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CYPRUS DRILLING SUCCESS MAY OFFER EU GAS ALTERNATIVE TO RUSSIA.

Cyprus said success drilling in deep waters off the eastern Mediterranean island this year may offer Europe a way to loosen Russia’s grip on its energy supplies. Cyprus, which has proven reserves of as much as 6 trillion cubic feet of natural gas, is looking to find another 4 trillion to 5 trillion cubic feet, Energy Minister George Lakkotrypis said. Such a discovery, about a quarter the size of Israel’s giant Leviathan find, would allow the country to proceed with plans for a liquefied natural gas terminal. An LNG plant on Cyprus could also process gas from elsewhere in the Levant Basin, an area that may hold 122 trillion cubic feet of gas, and ship it by sea to markets in western Europe, where supplies are now threatened by the crisis in Ukraine. Russia, which provides about 15 percent of the region’s needs through Soviet-era pipelines crisscrossing its western neighbor, has threatened to cut supplies from June. Cyprus will have “a pretty good idea” of its gas and hydrocarbon reserves within about 12 to 15 months, as companies including Eni SpA (ENI), Korea Gas Corp., and Total SA start exploration, Lakkotrypis said in an interview May 14.

Eni and Kogas will start intensive exploration within weeks in their licenses in blocs 2, 3 and 9, a campaign to last 12 to 18 months, he said. France’s Total, with licenses for blocs 10 and 11, will start exploration in the second half of next year. Noble Energy Inc., which found proven reserves of 3.6 trillion to 6 trillion cubic feet in the Aphrodite field, will drill another well in bloc 12, Lakkotrypis said. Noble was also responsible for the 2010 Leviathan discovery, then the world’s biggest in a decade. Cyprus last year held talks with the Houston-based explorer on the potential for taking supplies from the Israeli field for export from a Cypriot LNG plant. An LNG plant would require upfront capital expenditure of 6 billion euros ($8.2 billion) to 10 billion euros, and Cyprus is in talks with “large financial institutions which have expressed an interest in participating,” Lakkotrypis said. “The most pressing priority is to make another discovery,” before looking at financing options, he said in his ministry office in Nicosia. “Ultra-deep waters contain a very high risk. The probability of success is pretty low.” Cyprus is negotiating the terms and conditions for operating an LNG plant with Noble and will make a final investment decision by 2016-2017, he said. If sufficient gas reserves aren’t found, other options, including pipelines to existing plants in neighboring countries, are being explored. “We are not excluding anything, but the onshore plant is our No. 1 priority.” A pipeline to Turkey isn’t an option unless the countries resolve their territorial dispute. Since 1974, when Turkey invaded the island, the country has been divided into the internationally recognized Republic of Cyprus in the south and the Turkish Republic of Northern Cyprus. A new round of reunifications talks has now entered a “substantive phase,” according to the United Nations. Energy is one of the main potential growth sources for the island-nation’s economy, which is mired in deep recession, following a 10 billion-euro international bailout that came with strict austerity measures and included the imposition of losses to bank depositors.

As the crisis in Ukraine deepens, Cyprus seems to be seen as a key player in EU rush for alternative gas supplies.

Policy makers have even gone as far as to hope that new gas routes could help end decades of division on Cyprus. And the timing of US vice president Joe Biden’s visit next week in the island is no coincidence. It is worth reminding that it will be the first visit by a US president or a vice president in 52 years!

The risk of investing in energy infrastructure in Cyprus seems to have been reduced as the crisis in the Ukraine unfolds, with the EU looking towards solutions that may cost more, but which will ensure its energy security, an EU informal meeting in Athens has heard.

The prospects of the Cypriot natural gas and the role of Cyprus in the region seem to be important, after discussions at the Informal Council of EU Energy Ministers, held on 15-16 May in Athens.

The Cypriot Minister of Energy Yiorgos Lakkotrypis referred to the exploration of gas fields in Cyprus` Exclusive Economic Zone (EEZ) and in the wider south-east Mediterranean to strengthen the energy security of the EU.

“The construction of onshore gas liquefaction plant in Cyprus and the emergence of Cyprus as an energy hub is at the top of our energy priorities,” said the Minister.

Lakkotrypis supported the immediate implementation of projects that will help to reduce energy isolation of the Member States and enhance EU energy security. He noted that the possibility of additional funding for these specific projects should be examined more extensively as they contribute to the achievement of EU priorities.

Strategy draft

Based on the discussion of the Ministers, the European Commission will draft a strategy for the security of energy supply, which will consist of an in-depth analysis of the situation and a study to reduce EU energy dependency.

These studies will be discussed at the Council of Energy Ministers in mid-June and the European Council that will follow.

At the same time an industry source involved in negotiations with Russia says that the geopolitical instability underlines the need for an all-European solution to bring gas from Israel and Cyprus to western Europe. “That would create a win-win situation that would also improve the prospects for a peace settlement in Cyprus,” said the source.

Analysts say that the crisis over Ukraine has transformed the assessment of risk on investing in energy infrastructure in Cyprus.

Important meetings

On the sidelines of the Council, Lakkotrypis met with EU Energy Commissioner Gunther Oettinger and the Executive Director of the International Energy Agency (IEA) Maria van Der Hoeven. Lakkotrypis also held a private meeting with his Greek counterpart and President of the EU Energy Council Yannis Maniatis. The two Ministers reaffirmed their close ties and good cooperation between the two countries in the energy sector.

Lakkotrypis briefed the Greek Minister on recent developments in hydrocarbon exploration in the EEZ of Cyprus and government plans for the creation of the onshore gas liquefaction plant in Cyprus. Maniatis briefed the Cypriot Minister on developments to promote the EastMed gas pipeline between Israel, Cyprus and Greece.

Preliminary results of an appraisal well carried out by Houston-based Noble Energy for natural gas in Block 12 of Cyprus’ Exclusive Economic Zone estimate the hydrocarbon reserve between 3.6tcf and 6tcf with a gross mean resource of 5tcf. Total E&P Cyprus Ltd has been granted a license for seismic exploration for oil and gas in block 10 and in parts of blocks 6, 7 and 11 of Cyprus’ EEZ.

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