprus were to join the project it may be able to sell Aphrodite’s gas to Turkey using the same infrastructure.
Turkey receives most of its gas from Russia, but although it is likely to maintain these imports, it needs to find other sources to meet growing demand. Iran and Azerbaijan are lining up to supply Turkey, but Israel and Cyprus could supply gas on more favourable terms. Israel is likely to sell gas from Leviathan while Turkey would be responsible for funding and constructing the pipeline. Turkey could allow gas from Aphrodite to join the pipeline in return for not blocking the route of the connection.
"[Turkey] will probably need an extra 15 bcm/y by 2025," said Ellinas. "It could be provided between Cyprus and Israel. Israel alone could provide it but it could be done between the two of them if it goes through the Cyprus EEZ."
However, allowing the pipeline to traverse its territory would result in Cyprus forfeiting too much, say some observers. "The pipeline issue is very important to Cyprus, and this is good card to have in hand to play against Turkey and Israel," said Zahr.
Cyprus is yet to reach an agreement with its neighbours on unitisation, for which political capital is also needed. Cypriot President Nicos Anastasiades and the country’s energy minister, Yiorgos Lakkotrypis, will visit Israel on Sunday.
Because there is no clear route to market for gas from Aphrodite, Cyprus runs the risk of leaving the field undeveloped. The recent failed coup in Turkey may negatively affect any settlement of its occupation of (northern) Cyprus, which could in turn hurt Aphrodite’s development.
"They’re stuck, and the risk of Aphrodite staying where it is forever is increasing," said Ellinas. "If Cyprus is in a deadlock and Israel is ready to export – and it can meet all of Turkey’s needs on its own – then everything in Cyprus will stay exactly as it is."
The Aphrodite field was discovered in December 2011 and declared commercial in June last year. BG farmed in to the field in November 2015, pushing back the development schedule. Alongside Noble, the licence holders of Block 12, where Aphrodite was found, are Delek and BG. The partners relinquished the block in May but retained the Aphrodite area.
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