Friday, July 12, 2013

Cyprus Studies LNG Export Expansion Beyond $12 Billion Terminal | Bloomberg

Cyprus Studies LNG Export Expansion Beyond $12 Billion Terminal

By Anna Shiryaevskaya - Jul 12, 2013 1:09 PM GMT+0300

Cyprus, the Mediterranean island that reported its first offshore natural-gas find in 2011, is studying an expansion of planned export capacity to help revive economic growth.

The country may build as many as five liquefied natural gas production lines, or trains, in addition to a planned $12 billion, three-train terminal near Limassol, according to Cyprus National Hydrocarbons Co., in charge of all gas developments. Extra gas for the plants could come from nearby countries.

“Three trains won’t be enough,” Chief Executive Officer Charles Ellinas said by telephone. “We may have land available for eight trains, to also make sure we can accommodate gas fromIsrael and Lebanon.”

Cyprus plans to start LNG exports in 2020 after it invited international companies to explore offshore. Gas shipments are part of a plan to boost the sputtering economy following a 10 billion-euro ($13 billion) bailout agreement with European partners and the International Monetary Fund this year.

The government in June approved a framework for negotiating construction of the first terminal with Houston-based Noble Energy Inc. (NBL) and Israel’s Delek Drilling LP (DEDRL) and Avner Oil Exploration LLP. (AVNRL) A company will be set up this year to run the plant and arrange LNG sales starting early in 2014, Ellinas said.

Noble Discovery

Noble has a 70 percent stake in Block 12 off Cyprus and in late 2011 said it found 7 trillion cubic feet (198 billion cubic meters) of gas. The company last month began a second phase of appraisal drilling. Delek and Avner have 15 percent stakes in the same block.

Total SA (FP) and Eni SpA (ENI) have Cypriot exploration licenses too and are “keen on joining the LNG project,” Ellinas said yesterday. Total, which has rights to Blocks 10 and 11, may also be interested in working with Noble at Block 12, he said.

“We are in discussion with the Cyprus authorities to see how we can support them to develop a gas monetization scheme including LNG export,” Anastasia Zhivulina, a spokeswoman for Paris-based Total, said today, declining to comment on its potential interest in joining Block 12.

Eni is interested in investing in the terminal if oil and gas are found at its blocks, CEO Paolo Scaroni said yesterday.

Export of LNG, or gas chilled to a liquid for shipment, may help revive an economy that’s set to shrink about 13 percent in the next two years, IMF forecasts show. The plant may create as many as 10,000 jobs from as early as 2016, when construction is due to start, Ellinas said. Domestic gas output will also feed local power plants, helping to cut electricity bills.

Israel Gas

Cyprus is in talks with Noble on the potential for additional supplies from its Israeli Leviathan field for export from the Cypriot LNG plant, Ellinas said.

Cyprus has an advantage over Israel because it has already chosen a site for a terminal, Noble CEO Charles Davidson said in April.

Israel, which has found about 950 billion cubic meters of gas offshore, is studying ways to export the fuel from a region marked by political tensions. The choices include a floating LNG platform in its waters or delivery to regional hub Turkey. Noble expects commercial output from Leviathan around 2016.

“The government’s gas-export policy has to allow for multiple options,” Noble said in June. “We will explore every opportunity, but if the range is too limited, some of those opportunities will be lost.”

Gas from Noble’s Block 12 off Cyprus, which may contain “at least one more gas field,” will feed the terminal’s first train, which will produce 5 million tons of LNG a year, Ellinas said. Construction will cost $6 billion, while the second and third trains will cost $3 billion each, he said.

The six Cypriot exploration permits awarded so far may hold as much as 40 trillion cubic feet of gas, according to Ellinas. The government has other blocks yet to be licensed.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow atashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

Link to article: http://www.bloomberg.com/news/2013-07-12/cyprus-studies-lng-export-expansion-beyond-12-billion-terminal.html

Thursday, July 11, 2013

Italy's ENI expects to drill for gas off Cyprus next year | Reuters

Italy's ENI expects to drill for gas off Cyprus next year

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Analysis & Opinion

Cyprus bond swap is good publicity, bad economics

Wednesday, July 10, 2013

Mediterranean Sea plays offer new opportunities | OFFSHORE

07/10/2013John Pappas, Chadbourne & Parke LLP

Offshore reserves may help Greece and Cyprus rejuvenate their economies
As Greece searches for a solution to its unending debt debacle and Cyprus seeks €5.8 billion ($7.6 billion) for its European bailout, both countries' best hope may lie under their very shores. In the past four years, fortunes in fossil fuels have been unearthed in the eastern Mediterranean. In April 2010, the US Geological Survey estimated 122 tcf of recoverable natural gas in the eastern-most part of the Mediterranean Sea (the Levant or Levantine basin), more than the world consumes in a year. If this and other estimates are correct, these offshore natural gas and oil deposits may play the deus ex machina to the current Greek drama.

Although parts of the Mediterranean Sea have been explored for many years, new technologies that allow highly sensitive underwater surveying and deeper offshore drilling have exhumed previously inaccessible reserves underneath the sea. Cyprus, for example, may hold 7 tcf of natural gas, which according to Cyprus' own commerce minister may be worth €100 billion ($131 billion). These figures have led some to speculate that Cyprus may lease or sell the rights to its newly discovered natural gas and oil to pay off its debts. A recent visit by Cyprus' finance and energy ministers to Russia to discuss debt solutions certainly helps fuel those whispers. Yet Cyprus was not the first place in the Mediterranean to unearth oil and gas.
Israel's initiation

Major plays in the Mediterranean Sea.

It all started offshore Israel. Noble Energy, a Houston-based oil and gas company with Israeli ties, led the exploration of oil and gas in Israel's waters in the Levant basin. There Noble first discovered the Mari-B field, the first offshore natural gas production facility in Israel, which began production in 2004. Then Noble moved farther offshore discovering the fields Tamar in 2009 (9 tcf); Dalit in 2009 (0.5 tcf); Leviathan in December 2010 (17 tcf – enough to supply Israel's gas needs for 100 years); and Dolphin/Tanin in February 2012 (1.2 tcf). To put these amounts into perspective, in 2011 the three largest natural-gas consuming countries consumed 24.3 tcf (the United States), 17.9 tcf (Russia), and 5.4 tcf (Iran).

The Leviathan gas field is Noble Energy's largest find, and Noble retains a 39.66% working interest, sharing with Avner Oil and Gas (22.67%), Delek Drilling (22.67%), and Ratio Oil Exploration (15%). Leviathan is predicted to start production in 2016, while Tamar, the second-largest find in the Levant basin, began production this past March. Along with natural gas, Noble Energy also estimates that Leviathan could hold up to 4.3 Bbbl of oil. Israel has long depended on foreign sources for its energy needs, making these finds very welcome news. Gideon Tadmor, chairman of Delek Drilling and chief of Avner Oil, both subsidiaries of Delek Energy Systems, said in a New York Times article that these offshore natural gas discoveries have "enabled Israel to enter a new era in which we will become an exporter of energy."

Cypriot second wind

Cyprus' Exclusive Economic Zone (EEZ) is emerging as a significant offshore play.

While developing its Israeli finds, Noble Energy also eyed the waters of Cyprus. In October 2008, Noble Energy received the exploration rights off the southern coast of Cyprus to block 12 of Cyprus' maritime Exclusive Economic Zone (EEZ). After beginning exploratory drilling in September 2011, Noble discovered the Aphrodite gas field. This find is 21 mi (13 km) west of the Leviathan gas field. It is believed to hold 7 tcf of natural gas, more than Cyprus could consume in a century. Noble shares ownership of the well (70%) with Delek Drilling (15%) and Avner Oil Exploration (15%), the same partners in the Leviathan field. The country's Commerce Minister, Praxoulla Antoniadou, estimated that 7 tcf of gas in block 12 is worth around €100 billion. In fact, Solon Kassinis and Charles Ellinas, heads of the Cyprus Natural Hydrocarbons Co. (CNHC), have both said that Cyprus envisages having more than 60 tcf of total gas reserves in its EEZ. This too comes as welcome news to a debt-ridden and cash-strapped Cyprus.

In February 2012, Cyprus announced a second licensing round for the remaining 12 out of 13 blocks of Cyprus' EEZ. On Jan. 24, 2013, Cyprus licensed a consortium including Italy's Eni and South Korea's KoreaGas Corp. (Kogas) to explore blocks 2, 3, and 9 of Cyprus' EEZ. Additionally, on Feb. 6, 2013, France's Total paid Cyprus €24 million ($31.6 billion) for the license to explore blocks 10 and 11. Total announced it would conduct a series of 10 exploratory drillings for gas and oil over the next three years. It is thought that it will focus mainly on oil. It will likely take these companies until 2018 to produce oil and gas for domestic consumption and 2019 for export.

Pipelines versus LNG
The greatest debate surrounding the Leviathan and Aphrodite discoveries is how to transport the oil and gas to market. There seem to be four possibilities on the table: a pipeline to Turkey; a pipeline to Greece; a liquefaction plant in Cyprus; and a floating liquefied natural gas (FLNG) vessel.

The first option is politically complicated. Building a pipeline to Turkey that would feed into existing pipeline infrastructure to Europe could be the most cost-efficient choice. However, Turkey has already decried Cyprus' offshore exploration, claiming the waters as its own, threatening to cut participating energy companies from access to Turkey's market, and sending a warship into the area after test drilling started in 2012. Even if Cypriots and Turks could agree on the rights to the Aphrodite oil and gas, Cypriots worry that Turkey will, like Russia, use the gas valves for political ploys.

As for the Israelis, Turkish relations have been similarly strained; at least they were before March 22, 2013. On that day, Israeli Prime Minister Benjamin Netanyahu publicly apologized to Turkish Prime Minister Tayyip Erdogan for Israel's 2010 raid on the Turkish ship Mavi Marmara that resulted in the death of nine Turkish activists seeking to bring aid to Gaza. Israel may have extended this olive branch to facilitate warmer relations between Israel and Turkey on the Syrian issue, and to smooth the possibility of a potential pipeline to bring natural gas from Leviathan to Europe through Turkey. However, while this public statement may ease tensions between the two countries, the threat of Turkey turning off the pipeline in the future remains; and there is also the unending Palestinian impasse (Turkey supports Palestine). Thus although possible, a pipeline through Turkey remains problematic.

The second option would entail constructing a pipeline from Cyprus to Crete and from Crete to Greece, connecting then to existing pipelines throughout Europe. However, this option appears to not be commercially viable. At least that seemed to be the conclusion at the 2nd Cyprus Energy Forum in December 2012. Solon Kassinis, vice president of the CNHC, hinted that this idea has been all but abandoned. The main concerns appear to be the high construction cost, long construction time, falling electricity demand and prices in Europe, and the necessary long-term supply contracts that would be linked to the price of oil.

The third option consists of constructing a liquefaction plant in Cyprus, where the natural gas from both the Leviathan and Aphrodite fields could be liquefied and shipped. The major benefit of this option is that the LNG can then be shipped to a variety of markets (Europe as well as Asia), garnering higher prices on the spot market. The largest drawback however is the price tag – LNG terminals typically cost about $10 billion (as compared to $1 billion for a Cyprus-Turkey pipeline). Kassinis explained at the 2nd Cyprus Energy Forum that Cyprus was contemplating an LNG facility with up to three trains for a total capacity of up to 15 MM tons/yr. An LNG train is a liquefaction and purification facility, which typically has capacity for 5 MM tons of natural gas a year. For those wondering about constructing an LNG plant in Israel instead of Cyprus, this option appears impractical because of limited space, environmental concerns, and security problems in Israel.

The fourth option is mooring a floating LNG vessel at Leviathan and Aphrodite. On one hand, this option has great advantages – exportable LNG and lower cost relative to a pipeline to Greece – but on the other hand the technology is new and untested. There are also fears that the vessel would be vulnerable to terrorism.

While no option has definitively been chosen, recent developments suggest that an LNG plant in Cyprus will win the day. Cyprus has announced plans to build the Vasilikos LNG Terminal at the Vasilikos Energy Centre, which already serves as an energy hub on the island. It seems that the CNHC and Noble Energy are waiting for final confirmation of block 12 reserves before potentially entering into a joint venture to build Train 1 of the LNG terminal. They should have this confirmation by the end of 2013. Subsequent trains will depend on the extent of more natural gas finds. It is not clear whether Israel will choose to connect its Leviathan field to the Vasilikos LNG terminal. While it has achieved some sort of rapprochement with Turkey, suggesting that it is contemplating building a pipeline to Turkey, such a pipeline would also pass through Lebanese and Syrian waters and require those countries' approval. Considering this and the other shortcomings of a Turkish pipeline listed before, it is likely that Israel will connect to the Vasilikos terminal any natural gas that exceeds its domestic needs.

Greek hopes

These oil and gas discoveries in Israel and Cyprus are also providing inspiration to those Greeks who hope to drill themselves out of debt, and lessen Russia's natural gas grip over Europe. "It is important that Greece returns to the energy map again," said Energy Minister Evangelos Livieratos. "Our country can attract new investment, create new jobs, and boost its geo-strategic position and competitiveness to exit the crisis." In 2012, one study by Athens-based Flow Energy estimated €600 billion ($787.9 billion) worth of offshore natural gas in Greece over 25 years. This study discovered geological similarities between the Levantine basin and offshore Crete. In the waters south of Crete, the study estimates 3.5 tcm (123.6 tcf) of natural gas, enough to cover over six years of EU gas demand, and 1.5 Bbbl of oil.

Still others estimate that total offshore oil in Greek waters exceeds 22 Bbbl of oil in the Ionian Sea and some 4 Bbbl in the northern Aegean Sea. Evangelos Kouloumbis, former Greek Industry minister, recently stated that Greece could cover 50% of its needs with the oil to be found in offshore fields in the Aegean Sea. Highlighting how unexplored Greece is regarding hydrocarbon potential, one Greek analyst, Aristotle Vassilakis, cited surveys that estimate $9 trillion worth of natural gas. Tulane University oil expert David Hynes told an audience in Athens recently that Greece could potentially solve its entire public debt crisis through development of its new-found gas and oil, conservatively estimating that reserves already discovered could bring Greece more than €302 billion ($396.5 billion) over 25 years.

Despite the touted potential of oil and gas in Greece, it is important to remember that almost 200 fruitless test wells have been bored in various parts of Greece in the past century. The most recent one was approximately 12 years ago. However, those who are optimistic about Greece's energy potential respond that most of the tests were badly managed or carried out at the wrong locations. Right now, Greece spends €10-12 billion ($13-15.7 billion) a year on oil imports, about 5% of its GDP. This dependence on foreign oil, coupled with its need for financial solutions, might make oil and gas Greece's silver bullet.

On Nov. 11, 2012, the Norwegian Petroleum Geo-Services ASA (PGS) began a three-month long seismic survey of the Ionian Sea and water south of Crete, an area that covers a total 220,000 sq km (84, 942 sq mi), an area 40% larger than mainland Greece. By mid-2013, the survey analysis should be complete, and in the first half of 2014 Greece plans to hold a licensing round for exploration blocks. However, before holding a licensing round, Greece would also need to establish an EEZ, a move it has yet to undertake.
Other Mediterranean hopes

In addition to Israel, Cyprus, and Greece, other Mediterranean countries are interested in exploring for natural gas and oil. Incited by the finds of their eastern neighbors, Spain and Italy are looking into offshore exploration. "There is a lot of potential, we believe, in the Mediterranean region," said Simon Thomson, chief executive of Cairn Energy of Britain, which is exploring off the coast of Spain and bidding for licenses in Cyprus. "A lot of hydrocarbons have already been discovered, but we believe there's a lot more to be discovered."

Expressing the same sentiment, petroleum geologist David Peace told Reuters that "[i]f you look at the offshore license map of Italy, about two-thirds of it is open…Italy is one area that has been overlooked, especially the south." To facilitate these efforts, Italy is relaxing its ban on offshore drilling, placed after the 2010 Deepwater Horizon spill.

More specifically, there appears to be interest in the waters around Malta, with geologists believing that the oil-rich geology of nearby Libya extends northward underneath the sea. The prospects are strong enough that Genel Energy (headed by former chief executive of BP Tony Hayward) has partnered with Bill Higgs (chief executive of London-based Mediterranean Oil and Gas). The company hopes to finish drilling its first well in the area by the end of 2013.

Natural gas in Europe
To compare the figures in Israel, Cyprus, and Greece to Europe, one needs to review the natural gas production and consumption among European countries and the reserves of natural gas these countries hold. For this analysis, all figures were taken from the Energy Information Administration's website. Norway clearly leads the continent in natural gas production while also having a very low degree of consumption. The Netherlands and United Kingdom are the only other two significant producers, although production in the UK has declined significantly over the past four years. As a comparison, one could note that in 2011, Russia produced 23,686 bcf, more than six times what Norway produced. The major consumers of natural gas are the UK, Germany, Italy, France, Turkey, the Netherlands, and Spain. In general, consumption seems to have declined in the past four years, especially in Germany, except in Turkey, which shows an upswing in consumption in 2011. Lastly, Norway and the Netherlands lay claim to the largest reserves in Europe by far, although Russia's 1,680 tcf in reserves dwarfs that amount.

John Pappas is a Project Finance Associate in the Washington, D.C., office of the law firm Chadbourne & Parke LLP. He is a member of the New York Bar and the Energy Bar Association, and can be contacted at jpappas@chadbourne.com.
SOURCE

Sunday, July 7, 2013

Can gas drive down our electricity prices? | Cyprus Mail

July 7, 2013 ***** NOTE THE DATE *****

Can gas drive down our electricity prices?

By Elias Hazou

CYPRUS inches closer to making up its mind on whether to import interim supplies of natural gas – but the million-dollar question still stands: will it drive down sky high electricity prices?

Talks between the Natural Gas Public Company (DEFA) and preferred bidder Itera are set to continue into next week, after negotiations on Wednesday and Thursday did not yield an agreement.

Cyprus is seeking to secure a short-term supplier of natural gas not exceeding 1.2 billion cubic metres (bcm) per year as a stop-gap solution until it can bring ashore its own natural gas. The interim gas would be used for domestic electricity production.

Under the terms of the call for expression of interest, the supply of gas was to begin no later than early 2015 and last up until September 2018, when the island should be able to start using its own resources from the natural gas discovery in its Exclusive Economic Zone (EEZ).

In terms of technology, DEFA’s tender is open-ended: liquefied natural gas (LNG), compressed natural gas (CNG), or any other technology. The top criteria are time and cost, and DEFA has reserved the right not to finalise any deal if the price of electricity generated by natural gas will be higher than that currently produced from diesel.

Under the circumstances, the import options are predictable. Should CNG be selected, Cyprus (or the gas supplier) will have to build the first CNG ship in the world. Currently no such ship has been built. The American Bureau of Shipping (ABS) – a classification society – has approved one such concept but no shipyard has built one to date.

The second option is to lay a submarine pipeline either from Israel’s Tamar field, which has just come online, or from the Aphrodite gas field. Here, the engineering challenges are significant. Considering that the pipeline will be laid in water depth at times reaching 2,200m, the project would take three to four years to complete.

Another scenario would be to import liquefied natural gas on LNG ships with onboard regasifigation facilities which will convert cryogenically cooled LNG into its gaseous form. These ships are known as floating, storage and regasification units (FSRUs).

Electricity prices in Cyprus are among the highest in the EU

Details of the bids are bound by a confidentiality agreement, but it’s understood that Itera’s proposal envisages the deployment of FSRUs. Local media reports this week said Itera’s offer would see the gas sold to Cyprus just under $16 per million British Thermal Units (mBTU). Reportedly, DEFA is trying to get Itera to drop its final price a little more in order to clinch a deal.

But $15 or $16 per mBTU is not much lower than the electricity utility’s current cost of producing electricity from diesel, believed to be between $17 and $18 per mBTU. The EAC will not disclose its cost of electricity production, keeping it a closely guarded secret.

Just as talks with Itera were entering an advanced and delicate stage, it was leaked to the press that Noble Energy, which has a concession on offshore Block 12, has approached the government with its own idea for short-term supply of gas.

For the time being Noble’s proposal is ‘informal’, in that it falls outside the bidding process conducted by DEFA. That’s likely why the government – wary of being accused of acting in bad faith with Itera – has not confirmed Noble’s pitch, although industry sources have since corroborated that such an offer was made.

The US energy firm is said to be proposing to deploy a spar platform at the Aphrodite well to produce a gas flow smaller than conventional drilling platforms but still enough to cater to domestic electricity needs.

Reports said Noble is suggesting bringing the gas to the Vasilikos power plant by early 2016 – later than Itera – but at a cheaper price, $12 per mBTU.

Now, the Sunday Mail hears that yet another company is making a play: Sea NG, which specialises in the development and commercialisation of technology for marine transportation of CNG.

The Canadian company, which bid for the tender but did not make the final cut, claims it can deliver gas by 2015 and for a lower price than the others. Sea NG, sources said, would secure gas from Israel’s Tamar field and ship it to Cyprus.

Israeli currently pays $5.8 per mBTU for electricity from its own gas. Even assuming a slight mark-up on that price were the Israelis to sell to Cyprus, and with Sea NG adding another $5 for delivery, that would bring the tariff to between $10 and $11 per mBTU.

Meanwhile the Sunday Mail understands that in its tender DEFA cited two different maximum distances for the source of the gas. Though not naming the countries, it is evident that DEFA had Egypt and Israel in mind.

Analysts say the CNG method is ideal for markets within 2,000km of the gasfield, and CNG is economical over short sea journeys compared with LNG.

Still, it would take some convincing officials here since CNG has yet to be implemented anywhere in the world.

On the back of Noble’s spar platform proposal, Sea NG is now floating the idea of shipping gas from Cyprus’ Block 12. They would do this by deploying ships to Noble’s spar platform, and from there, the ships would fill up with the fuel in its gaseous form, compress it on board and transport it to a receiving facility at Vasilikos. Again, this proposal is outside the DEFA tenders process. Presumably, both Sea NG’s as well as Noble’s offers might be considered later should no deal be struck with Itera in the bids process.
Sea NG’s ‘taxi service’ to and from Block 12 would become relevant, for example, should Noble encounter difficulties in building a pipeline from its spar platform to the island’s south coast, and might choose instead to ship the gas in compressed form.

Sea NG estimates the total tab of its project to be in the vicinity of €500m.

By contrast, a pipeline alone running from the Aphrodite well to Vasilikos might cost double that. And besides the higher overheads for the related infrastructure, LNG is more expensive than the fuel in its gaseous form.

Moreover, sources said, Sea NG is willing to put up all the capital and to offer standard industry guarantees in the event of supply disruption.

The Sunday Mail is told also that the company has briefed both the Electricity Authority of Cyprus (the prospective buyer of natural gas) and the Cyprus National Hydrocarbons Company.

Successive reports by Eurostat have shown the price of household and industrial electricity in Cyprus to be among the highest in the EU. The electricity utility here has invested millions in acquiring dual-fuel combined-cycle gas turbines that run on either fuel oil or natural gas. For the moment, the machines continue to burn only the more expensive diesel.

Using LNG or CNG as an interim solution would almost certainly bring down electricity costs – but by how much? Will the cost be ‘substantially lower’ than current costs, as DEFA has specified in its tender? And how does one define ‘substantially lower’?

Link to source: http://cyprus-mail.com/2013/07/07/can-gas-drive-down-our-electricity-prices/

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Friday, July 12, 2013