We Need to Speak of “Proven Discoveries” |
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How significant are the hydrocarbon discoveries for the future of Cyprus, both on the socio-economic front as well as geopolitically?
We need to speak of “proven discoveries”. What we have now is the Aphrodite find which is in itself undergoing an exploratory second drilling. The current finds, if confirmed, will obviously allow Cyprus to create electricity out of its own resources and perhaps export gas from a one-train LNG facility. If, however, as many analysts predict, there are more reserves in our EEZ then the rules of the game will change. Any surplus will be exportable, as domestic needs would have been covered already by Noble’s current find. That, in turn, will create a much larger development in the wider energy sector and in the LNG area specifically, which will create thousands of highly-paid jobs directly and indirectly. Since upon the confirmation of new reserves, investment will have to be made in order to monetize the same, we would see a direct injection of funds into the economy which would begin to drastically limit the effects of the current financial crisis. It would also give the impetus for interest among the local population to adapt and educate itself on energy issues, creating new fields of excellence which, in a decade or two, may rank on a par with accounting and legal services, at which Cypriots excel.
The local energy sector is characterized by its high dependence on imported energy and the strong dominance of oil in the energy balance. How is this going to change?
Assuming that the finds will be substantial and the monetization plans successful, this will tip the trade balance in favour of Cyprus, which will probably become a net exporter. We will see the total substitution of oil (as coal has not been used domestically), as source of electricity and we may even see motor vehicles running on gas and even electricity. This, paired with the ever-increasing introduction of photovoltaic technology in the production of domestic and/or industrial sources of energy, will lead to a diminishing of oil as the dominant fuel and the dependence of Cyprus on external sources. It is useful to note that companies involved in hydrocarbon exploration consider it a strong possibility that oil may also be found. Such a discovery may lead to a review of the above strategy but I believe that, due to Cyprus’ EU environmental obligations, we will still push domestically for “clean energy” and orientate ourselves towards petroleum export, as a fast way to inject cash into the government’s coffers.
Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn't this an area that is perfect for Cyprus to step into?
At the moment Europe is greatly dependent on Russian imports, a fact that cannot be over-emphasized, as evidenced by the latest Ukrainian crisis. This puts Europe in a geostrategic hard place. The new Trans Adriatic Pipeline (TAP) has now been approved to brink Azeri gas to Europe via Turkey, Greece, Albania and Italy. We have to put this into perspective, as major shale gas discoveries have been made in Poland. The price of gas in the future will be dependent on the willingness of the EU and its Member States to exploit such resources, a difficult task, since it raises the spectre of environmentally harmful practices and access to hitherto greenfield sites. Cheap shale gas may also be imported to Europe by the United States which is very advanced in shale gas exploitation. Furthermore, we should take into consideration Germany’s decision to close down aging nuclear stations that will reduce the local supply in the short term. Cyprus’ role as an exporter to Europe will be related to the levels of pricing of the gas, taking into account all the above considerations. As the political situation stands right now, a pipeline linking any Cypriot gas production to Turkey is out of the question so the cost of LNG production ought to be factored in. It has been mentioned – and rightly so – that only the LNG proposal enables Cyprus to act independently and materialize the highest available price for its gas, which may be the price offered in the Asian market.
How great a contribution can Cyprus’ gas reserves make to Europe’s energy security and energy needs?
That would depend on the quantities found. At any rate, Cyprus and possibly Israel will create another alternative pool of energy assets.
There are currently no specific tax laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary?
I believe that the current scheme of profit sharing arrangements is a good one and will benefit both the government and the participating companies. It will be harmful to introduce new tax burdens on those companies and add another level of bureaucracy. The low tax regime will lead to even more investment in the domestic gas industry and the government should expect to receive funds from profit sharing and, more importantly, from a healthy and boisterous economy that will be created from this new industry.
Do you believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem?
It would be if we were dealing with logical players. I believe that Turkey now wishes to import gas from Cyprus as it is economically sensible to do so and it has no proven reserves of its own. Furthermore, I believe that Cyprus would benefit greatly from exporting gas to Turkey via a short undersea pipeline (without abandoning the LNG project). It is also clear that major powers now wish the Republic of Cyprus to be free to exploit its resources, independently of the control of any foreign overlord. The Government is willing to give the Turkish Cypriots their equitable share of any financial gain. However, unless Turkey matures enough to see an independent Cyprus as a partner and not as a potential protectorate, a solution will not be within reach.
Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to international companies involved in the sector for some time. What services do you provide?
We offer services across the board as we are a full service firm of more than 50 lawyers. Our services are focused on corporate law and finance but also regulatory and environmental advice. We also maintain a strong litigation team. Furthermore, throughout the years, we have had a major shipping department. The firm is geared to serving major international banks and other corporates and has been involved in the financing of major energy projects in Russia and Eastern Europe in the last decade as well as in shipping finance involving LNG and tankers. The firm envisages being actively involved in the energy sector, acting as local adviser to investors, financiers, contractors, etc.
With this in mind, the firm is actively seeking to create ties and synergies with major players in the international arena.
Link to source: http://www.goldnews.com.cy/en/energy/we-need-to-speak-of-proven-discoveries
