Cyprus gas export options

gas-options

Efforts in Cyprus continue with the preferred export option of Aphrodite gas by pipeline to Egypt. This article examines this but also all other possible options and their implications in more detail.

These include:

• Land-based LNG plant
• Floating LNG (FLNG)
• Exports by pipeline to Europe
• Exports to Europe by CNG
• Exports by pipeline to Egypt for its own domestic use
• Exports by pipeline to Egypt’s LNG plants

With drilling exploration activities coming to a close following the disappointing results in Block 9 and the departure of SAIPEM’s 10000 drilling vessel, the exploitation of Cyprus’ only success so far, Aphrodite gas, entres center stage. Hence examination of these export options is timely.

This article examines the first three options.

Current status

 

In January, after evaluating exploration survey data, Total declared that it could not locate any targets to drill in Blocks 10 and 11. Later in March Total signed an agreement extending its presence in Cyprus by one year to conduct geological and geo-chemical surveys, but no drilling, in and around Block 11.

In March, following drilling two unsuccessful wells in Block 9, Eni-Kogas submitted a request to proceed with the re-evaluation of the geological model over a two-year period and postpone drilling in the meanwhile. They announced that the geological data collected from the two wells would be very helpful for the future re-evaluation of their exploration programme for all three blocks, 2, 3 and 9.

Noble has also suspended any further drilling in Block 12 for the foreseeable future.

As a result, all exploratory drilling in Cyprus’ EEZ has stopped and plans for future drilling will be delayed, possibly for two years.
This provides a window of opportunity to concentrate efforts on restarting negotiations for the resolution of Cyprus problem. It also suits the gas companies. Total, ENI and Noble, along with most international oil companies (IOCs), have slashed their 2015 budgets in light of very low oil prices. Drilling in the east Mediterranean is costly due to its considerable depth.

Noble and its partners are the only companies in Cyprus to have made an exploitable discovery, the Aphrodite gas field in Block 12, with a mean estimate of 4.54 trillion cubic feet (tcf). Noble intends to submit a development plan for Aphrodite and declare commerciality in April. This development plan will be based on installing a FPSO over the field for gas production, but should leave the door open to all possible export options, not just to Egypt. These are reviewed in the following.

Land-based LNG Plant

Ever since the previous government approved the development of a land-based LNG plant at Vasilikos in 2012, reconfirmed by the present government in May 2013, this was the preferred export option until March this year.

Cyprus has had ambitions to become a regional energy hub not only for its own gas exports but also for Israeli and Lebanese gas.
Noble carried out a feasibility study in 2012/13 and the cost of the Vasilikos plant was estimated to be about US$9 billion for two liquefaction trains, considered to be a minimum for the facility to be commercially viable. However, with only Aphrodite gas available, this is not possible. Without additional reserves in Cyprus for the time being, the only other option for Cyprus would have been to obtain gas from Israel’s Leviathan. And indeed there was a lot of interest from Israel to do exactly this in 2012 and 2013, but the opportunity was missed.

Since then, oil and gas prices came down considerably making the land LNG option challenging, not only because of the low LNG prices globally but also because of the considerable capital costs such a venture would require. Only an investor with strategic LNG interests could possibly pursue such a project. As a result, Cyprus has, for now, shelved plans to create its own LNG plant.

Floating LNG (FLNG)

Similar arguments apply to the option to use a floating LNG vessel for the liquefaction and export of Aphrodite gas. Even though the technology is evolving and becoming more cost-effective, FLNG is still a capital-intensive project at a time when IOC finances are not very strong.

Exports by pipeline to Europe

Another option would be to construct an undersea pipeline, the East Med Gas Pipeline, from Israel and Cyprus to Greece and beyond that to Europe. This has been approved by the EU as a project of common interest (PCI), making it eligible for EU funding.

However, such a project is technically challenging due to the pipeline length, extreme seabed roughness and seismic activity, and over 3000m water depth which limits pipeline diameter and export capacity to about 8 bcm per year. These limitations make this pipeline option financially challenging. In any case, a full feasibility study is about to be started by IGI Poseidon, with EU funding, and it should demonstrate feasibility or otherwise.

The commercial viability of exports to Europe through Turkey still needs to be demonstrated, but this also requires solution of the Cyprus problem. The development of Southern Corridor and Turk Stream has also changed the energy balance in Turkey, with its own impact on the region.

Source: In-Cyprus