Cyprus has to balance the ambitions of Europe, Turkey, Russia and the other local players in the region. (PA)
This year will be pivotal for the Cypriot gas industry; not only will
Noble, Total and Eni reveal their exploration drilling plans for six of
the blocks off the island’s coast, but the Leviathan partners will
finalise their export plans for the giant Israeli gas field – with major
implications for Cyprus’s own LNG ambitions.
Interfax speaks to Cyprus’s Energy Minister Yiorgos
Lakkotrypis about how the tiny island will fit within in the East
Mediterranean export puzzle.
Interfax: You’ve said April is when things will start to get busy again for Cyprus’s upstream. What will happen then?
Yiorgos Lakkotrypis: By April, we should start to
have the full interpretation of the seismic data collected by the three
consortiums operating inside Cyprus’s exclusive economic zone [EEZ].
That’s Noble, Delek and Avner in Block 12; Eni for blocks 2, 3 and 9;
and Total for blocks 10 and 11. They’ve collected data throughout the
year and by spring we should have the complete interpretation of it and
know which targets to drill. What is particularly interesting is that
Noble gave a presentation a few weeks ago about the possibility of the
presence of oil. So I expect sometime in spring we will set up the
targets and from October onwards start some intense drilling activity.
The current plan is that Noble is going to drill another exploration
well, Eni will drill at least four exploration wells, starting in
October, and Total should start in early 2015.
Interfax: Cyprus previously set a target to bring
LNG onstream before 2020, but disappointing drilling results at
Aphrodite have pushed back this deadline. Are you still aiming to sign
sales and purchase agreements before 2018, when a wave of new LNG is
expected to hit the market?
Yiorgos Lakkotrypis (Cypriot Ministry of Energy)
YL: It would be naïve to say time is not of the
essence here – obviously the sooner the better. The first appraisal
well, despite the fact it came in lower than initial predictions, is
still a significantly large find – the third largest in the East Med… I
cannot say 2018 is a date which should be set in stone, but certainly
the sooner we can get the field onstream the better.
Interfax: Given this, have you looked at piping gas to Egypt and exporting it through the idled plants there?
YL: We remain within our strategy for onshore LNG.
The possibility of finding more gas within our EEZ is really high, so
one can assume it’s not a matter of finding more gas, it’s a matter of
timing.
So we remain within that strategy – there’s no need for panic after one
result. At the same time, we have prepared Plan B, and we are looking at
Plan C so we can be ready for all eventualities.
Interfax: What about building a pipeline from
Leviathan to Turkey that would fork off to Cyprus, feeding a plant at
Vasilikos – is that completely off the table for you?
YL: No. There’s never been anything on the table
with regards to a pipeline to Turkey, officially. If our top priority is
still to resolve the Cyprus problem and not anything else, then a
pipeline to a Turkey is not even an option as long as the Cyprus problem
remains unresolved.
Interfax: Turkish Prime Minister Recep Tayyip Erdogan has made several comments that he wants to resolve the Cyprus issue and do it soon.
YL: But it remains to be seen on the ground. The
president of Cyprus has been trying hard to resume the talks and
negotiations, but what we have seen so far is a pretty inflexible stance
from the Turkish side.
Interfax: If the decision to start negotiations is
motivated by the commercial incentive of importing East Mediterranean
gas, is there a fear that a resolution will be reached in the interest
of economic gain, rather than a fair political settlement?
YL: The discussions for the Cyprus problem will have
nothing to do with what we are doing for the offshore hydrocarbons. We
have had Turkish occupation for 40 years and certainly we cannot remain
hostages for another 40 years. So we will be developing those fields
independently of the conversation. We are truly hoping they could be an
incentive for Turkey to come to terms and finally agree that there has
to be a just and sustainable solution and actually see it on the ground,
and certainly it does have the power to do so. But the two issues are
not related.
Interfax: As an EU member, why does Cyprus not
mobilise the EU to lobby Israel for an LNG plant on Cyprus, assuring EU
guarantees and financing for the development of the project and exports?
YL: It is not down to that and certainly I cannot
talk on behalf of Israel, but what I can say is we have an excellent
relationship on all levels with the Israeli government and on multiple
fronts as well. Now, the Israeli government will need to decide what its
preferred export route or routes are. The EU is certainly keen on
having the East Mediterranean gas and they have expressed their support
in trying to find the best way that the gas can be transported, so the
EU is engaged and I’m sure they will be engaging even more as we
progress with the exploration activity.
Interfax: What specific things has the EU done to
help Cyprus with gas transport? Compared with their lobbying efforts for
Shah Deniz volumes, the EU has been very quiet in the East Med.
YL: The European Commission has approved two
projects of common interest in the region and both of them have to do
with gas. One of them is for the LNG storage facility which could be
part of the LNG plant, and the other is to investigate the possibility
of a pipeline from Cyprus to Greece and onto the rest of Europe.
Interfax: I had understood that because of the water
depth and distance between Cyprus and Greece that pipeline would be too
expensive – is it still being considered?
YL: I have not yet seen a study which tells me how
technically or economically feasible such a solution is, which is
exactly what the project would look into. But it does show the EU is
starting to get interested. Obviously Shah Deniz is in a much more
advanced stage than the developments in Cyprus and it comes as no
surprise that the EU are more keen right now to conclude the deal with
Shah Deniz, Trans-Anatolian and Trans-Adriatic pipelines.
Interfax: What is your opinion on the growing
Russian involvement in the East Med? Is Russia likely to play an
important role in the region?
YL: In some ways yes – but it remains to be seen how
these recent deals materialise because it’s one thing to express an
interest and another to put your feet on the ground.Take, for example,
Lebanon [where several Russian companies are prequalified bidders],
where the licensing round has been delayed once more. With Syria it’s
still in very early stages and with Israel, it’s at the level with the
companies, so it remains to be seen how that will progress.
The United States Geological Survey made some predictions a few years
ago about the presence of oil and gas in the East Med. For gas at
least, some of those predictions are starting to materialise as we’re
having more and more discoveries and we will certainly have more
discoveries over the next 12 months, so it’s not surprising
multinationals from Russia – or multinationals from anywhere – will
start to get interested in that area.
Interfax: Do you see any potential for Russian involvement in either the gas upstream or export industry in Cyprus?
YL: The potential is there. As far as the upstream
is concerned, we have closed the second licensing round and we are
working on the timing that we could potentially open the third. That
would probably happen once we have more discoveries that would lower the
risk for upstream investors when they come. But certainly we would
welcome Russian interest just like we would welcome any big
multinational.
Interfax: Are you looking at options other than LNG for monetising Block 12 gas, such as GTL?
YL: That will probably come in the longer term. For
such an industry to be competitive you need cheap gas. The number one
priority now is to get the gas to shore through an onshore LNG plant and
once it’s there then it can be used for many other means. But
monetising from the angle of GTL, petrochemicals and other related
industries is in the second phase of the plan. First of all we want to
monetise the gas.
Interfax: Why prioritise LNG development over GTL?
YL: Because with LNG you can build much faster
economies of scale. With GTL, it would take longer for us to build
economies of scale and make a project to bring gas to shore viable for
the purpose. Some of the companies we’ve talked to need really low
prices to make GTL viable and the field is in deep water so it’s not
going to be cheap. We have it in our plans, but it is phase 2, so we’ll
see how things develop over the next few months.
Interfax: How will you proceed with the development of blocks 5 and 6, considering they overlap with Turkey’s EEZ claims?
YL: Last December we invited Eni – the only
remaining valid bidder in the second licensing round – to negotiate the
terms of an agreement for blocks 5 and 6, but Eni wasn’t ready to
propose anything better than what they already had when the second
licensing round started, so basically we closed it off there. We
consider blocks 5 and 6 to be within Cyprus’s EEZ, we will explore it –
just like we did with anything else – it’s just a matter of finding the
right commercial terms.
Interfax: Did Eni decide not to raise their bid because of the political risk exploring those blocks?
YL: If they were taking political risk they would
not have asked for it in the first place. It was more of a commercial
risk and the reason being that we do not have dense seismic in the
western blocks so company’s risks were higher. At least this was my
personal interpretation. I know that this was merely a matter of
commercial risk because the company, even up to the last minute they
wanted to take the blocks.
Interfax: Why did you decide to structure Cyprus
National Hydrocarbons Co. (CNHC) the way you did? Some commentators have
criticised the decision to move towards a ‘fully political’ board’…
YL: I don’t agree that it is a fully political
board. The main difference is that we will not have an executive board.
But what is more political, to appoint an executive chairman to the
board or to appoint a non-executive chairman and then hire with open
procedures the best chief executive, chief operations officer and chief
financial officer that we can find?
The reason we did it and structured it in this way was so we could
have a properly functioning company with a non-executive board and an
executive team of directors who are accountable to the board.
The board is the first level of control, then the second level of
control is the shareholder, which is the government, and we have also
introduced a third level of control which is the auditor general of the
republic.
One of the reasons we failed as a country – and I am referring to the
recent financial crisis – was the absence of oversight, auditing and
controls.
Where was the control of the banks when they were buying Greek bonds
or when they were selling worthless paper to unsuspecting civilians?
That’s what we are resolving, because this company could potentially be
the largest in Cyprus in the not-so-distant future and we want multiple
levels of control so we can appoint a board of directors who are not
going to be political appointees but will be appointed by us as
shareholders.
Their mandate will be to go out and hire the best that we can find,
in terms of a chief executive and an executive team that will be
separate from the board of directors.
Interfax: What will happen to the current directors, such as Charles Ellinas?
YL: We’ve discussed it with Charles Ellinas. He
didn’t feel compatible with the structure we wanted to put in place so
we found an amicable arrangement and he is going to be leaving the
company.
Interfax: Do you know who you will appoint as chairman of the board?
YL: No, not yet. We have some thoughts, but I am waiting for us to return to Cyprus with the president so that we can look at it.
Interfax: Will you be looking only to appoint Cypriots, or looking internationally?
YL: For the chief executive and other executive
roles, anyone can apply. For the role of chairman we do have some names.
The vast majority are Cypriots, but we do have some foreigners as well
for the board. We will be making a decision soon, I hope before the end
of the month.
Interfax: The president is giving a talk at the
London School of Economics on Thursday on Cyprus’s geopolitical role:
David or Goliath? What is your interpretation of Cyprus position in the
East Med?
YL: There is no doubt that we are a tiny country,
but we are trying to leverage on the opportunities that we have in front
of us to make an impact. I wouldn’t call us either a David or Goliath.
We are just trying to make an impact for the size that we are. And this
is why we are strengthening our relationships with Egypt; we signed a
unitisation agreement with the Egyptian government on 12 December.
We are strengthening relations with Israel, with Lebanon – with whom
we’re now negotiating a unitisation agreement even though the tri-point
debate between Israel and Lebanon remains. With the central or pivotal
role that Cyprus’s geography can play in a turbulent region, we believe
we can make an impact that is bigger than our size to bringing
stability, prosperity and peace to the region. The more stable the
political environment is, the more investments we can attract.
Interfax: Could you see Cyprus playing a role mediating the dispute between Israel and Lebanon over their shared maritime border?
YL: That role is obviously undertaken by someone
much bigger than us, which is the United States. But certainly, Cyprus
has played its role and where it fits, we will continue to do so because
we have an open channel and direct communication with all the East
Mediterranean countries.
Interfax: Will companies need to hold a stake in upstream licences to play a role in LNG exports in Cyprus?
YL: One of the options we are looking at is linking
the interests of the upstream with the midstream. The plan will be a
facility that will process the gas, because ultimately our interests and
our profits are in the upstream and are determined by the production
sharing contract.
Interfax: Have you started discussions with potential LNG buyers in Asia?
YL: We have. Some of them have been coming to us, in
other cases we have been going to them. We’ve had some discussions and
certainly there is a good interest in Noble’s current plan to farm out a
30% interest in its stake in Block 12.
We are waiting to see the results of this process, but I have to say
we’ve been pretty pleased with the interest Block 12 has drawn and the
names and destinations.
Interfax: Are you just looking for LNG buyers to come in and take equity in the upstream?
YL: We’re looking at all; upstream, midstream,
downstream. The vast majority are engaged in all options, we’re not
looking only at buyers of gas.
Interfax: Are you still looking at Europe as a potential market?
YL: Absolutely, with the number of regas facilities
in operation and those who plan to put them into operation; Croatia is
looking for one, Greece is trying to build another. Europe is definitely
a key market for us.
Interfax: How do you plan to price Cyprus LNG; will you be looking to sell under oil-linked contracts or hub-based pricing?
YL: We haven’t got into that detail yet and I expect
once we set up the national oil company that will be their number-one
task, to look into that together with our partners.
Interfax: What size stake will CNHC take in the plant?
YL: It is something we are discussing internally –
what kind of level of ownership we will have in the LNG and the
attractiveness of the investment. We will also have to look at how much
we can afford. That is the number-one consideration, especially
considering the current circumstances. So with all that, we are going to
be deciding soon.
Interfax: How soon?
YL: The decision won’t be made public until we have
concluded discussions with Noble on the government project agreement,
but hopefully we will be deciding in January.
Interfax: When are you looking to launch the FEED study for the LNG plant?
YL: We are already at the pre-FEED stage. We will be
looking at FEED once we know we have enough gas to move ahead. When we
have that we can go to FEED and then FID.
Interfax: Now that the decision to import LNG into
Cyprus has been abandoned, how will you meet Cyprus’s domestic gas
demand before Block 12 comes online?
YL: We are launching another process now. The
previous one wasn’t coming out cheaper than the liquid fuels we’re using
today. But the reason it wasn’t coming cheaper was because it was based
on a 3.5 year contract, which was not nearly enough time for anyone to
amortise their big FSRU investment requirements. So we closed that
process and reopened it with new parameters. We’ve set it out for 7-10
years and we’ve managed to slightly increase the quantities of gas that
we demand.
We are doing that by running another back-up power station
optionally, and not mandatorily, so we can feed more gas into the
turbines we already have. As we’ve increased the number of years and the
quantity of gas, hopefully we can negotiate a good import price.
The tender has already been sent to the European Commission and will be
published in the EU official gazette in the next 10 days.
Interfax: How much gas will you be looking to import?
YL: We are looking to import 650 million cubic
metres per year [MMcm/y] and this will increase over the duration of the
contract to about 900 MMcm/y.
We are tendering for the supply of gas in a technology-neutral way.
We are not asking for LNG or CNG. We will allow the bidders to come and
propose the best option that we can find. We want gas at the power
stations, that’s what we want.
Interfax: Has anyone already expressed interest in this new revised plan?
YL: DEFA, the state-owned company, has been approached by a number of suppliers.
Interfax: When do you plan to close the tender and have the facility online?
YL: We hope we can conclude it over the next four
months because we know what we want. We want straightforward proposals,
with no prequalification rounds, for this quantity of gas, for this
timeframe.
We hope to start imports in 2016, but it depends on the proposals we get and what they say.
Link to source: http://interfaxenergy.com/natural-gas-news-analysis/lng/the-big-ambitions-of-a-small-island/
