Nicosia, 12 November 2019
Gerald Butt
The discussion of exactly where the gas discovered back in 2011 in Cyprus' offshore Block 12, by a consortium including US independent operator Noble Energy, would end up has loomed for almost all the 2010s.
At his Nicosia office, the country's energy minister tells Petroleum Economist Middle East editor Gerald Butt that the question has now finally been resolved.
What is now the way ahead for Aphrodite?
Lakkotrypis: The plan is that we will transport the gas vis a subsea pipeline to Egypt, liquefying it at Idku, from where it will be shipped by Shell [another partner, along with Israel's Delek, in Aphrodite] to international markets, primarily Europe. We have spent the past 12 months or more discussing the details of a revised production sharing contract (PSC) and field development plan. So now we have the exploitation licence. First gas will be in 2025.
Why has it taken so long to get gas out of Aphrodite?
Lakkotrypis: The field is about 4.5tn ft³ in size. And conditions in the market have not been very helpful. For example, the fact that the price of oil has been hovering around $60-70/bl-or even lower at some points-for the past few years has not helped. So, we have looked at various options-all this time. How do we export the gas? It is ultra-deep water here. But the primary obstacle has been the economic conditions. And this is exactly what we have been discussing with the consortium over the past year.
You do not think that the operator has been lax in not getting on with it?
Lakkotrypis: No. There were, admittedly, certain things that could have been done [quicker], there is no doubt about that. At the end of the day it is our feeling that we could have been sooner. But that is fine. We are where we are, and the consortium as a whole sees this one particular way forward. We have discussed the framework and agreed.
“Cyprus has demonstrated in the past and will go on exercising our sovereign rights in both exploration and exploitation, despite Turkish provocation that has intensified over recent months” Lakkotrypis
Aphrodite gas will go to Egypt to be liquefied. Will it come back to Cyprus?
Lakkotrypis: Potentially. In November, we will be signing the contract with the Chinese-led consortium for the floating storage regasification unit (FSRU) infrastructure for our plans to import LNG at Vassilikos on the south coast. We carried out due diligence and are in the final stage. Of course, the natural question here is: why do you not get your own gas from your own fields? The answer is as follows. The Cyprus domestic market is very small, about 0.7bn m³/yr, which will eventually climb to about 1bn m³/yr but then flatten out. The capital expenditure required was so large that it did not make economic sense to develop a particular field just for Cyprus.
So, we applied to the European Commission (EC). We received a grant of about €100mn, which is about a third of the capex required to construct the import terminal, the FSRU facilities, jetties, everything. We are launching the process of introducing LNG in two ways: a supply contract which will be for three-to-five years; then topping up on the spot market. Three-to-five years will allow us time to investigate-when fields such as Aphrodite are producing-whether it is a viable option to build a pipeline from one of the fields. When that happens, if it makes economic sense, then we will be able to keep the LNG facilities for back-up for security of energy supply.
Why did you not lease an FSRU, rather than building your own?
Lakkotrypis: It was part of the discussion with the EC. They don't finance lease contracts, only the purchase of infrastructure.
But importing LNG is relatively expensive compared to pipeline gas. Will this mean electricity prices going up?
Lakkotrypis: On the contrary. Based on the information we have received from the bidders to supply LNG, we are cautiously optimistic that we will be able to find a more competitive price than pipeline gas. This is because, as I explained, imagine you had to develop the whole of the Aphrodite field just for the needs of Cyprus. Where would we load the large capital expenditure required to construct the field infrastructure, build the pipeline, transport the gas to Cyprus? Now, with our method, we will proceed with introducing imported gas for the next five years. Aphrodite will export most of its gas. But if it is economic maybe we can bring some of that gas to Cyprus. And maybe Glaucus and Calypso will also be producing by then as well.
Greece's Energean offered to bring pipeline gas to Cyprus from its Israeli offshore fields at a relatively low price. Why did you turn that down?
Lakkotrypis: First of all, it was unsolicited. There was no process. The process is very clear, it is one we agreed with the EC to build an FSRU to import LNG. Secondly, and probably the most important thing, Cyprus wanted to own its own infrastructure for security of supply. But, going forward, we will consider pipeline gas imports from our own fields or those of our neighbours.
Are you still thinking of setting up an LNG liquefaction plant on Cyprus, if enough gas is found?
Lakkotrypis: That is the key phrase: if enough gas is found. Since the Tamar discovery in 2009, followed by Leviathan, Aphrodite, Zohr and so on, 2.1tn m³ of gas has been discovered in the East Med deep offshore. There is likely to be more to come. One of the goals of the East Mediterranean Gas Forum is to discuss how to make our gas more competitive globally. We are having to compete with both Russian and US gas exports. So, we decided firstly to use existing infrastructure. This is why we are leveraging the Idku facilities, and why some of Leviathan's gas is going to Egypt. From then on, if more finds are made, we will be looking at a greenfield project in Cyprus.
The year ahead is a busy one for exploration. What can we expect?
Lakkotrypis: We are finalising plans with the international oil companies now. I cannot give the details yet. But we will soon be launching the Eni/Total drilling programme, ExxonMobil will be appraising the Glaucus discovery, and we expect Noble to proceed with another Aphrodite appraisal well. We are looking at a horizon of 12-24 months to have all the wells drilled.
Are you confident that exploration will go ahead, even with the Turkish presence so close to the island?
Lakkotrypis: Yes. Cyprus has demonstrated in the past and will go on exercising our sovereign rights in both exploration and exploitation, despite Turkish provocation that has intensified over recent months. There is no doubt that the Cyprus economic exclusion zone is European territory and that our discoveries are European discoveries. The situation in the East Med is attracting increasing attention from the EU, the US and our other allies. Turkey is alone in all this. All the other countries in the East Med have put aside traditional regional rivalry to come together to see how we can best explore and exploit our energy resources.
But do you really expect Eni, Total, ExxonMobil and others to put their personnel at risk if they are facing the Turkish navy?
Lakkotrypis: The companies know their business better than anyone. They are committed to the country. Their plans are on the table and they will proceed exactly as originally anticipated. So that's all I can say. From there on, of course the companies will have the security of their personnel at the top of their agenda.
Lakkotrypis: We are finalising plans with the international oil companies now. I cannot give the details yet. But we will soon be launching the Eni/Total drilling programme, ExxonMobil will be appraising the Glaucus discovery, and we expect Noble to proceed with another Aphrodite appraisal well. We are looking at a horizon of 12-24 months to have all the wells drilled.
Are you confident that exploration will go ahead, even with the Turkish presence so close to the island?
Lakkotrypis: Yes. Cyprus has demonstrated in the past and will go on exercising our sovereign rights in both exploration and exploitation, despite Turkish provocation that has intensified over recent months. There is no doubt that the Cyprus economic exclusion zone is European territory and that our discoveries are European discoveries. The situation in the East Med is attracting increasing attention from the EU, the US and our other allies. Turkey is alone in all this. All the other countries in the East Med have put aside traditional regional rivalry to come together to see how we can best explore and exploit our energy resources.
But do you really expect Eni, Total, ExxonMobil and others to put their personnel at risk if they are facing the Turkish navy?
Lakkotrypis: The companies know their business better than anyone. They are committed to the country. Their plans are on the table and they will proceed exactly as originally anticipated. So that's all I can say. From there on, of course the companies will have the security of their personnel at the top of their agenda.
