Commercialization of the Cypriot Gas Underway

Cyprus’ energy future seems bleak, with TOTAL’s (perhaps temporary) withdrawal from Cyprus and ENI’s disappointing exploratory results. The partners in the Aphrodite field, discovered in 2011 and estimated at 4.5 Tcf, continue however examining options for the development of the field. The development of Aphrodite will allow the supply of natural gas to the domestic market and to regional customers, including Cyprus and potentially Jordan. According to a statement issued by the Delek Group, by the second half of 2015 ‘the partners will submit to the government of Cyprus ‘a notice declaring Aphrodite commercial under the SPC with a drafted development plan of Aphrodite. This will include a preliminary plan for the establishment of a FPSO with an estimated initial production capacity of approximately of 800 mmcf/d.’

The Aphrodite field, located in Block 12 of Cyprus’ Exclusive Economic Zone, is the only discovery made in Cyprus’ maritime zone to date. Texas’ Noble plans to conduct further exploratory drilling within Block 12 in 2015. Italy’s ENI conducted some exploratory searches in Block 9 of Cyprus’ EEZ but did not encounter recoverable amounts of natural gas. TOTAL had planned to commence its activities in 2015 but announced earlier this year that it had decided to withdraw from the island – at least for the time being – for not having identified drillable prospects.

Cyprus’ lack of discoveries has prevented the island from pursuing a multi-billion onshore LNG project that would have allowed the island to realise its energy hub ambitious. Cyprus needed to discover at least 12 Tcf of natural gas to afford a 1-train LNG terminal, according to experts. The island is now inclined towards a pipeline scenario that may involve exporting gas to Egypt and Jordan, both in need for natural gas. Egypt’s unused export LNG terminals could potentially allow Cyprus to export to far-reaching markets liquefied natural gas.

A lot of hype has been surrounding the discoveries of natural gas in the Eastern Mediterranean, but the countries are struggling to develop their resources and build a robust energy sector. Neighbouring Lebanon has not launched its first licensing round delayed by everlasting pending decrees. Israel is struggling with domestic debates related to its natural gas discoveries and risks jeopardizing regional deals and its attractiveness to international investors. A pending dispute between partners Noble Energy and Delek Drilling, and the Antitrust Authority still needs to be resolved at the risk of delaying production of the Leviathan field. Cyprus’ gas discoveries to date remain modest, and a sustainable solution to the divided island is yet to be achieved.

The effective development of offshore resources will no doubt ensure energy security and major economic benefits for the countries involved. But it remains uncertain if the Eastern Mediterranean parties will be able to overcome domestic rivalries, geopolitical complexities – and modest gas discoveries – to become significant regional players.