3 October 2016
Cyprus is desperate to export gas. But until more is found, piping it to Egypt is now the main idea, says energy minister Yiorgos Lakkotrypis
"The discovery of Zohr," says Cyprus's energy minister, "has completely changed the complexion of the East Mediterranean gas scene, proving the existence of a new play based on carbonates that extend into Cyprus's exclusive economic zone." Only exploration drilling will decide if Cypriots' optimism that a gas bonanza similar to Zohr has fallen into their laps is justified.
In the meantime, as they assess bids submitted in July for the three blocks close to Zohr, Yiorgos Lakkotrypis and his team are focusing on Cyprus's sole discovery to date, the 4.5-trillion-cubic-foot Aphrodite field in Block 12. Five years have elapsed since Noble Energy and partners discovered Aphrodite. There has been a delay in developing it, Lakkotrypis says, because, unlike Israel and Egypt, Cyprus "does not have a sizeable domestic gas market that will support the speedy development of fields. Therefore, for the development of Aphrodite Cyprus needs to depend largely on exports."
But finding an export market is proving difficult. Aphrodite's reserves, on their own, are too small to justify a liquefied natural gas facility on Cyprus. An agreement by Greek Cypriot and Turkish Cypriots to reunite the island would open the possibility of Cypriot natural gas reaching the Turkish market, either directly or via a proposed Israel-Turkey pipeline. But in the immediate future, Lakkotrypis says, the government has decided that "the most optimal way to proceed is to target the Egyptian market via a sub-sea pipeline".
“Depending on the quantities of gas, all the options that we have already examined are on the table”
While Egypt is offering above-average prices for delivered gas, it is questionable whether volumes from Cyprus' offshore could compete with new discoveries in Egyptian waters. Worse still for Cypriot plans, Egypt thinks it will be self-sufficient in gas around 2020. Still, Cyprus and Egypt in September signed the first of three intergovernmental framework accords in preparation for a day when gas might be exported.
Hope in demand
Cyprus's energy minister remains cautiously optimistic, insisting that rising gas demand in Egypt and falling output from its ageing fields will guarantee openings for Cypriot exports. On the other hand, he would not be drawn on the issue of whether the price of Aphrodite gas would be competitive in Egypt. "This is exactly what the negotiations are focussing on right now between the Aphrodite contractors and the Egyptian companies, whether for domestic consumption or for re-exports through LNG. We haven't yet reached a point where a price is agreed upon. These are ongoing discussions, they've been going on for a while. Certainly the conditions in the market are not helping." Until the price issue is concluded the Aphrodite development plan will remain on hold.
While the Aphrodite discovery turned out to be modest, the Cypriot government has high hopes for those fields thought to share Zohr's carbonate layer. Such is the lure of the Zohr find that major international oil companies are competing to develop Blocks 6, 8 and 10-with awards expected early in 2017. Meanwhile, Total will begin drilling in Block 11 in the first quarter of next year.
Even though these new blocks are geographically close to Egypt, there is no certainty that gas discovered there will target the Egyptian market. "We are approaching the whole new exploration programme with a completely clean sheet," Lakkotrypis says. "Depending on the quantities of gas, all the options that we have already examined are on the table, including onshore LNG. Big international companies will be involved. We are hopeful that if the projects are successful we will have sufficient quantities to support such an investment."
Ultimately, cold commercial reality will determine the success or failure of East Med gas as a whole. "We face a major challenge because of low global oil prices, there's no question about that," Lakkotrypis says. "Certainly price is having an impact on the Aphrodite project, like others. But everyone agrees that there is a big future for natural gas. We might have to be patient a little longer, but we are hoping that we can move soon."
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