The energy industry has said that the prospects for an onshore liquefied natural gas (LNG) plant are fast receding and that the South’s government would need to act rapidly if it wanted to continue with its plans to build an LNG plant at Vasilikos.
Representatives from the US-based Noble Energy and Israel’s Delek consortium are in Istanbul this week to discuss a possible pipeline deal which would transport Israeli natural gas to Europe through Cyprus and Turkey. The Noble-Delek partnership will negotiate with Turkish companies Zorlu, Enka, Turcas and Calik since transporting Israeli gas via a different route would be eight times more expensive.
This series of recent developments in the energy industry now threaten to undermine the opportunities for an LNG project on the island.
Talks in Istanbul with the energy companies will include assessment of the logistics of the gas pipe project including technical issues, planning, cost and the possibility of Turkey buying the gas from Israel for domestic needs.
The mooted pipeline would need to pass through three national territories, Israel, Cyprus and Turkey, which would require permission from each country.
Energy experts say that the pipeline is estimated to cost US$2 billion against the US$10 billion required to build an land-based LNG plant in Cyprus.
Nevertheless, Israel has yet to formally meet with Turkey’s Energy Minister, Taner Yildiz to discuss such issues. Yildiz said that if such a request was made, his government would need to make an assessment. Despite there being no approach through formal channels, foreign private energy companies have been in communication with private Turkish energy companies to discuss potential joint efforts in the field of gas transportation.
Currently a land-based LNG facility in Cyprus is economically only viable if gas reserves from Cyprus’ Aphrodite field and Israel’s Leviathan field are combined.
Meanwhile, South Cyprus Foreign Minister Ioannis Kasoulides has flown Israel in anticipation of Israeli Prime Minister Netanyahu’s upcoming state visit to the South. At the same time, Kasoulides will be asking the Israelis what are their intentions around gas exportation.
The idea of building an LNG plant was first discussed by Delek, US Noble Energy’s Israeli partner in 2010. However, estimates for the amount of gas to be extracted were less than originally thought, leading to the idea of having to pool resources with Israel.
The LNG project, sources say, was still viable until the middle of last year, when Noble and Delek signed an MoU with the South Cyprus government on the LNG project. The MoU was supposed to be followed by talks leading to a final project agreement which, had it materialised, would have given major impetus to the LNG project and begun the search for investors. Delek however, had completely dropped the subject of LNG by November last year.
Noble CEO Charles Davidson said that although the Israeli Leviathan field would include LNG, the main export markets were nearby and using gas pipelines would be less costly and a speedier option for Leviathan investors.
Opinion in the energy industry is that even in the best circumstances, an LNG plant would not be ready before 2020, by which time the experts believe that the price of LNG in Europe would have dropped significantly, rendering the South’s LNG uncompetitive.
Despite these predictions, South Cyprus Energy Minister Giorgos Lakkotrypis said yesterday that the South intended to continue with its plans to build an LNG terminal and that Noble Energy’s talks in Turkey this week with major energy firms did not affect those plans.