Cyprus’ Calypso gasfield could resurrect country’s energy sector

The latest offshore drilling could bring a large gas discovery off Cyprus. Named the Calypso field may in fact have the chance to release the Cypriot gas industry.

In 2011, Noble Energy, which had conjured up the East Mediterranean gas rush with large finds in Israel, discovered the Aphrodite field off the eastern coast of Cyprus. Cypriot demand is minor at some 0.1 billion cubic feet daily, meaning that most of the production would have to be exported. But with 4.5 trillion cubic feet of gas, Aphrodite was too small to support an independent pipeline or a liquefied natural gas (LNG) facility.

Turkey, the most obvious nearby market, is inaccessible until the division of Cyprus is resolved. Interest in Cyprus languished until in 2015 Italian firm Eni found the giant Zohr field off Egypt, just south of Cypriot waters. Total and Eni drilled on the other side of the border in July and confirmed that the geology of Zohr did exist in Cyprus’ sector, but found only a small quantity of gas.

Meanwhile Israel developed its fields for its own use, but has far more gas than it needs and has struggled to find export markets. It could not reach Turkey, since Lebanese and Syrian territory is barred to it. In any case, relations with Ankara have been rocky. Noble has begun sending limited amounts of gas from Israel to Jordan, but discussions over exports to Egypt have not led to a deal. The development of Zohr, which began producing in December, has reduced the urgency for Cairo, which hopes to eliminate its need for LNG imports this year.

BG, now owned by Shell, bought a stake in Aphrodite in 2015. It hoped to bring gas to its plant at Idku near Alexandria, which has been almost unused due to shortages of Egyptian gas, liquefy it and re-export it. But Eni would probably rather use Zohr’s infrastructure to bring gas from other fields it owns to the Damietta LNG plant in which it and Zohr partner BP hold shares, rather than helping Noble and Shell.

This possibility was boosted in December. After Lebanon awarded two offshore blocks to a consortium of Total, Eni and Russian firm Novatek, which hopes to drill next year. Israel described the tender as “very provocative”, as the countries have a disputed maritime border, which one of the blocks adjoins. Without diplomatic relations, they cannot even negotiate a resolution. But Lebanon’s good relations with Cyprus means that it could use the island as a hub if it makes a large discovery – or, if the Syrian civil war permits, it could build a pipeline to Turkey.

Calypso is rumoured to hold 6-8 trillion cubic feet of gas, according to the Middle East Economic Survey, itself based in Nicosia. The geology is said to be the same as Zohr, suggesting further big finds could be made in a broad swathe of deep sea between Egypt and Cyprus. Energy minister Yiorgos Lakkotrypis said on Friday that there were “encouraging indications”, but the size of the find has not been officially announced yet, pending the result of the Cypriot elections on Sunday, which may be followed by further negotiations over re-unifying the island.

In December, Cyprus and Israel signed up to an EU-backed initiative to construct a €6 billion, 2,000km undersea pipeline to carry 1.6 billion cubic feet of gas per day to Greece and Italy. Most observers have written this off as unfeasible. But if – a big if – it could be built for the estimated cost, it would have a delivery cost of some $1.5 per million British thermal units, cheap enough to be competitive in Europe and cheaper than building a new LNG plant in Cyprus or Israel. At least, it gives the supply countries additional leverage in negotiations with Egypt or Turkey.

Calypso and Aphrodite might just about be enough together to feed such a pipeline but, more likely, additional gas would be required from one of the four East Mediterranean countries. Eni is next going to sink a well off Cyprus’s east coast, adjoining Lebanese waters. Given the iron logic of pipelines, whichever partnership and export route gets going first will likely set the pattern for the basin’s development.

Between them, Eni and Total are strongly placed, with acreage in three of the four regional countries, and major discoveries in two of them. It is a tribute to their persistence in the face of challenging geology, some drilling disappointments, and convoluted politics. Calypso is still teasing us, but soon her secrets may be revealed.

Robin M Mills is CEO of Qamar Energy