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Expanding Cyprus gas options

By Lefteris Adilinis and Fiona Mullen

Cyprus is looking at all options for exploiting offshore gas reserves in the Block 12 Aphrodite field, with nothing excluded according to the energy minister George Lakkotrypis, in an interview with the Cyprus Weekly.

Lakkotrypis sent a letter on Monday to the Natural Gas Public Company (DEFA), authorising the gas importer to start negotiations with the partners in Block 12 and the state-owned Cyprus Hydrocarbons Company (CHC) for the supply of Cypriot gas to the domestic market.

DEFA has been charged with running the tender for the temporary import of natural gas or the so-called ‘interim solution’ from third parties.

However, the process has been beset by delays and bidder Delek reported in January the DEFA had put off its decision due at the end of that month.

Although DEFA has kept a deafening silence on the whole issue, it is clear that the minister has decided to look at all options.

Asked if supply of gas to Cyprus from Block 12 would mean that the interim solution had now disappeared, he said the government wanted to examine if it was possible to combine the two.

“We want to see if they are complementary or competitive,” he said. “It all depends on the timing. When can our own gas arrives and at what price?”

Recent disappointing results have driven the latest policy. The two wells drilled by Eni-Kogas in Amathousa and Onasagoras came up dry and it emerged earlier this year that Total would not be drilling in Blocks 10 and 11 this year.

Thus, Block 12 is the only gas that Cyprus has to play with for the time being.

“We got a wake-up call when we received the results of the appraisal wells. So we need to investigate all of the options,” said the minister.
“We cannot be limited to a single dimensional strategy. It is handy that we did our homework,” he added, referring to the fact that other options were never abandoned even when the construction of a liquefied gas (LNG) plant was the government’s main objective, if there had been enough gas.

The current options include selling gas via pipeline to Egypt and sending gas for domestic consumption to Cyprus.

Noble Energy, which holds the largest share in the Aphrodite field, is due to submit a development plan for the field.

“We expect it over the next few weeks. But it will happen,” the minister said.

Two companies for Egypt and Cyprus?

Lakkotrypis was confident that there would be enough demand in Egypt for Cypriot gas, despite the Egyptians’ stated aim of being self-sufficient in gas by 2020 and potential competition with Israel to fill capacity at the underutilised liquefied natural gas (LNG) plants on Egypt’s coast.

“They can take anything we give them,” he said, adding that they have a very frank relationship with the Egyptian government.

Asked if there was enough gas or money to send pipelines in both directions, Lakkotrypis said: “The discussion that we have with the companies in Egypt and our own operators here is a direct pipeline to one of the two LNG terminals, an FPSO [floating production storage and offloading unit] at Aphrodite, a pipeline directly to Egypt and a pipeline to Cyprus.”

It seems that two different consortia could be building the pipelines.
“It is not necessarily the same entities that will build the pipeline to Egypt and Cyprus,” he said.

“You have different entities interested in selling to Egypt and others interested in selling to Cyprus.”

He explained that the prospect of exporting gas also made domestic supply more viable.

“The challenge we have had all these years is that the demand in Cyprus is so small. It has not been possible to justify the large capex [capital expenditure] required.”

However, bringing in third parties changes that.

“If we are able to export and the capital investment is amortised among the different players that makes it more attractive,” he explained.

Other options if Cyprus problem is solved

Lakkotrypis said that the primary driver of decisions on gas exports was commercial, since they were dealing with profit-making companies.

“The government is trying to strike the right balance with the right conditions, markets that are accessible and realistic in a political sense too.”

But he hinted that a window was being left open for supplies to Turkey if the long-standing Cyprus problem could be solved.

This week, the UN envoy Espen Barth Eide announced that there were no obstacles to re-starting the negotiations, expected to resume in early May.

Asked if the government was keeping a possible solution of the Cyprus problem in mind in its gas planning, he said: “When we have new discoveries, options will be on the table again, depending on technical, economic and political dimensions.”

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