Christopher Coats, Contributor
I write about energy and policy issues facing the Mediterranean region
Follow (34)
GREEN TECH
|
7/23/2013 @ 10:44AM |272 views
Cyprus Eyes Gas Export Expansion, At A Cost
Comment Now
Follow Comments
|
|
|
MODIS satellite image of Cyprus. (Photo credit: Wikipedia)
In the two years since Cyprus first reported access to offshore gas and oil reserves, the country has worked quickly to bring its energy potential online. After inking exploration deals with Noble, Eni and Total, Cyprus turned its attention to the challenge of moving beyond domestic demand and towards a potentially lucrative export market – an opportunity the rest of Europe had no problem getting behind. Unfortuntaly, during this period, Cyprus has also experineced the kind of economic collapse that causes people to write off entire generations.
In late March, the country’s new government finally worked through a bailout deal with a trio of lenders commonly known as the Troika – the European Central Bank, the European Commission and the International Monetary Fund – in an attempt to keep their economy alfoat. Instead, the 10 billion euro burden now on their books, coupled with some rather creative treatment of the country’s bank customers, has ground the Cypriot economy to a halt. According to a recent IMF report, the country’s economy is expected to shrink 9 percent this year and a further 4 percent the year after.
So, where does this all leave the country’s energy-driven recovery, built on an estimated 50 to 60 trillion cubic feet of gas and 1.7 billion barrels of crude in waters off its southeastern coast. If exploited with care, the reserves could bring in as much as $400 billion over the next couple of years ['decades' the author means]. Under the country’s current economic limitations, it would appear to be stranded.
Despite the country’s significant, estimated reserves, Cyprus lacks the current downstream infrastructure to export the gas beyond its own shores in any significant way. This is not from lack of trying but any viable option, including new pipelines or Liquified Natural Gas plants remain restrictively expensive for Nicosia to consider alone.
As expected, Cyprus has turned to a host of international partners to get things started, beginning with the first planned LNG facility with the assistance of Noble and Israel’s Delek Drilling and Avner Oil Exploration. This first plant will be located near Limassol and cost an estimated $12 billion in order to bring LNG sales online by 2014 and begin exporting by 2020.
However, that first plant appears to be the country’s first step on the way to fully realizing its energy potential. According to the Cyprus National Hydrocarbons Company, plans are being studied to build an additional five production lines in the near future. The facilities will meet both domestic production needs and be able to accept gas in from other Eastern Mediterranean actors, most notably Israel and Lebanon.
Thus far, these plans have received exactly the kind of interest Cyprus hoped for, including potential funding support from both Total and Eni, as long as their respective efforts in the region prove successful. (Eni has announced plans for their first exploratory well sometime next year)
The more pressing issue for Nicosia will be how they negotitate this financing without giving up too much along the way. In the run up to recent national elections, Nicos Anastasiades insisted that his government would keep the country’s broader financial problems and energy negotiations separate. Gas revenues would be on the table only when they started to materialize – not before. The idea behind such a pledge was that he did not want to write off future earnings and the country’s surest path to future growth under duress. However, now in office and faced with an even dimmer economic outlook, the pressure is on to get things moving, whatever it takes.
One possible alternative for the country’s export challenge could come with a proposed Cyprus-Crete-Greece pipeline, linking Eastern Mediterranean gas with the wider European market. In June, Cypriot officials discussed the project and the benefits of a permanent link to European consumers. In addition to offering a constant flow west, as opposed to LNG deliveries which could fluctuate with pricing, a pipeline might qualify for increasingly elusive EU structral funds.
This year saw the European Union reduce their budget for the first time in its history, cutting into those funds available for supporting structural projects. This belt-tightening has made it necessary for projects to be deemed “strategic” for the community’s energy security.
Link to article: http://www.forbes.com/sites/christophercoats/2013/07/23/cyprus-eyes-gas-export-expansion-at-a-cost/
