With oil and gas prices suppressed for the foreseeable future and with Egypt – touted as the premier market for Cypriot natural gas – set to ramp up its own energy production in the near term, Cyprus needs to fast rethink its whole gas export policy, an energy analyst has told the Cyprus Mail.
“If we’re serious about selling our gas, then we have to look at other areas,” said Charles Ellinas, commenting on latest developments in Egypt.
The neighbouring country is poised to become energy self-sufficient over the next few years as multiple gas projects there come on stream.
Recently Egypt renegotiated higher gas prices, of up to $5.88 per mmbtu (million British thermal units), prompting gas companies to fast-track project development.
Ellinas cited a presentation given last week by Egyptian Minister of Petroleum & Mineral Resources Tarek El Molla at the Offshore Technology Conference (OTC) in Houston.
There, El Molla ran through a laundry list of projects, noting that in the Nile Delta Cone alone lie an estimated 223 trillion cubic feet (tcf) of undiscovered gas reserves.
Moreover, significant but as of yet undiscovered gas reserves are believed to exist in the Upper Egypt and Red Sea areas.
The Egyptian minister said his country has signed 66 concession agreements over the years, and more are likely on the way.
And in the coming weeks, El Molla revealed, Egypt would be launching a new bidding round for 28 blocks for both onshore and offshore areas.
In addition to the massive Zohr find, expected to come online late next year, several smaller gas fields are being developed.
Ellinas estimates this will lead to an additional 60 billion cubic metres (bcm) of gas being produced by 2020, more than sufficient to cover the needs of the power-hungry nation.
“Our own officials insist that plans to export to Egypt are on track. But we’ve been talking to the Egyptians since 2014, is it conceivable that we still haven’t reached a deal?”
More likely, the expert suggested, the talk of exports to Egypt amount to lip service.
“It’s time for a Plan B. We ought to consider other options, such as selling CNG (compressed natural gas) to south-eastern Europe.”
One such possibility would be via the recently unveiled Interconnector Greece-Bulgaria (IGB), a proposed pipeline providing a direct link between the national natural gas systems of Greece and Bulgaria with an entry point in the vicinity of Komotini and an exit point in the vicinity of Stara Zagora.
Ellinas points out that these questions – of how to produce and where to export – will remain for Cyprus even if Total were to make a significant gas discovery in its offshore Block 11 concession.
Government officials have said Total plan an exploratory drill later this year, or early 2017.
In the meantime, the only confirmed gas find in Cyprus’ Exclusive Economic Zone is the Aphrodite prospect in Block 12, holding an estimated 4.5 tcf.
But here too, the development and production plan for Aphrodite of the Block 12 partners – Noble, Delek, Avner and British Gas – is missing in action.
The production-sharing agreement (PSA) between the government and the Block 12 partners is set to expire on May 23.
Unless a development plan for Aphrodite is not sanctioned by that deadline, notes Ellinas, then the PSA would lapse.
However that is a remote possibility, the analyst added. More likely the government will extend the agreement for a few more months.
The justification for the extension, Ellinas predicts, would probably be that the government is giving British Gas – a recent entrant into the Block 12 consortium – time to give its own feedback on the development and production plan.
But in any case, beyond May 23 the Block 12 partners have to relinquish all of the Block 12 acreage back to the government, except for the Aphrodite field – assuming an extension to the PSA is granted.
“Of course, the best option financially still is exporting Cypriot gas to Turkey, fetching good prices. But that depends on a solution of the Cyprus problem.”
That also ties into the exports of Israeli gas to Turkey, via a pipeline which geography dictates must necessarily pass through the Cypriot EEZ.
Israel, anxious to start monetising its massive gas reserves, would therefore need Nicosia’s permission to build the pipeline.
But again, this is not set in stone, said Ellinas.
Under the Energy Charter, the treaty under which Cyprus and Israel are operating after delineating their respective maritime borders, Cyprus can object to such a pipeline running through its EEZ, but cannot stop it.
For instance, Cyprus might cite environmental concerns about the route of an Israel-Turkey pipeline. Whereas the objection might delay the project, Turkey and Israel could then come up with an alternative route.
Although Ellinas thinks it improbable that Israel would take that step, thus jeopardising its political relations with Cyprus, he wonders how long the Israelis are willing to wait for the Cyprus issue to be resolved.
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