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South Cyprus may have to delay LNG plant build

5 October 2013

South Cyprus may have to put its plans to build an LNG plant at Vasilikos on hold since the second test drilling in Aphrodite Block 12 has shown that there is considerably less gas than first estimated.

This result would put even more reliance on co-operation with Israeli.

Noble Energy’s drilling appraisal has only discovered a mean average of 5 trillion cubic feet (Tcf) of gas. According to the publication ‘Natural Gas – Europe’, 5.5 Tcf would be needed for economic viability. The experts appear to disagree since when, as previously published,  Dr. Theodore Tsakiris, Assistant Professor at the University of Nicosia was asked in a recent interview how much gas would be required to justify the construction of an LNG terminal. He replied that it would need 8-9Tcf of gas to be really economical and required a minimum of 7Tcf to be marginally viable before needing gas from other sources.

The magazine goes on to say that: “local sources are putting numbers closer to 3 tcf of gas in place, making the whole investment perilous when considering the high depths involved and the capital needed to create necessary infrastructure. Furthermore, the Cypriot government through its energy authorities has made known that a second appraisal drilling will take place, no sooner than March 2014 and it could be delayed up to a year from now. On the other hand other sea blocs could contain smaller reserves of 1-2 tcf that could be joined with Block 12 to revitalize the LNG terminal project. This would no doubt derail plans for at least another 4-5 years”.

It goes on to say that the South has drafted a last minute emergency plan in order to deal with these developments. There are intentions to negotiate with Noble and Delek in order to provide further incentives to continue with their offshore investment programme. The estimated budget for the production tests (100%) was approximately US$ 64 million.

The South will also boost initiatives to have four research drills from early 2014 onwards by Italian energy giant Eni, which has already bought licenses to conduct exploration.

Most importantly, Nicosia is going to push forward with a comprehensive energy collaboration with Israel that would transport gas from Tamar and Leviathan to Cyprus for export to international markets.

At the moment, Tel Aviv has not approved such a collaboration, Israel may want to keep its finds for domestic consumption, although it is widely assumed that the gas could be exported worldwide and the South believes that this is enough to boost its own LNG terminal viability prospects for the long term.

In mid-October, a delegation headed by the South Cyprus energy minister Yiorgos Lakkotrypis will visit Israel to conduct talks. In the event of a positive response, the South will launch an international campaign to raise capital needed for LNG infrastructure and then negotiate percentages with potential partners.

Should Israeli response be negative, South Cyprus could delay any LNG decisions until further explorations take place offshore Cyprus and if those prove successful, it would then have to establish the necessary infrastructure on its own.

In this event, Eni, as it was previously mentioned, would be allowed to rapidly drill in the Cypriot offshore zone, where it is estimated to stay for 24 months and conduct eight exploration drills, four each year in the sea blocks numbered 2, 3, and 9.

Total SA is set to conduct two exploration drills in early 2015. Concurrently on 9th October it will sign a Memorandum of Cooperation with the South Cyprus government for its future involvement in the LNG terminal and thereafter be able to participate in the aforementioned negotiations between Nicosia, Noble and Delek.

It looks like the road to gas marketing has taken another twist and turn; highlighting the complex business that is hydrocarbon exploration. The bets are on that any definite development on the LNG plant at Vasilikos could be delayed until the end of next year.

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