By Lefteris Adilinis and Fiona Mullen
The prospect of a land-based liquefied natural gas (LNG) plant could be back on the table if Total finds significant quantities of gas when it drills in Block 11 next year or if the new licensing round comes up with large discoveries, according to energy minister Yiorgos Lakkotrypis.
An LNG plant is not in the government’s current plans and the environment for LNG is currently difficult, with global companies cutting back production. At the same time, however, construction costs have been coming down because of steel prices.
“A lot will depend on the size of the discovery: how big it is, what the prices would be at the time, what other conditions there are,” the minister told the Cyprus Weekly.
When asked what production options would be possible if there were a very big discovery, Lakkotrypis said: “it could make LNG viable too”.
However, the minister is determined not to make any predictions about the size.
“I will not talk about probabilities of success. Unless we drill, unless we reach the target depth, we cannot be sure, so allow me to be cautious here,” he said.
The government is waiting to hear the exact date of Total’s drilling, as the company is in the process of choosing operators to build the necessary infrastructure in Limassol.
Earlier plans for a land-based LNG plant were officially shelved in early 2014, after ENI’s disappointing exploratory drilling in Block 9 and Total’s surveys of Block 10 found no discoverable resources. With gas prices falling and only the Aphrodite field, with an estimated 4.5 trillion cubic feet (tcf), having been discovered, the government adapted its plans to sell gas to Egypt instead.
However, the prospects for natural gas were revolutionised in August 2015, when ENI discovered the massive 30 tcf Zohr field just 6 kilometres from the Cyprus Exclusive Economic Zone (EEZ). Using different techniques from the past, ENI discovered the gas in the carbonate rocks of the Eratosthenes Seamount, most of which lies within the Cyprus EEZ.
“Certainly after Zohr we are seeing increased prospectivity of the Cyprus EEZ, especially because Zohr is fully associated with the Eratosthenes Seamount,” said Lakkotrypis, adding that it was a “completely new play”.
“It is one of main reasons why we published the third licensing round.”
Third licensing round
In late July the government received six bids from different consortiums representing eight major companies for Blocks 6, 8 and 10 offered.
“We will probably announce the winners some time at the beginning of 2017,” Lakkotrypis said.
The biggest competition is over Block 10, which Total relinquished before the Zohr find changed everyone’s calculations. Three bids were received: from a consortium comprising US giant ExxonMobil and Qatar Petroleum; ENI together with Total; and Statoil of Norway.
With rigs already in the region because of the Zohr find, as well as due to rig availability in the market, companies are unlikely to have to wait a long time to start drilling.
“In 2014 we were expecting the drilling rig to come for 90 days. This is no longer the case,” said Lakkotrypis.
The Turkey factor
Asked how Cyprus would respond to a pipeline across the Cyprus EEZ that would export Israeli gas to Turkey, Lakkotrypis said there are three elements: the legal, the political and the commercial.
“The legal element is determined by the international law of the sea—the United Nations Convention on the Law of the Sea (UNCLOS) and customary law—which determines that the state needs to give its consent for the routing and for environmental and other purposes. The political aspect is well known,” he said.
For the commercial element, he noted the weight companies attach to bilateral agreements. Construction of the Nord Stream and TAP pipelines each required intergovernmental agreements from all the countries affected, for example.
“There you have the three elements for this possibility: the political, the legal and the commercial and for them to come together a solution to the Cyprus problem is required,” he said.
Future for gas imports
“The legal element is determined by the international law of the sea—the United Nations Convention on the Law of the Sea (UNCLOS) and customary law—which determines that the state needs to give its consent for the routing and for environmental and other purposes. The political aspect is well known,” he said.
For the commercial element, he noted the weight companies attach to bilateral agreements. Construction of the Nord Stream and TAP pipelines each required intergovernmental agreements from all the countries affected, for example.
“There you have the three elements for this possibility: the political, the legal and the commercial and for them to come together a solution to the Cyprus problem is required,” he said.
Future for gas imports
The future of gas production is also related to the future of gas imports. The Natural Gas Public Company (DEFA) announced in February that it had decided not to award a gas-importing contract to any of the bidders.
Lakkotrypis said that they had no immediate plans to re-launch.
“What we are aiming to do now is to investigate our options with regards to the infrastructure,” he said.
DEFA has been given a mandate to look at the most optimal infrastructure for importing gas, whether gas is bought from the spot market or via long-term contracts.
“It could be a floating storage regasification unit (FSRU), a terrestrial unit, maybe some other technology. There is no immediate need to relaunch a tender which failed three or four times,” said Lakkotrypis.
However, he noted that gas imports were important for a number of reasons: environmental, EU obligations on carbon emissions, efficiency and the security of supply.
“If we have a solution where we can build the infrastructures for importing gas – LNG – and then we have a solution that reimports our own gas, then you can have redundancy.”
In energy jargon, redundancy means that if one supply fails, you can rely on the other.
“It is about enhancing your security of supply, which is the number one priority as a country with an isolated energy system. So we consider them complementary,” he said.
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Lakkotrypis said that they had no immediate plans to re-launch.
“What we are aiming to do now is to investigate our options with regards to the infrastructure,” he said.
DEFA has been given a mandate to look at the most optimal infrastructure for importing gas, whether gas is bought from the spot market or via long-term contracts.
“It could be a floating storage regasification unit (FSRU), a terrestrial unit, maybe some other technology. There is no immediate need to relaunch a tender which failed three or four times,” said Lakkotrypis.
However, he noted that gas imports were important for a number of reasons: environmental, EU obligations on carbon emissions, efficiency and the security of supply.
“If we have a solution where we can build the infrastructures for importing gas – LNG – and then we have a solution that reimports our own gas, then you can have redundancy.”
In energy jargon, redundancy means that if one supply fails, you can rely on the other.
“It is about enhancing your security of supply, which is the number one priority as a country with an isolated energy system. So we consider them complementary,” he said.
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