By Elias Hazou
News this week of the outcome at the Onisiphoros well generated all sorts of reaction, but for experts the main takeaway is that the gas find – albeit a small one – holds great promise for the future because it has scientifically confirmed the existence of a carbonate platform around the Eratosthenes Seamount south of the island.
“It’s a milestone in a long road. No doubt this confirmation will trigger more aggressive exploration in the acreages awarded in the third licensing round,” Constandinos Hadjistassou, assistant professor at the University of Nicosia, told the Sunday Mail.
“We now have useful data on the permeability, composition and depth of the traps. This information will help Total and ENI – and others – to map out the area on the edges of Eratosthenes, previously unexplored.”
Hydrocarbon traps are locations where permeable reservoir rocks (carbonates, sandstones) are covered by rocks with low permeability that are capable of preventing the hydrocarbons from further upward migration.
Hadjistassou says too much attention is being paid to the size of the reservoir discovered in block 11.
“I’d be far more worried had the drill not confirmed the carbonate structures in the bedrock. Now, the chances of finding larger accumulations of hydrocarbons have increased.”
And the carbonate platform covers a vast area.
“Bottom line, Eratosthenes is a hot spot. Drawing on the data from the Onisiphoros drill, the energy companies will recalibrate their geological models, which in layman’s terms means they can more accurately pinpoint the possible location of hydrocarbons in carbonate structures.”
The professor points out also that the largest reserves worldwide have been found within carbonate formations.
Even prior to the drill at Onisiphoros, seismic data released to the bidding companies showed a large-sized formation within block 10, licensed to ExxonMobil.
That’s all well and good, but what’s next? Following the announcement of the ‘poor’ results in block 11, some commentators and MPs went into doom-and-gloom mode, while others turned into the opposite direction entirely, predicting that huge gas discoveries lie in wait.
“Forget what the politicians say,” remarks energy analyst Charles Ellinas.
“It’s all about the companies. They want to find gas and develop it, they make their own plans and analyses, they take their decisions and then inform the government.”
With that as the jumping-off point, Ellinas opines that both ExxonMobil as well as ENI will proceed with further drills in blocks 10 and 8, respectively, regardless of the results at Onisiphoros.
“Take ExxonMobil. They had already identified a target in block 10 and were going ahead with drilling anyway. If anything, now with the data from Onisiphoros, they are even more determined to drill in their acreage. Not only that, the data will help them fine-tune their search models.”
More broadly, the trend in the hydrocarbons industry is shifting toward natural gas. The challenge, says Ellinas, is that gas has to compete with renewables – becoming cheaper all the time – and with coal.
Because renewables – solar, wind – are becoming more efficient all the time, it is taking greater and greater volumes of gas to generate the same amount of energy on the consumption end.
“So there’s plenty of energy around, but with gas due to heat loss you are not using all of it. As a result, with renewables on the rise, oil and gas prices are projected to stay low in the long run, if not forever.”
Consolidation and joint ventures are thus the way forward for the gas players of the world.
Energy companies keen to develop their gas will increasingly look to Asian markets, as selling to Europe is becoming very difficult – Russian gas is very cheap, with the Russians willing to sell for as low as $5 per MMBtu (million British thermal units) in order to keep their share of the market.
The Russians are prepared to do that since their production cost is just 80 cents per MMBtu.
But Cypriot gas cannot possibly go for $5 in Europe. For starters, it would cost around $2.5 just to produce, plus another $1 for a pipeline to Egypt, another $3 to liquefy the gas at the facilities there in Idku or Damietta, and finally half a dollar more for shipping it to Europe.
With European markets not viable, Asia is the only option.
This means the gas would need to be liquefied (LNG) before being shipped to Asia.
“But crucially also, the companies engaged in Cyprus’ Exclusive Economic Zone will try to pool their projects, thus avoiding duplication of infrastructure, risk, cost, and so forth,” says Ellinas.
Additionally, the United States is now exporting shale gas to Asia, so LNG would be competing with this market as well in the Far East.
Therefore, slashing the cost of natural gas production, for example through joint ventures, is an imperative.
“If you manage to shave just half a dollar off the price, that could be key,” he says.
Asked what these joint projects might look like in practice, the analyst envisions a network of connected pipelines from the various blocks, criss-crossing the Cyprus EEZ and ending up off Egyptian shores.
Yet another factor arguing for collaboration is the considerable water depth in the EEZ. The deeper you go, the higher the pressure, and so the narrower the pipeline must be designed in order to cope.
It follows that only a small-diameter pipeline would do the job – but that in turn means less gas flowing at any given time.
In Ellinas’ view, the best way forward for Cypriot gas might be for the companies to jointly fund the construction of additional trains (production lines) at the Damietta LNG terminal.
The Damietta facility is currently idle – but that is about to change, and fast. Egypt expects to become energy self-sufficient by the end of 2018, at which time it will stop importing LNG.
And the neighbouring country should begin exporting their own gas after 2020, thus assigning priority to liquefying their own gas.
This will necessitate the building of more trains for gas coming from elsewhere – for example Cyprus.
As for the Aphrodite reservoir, discovered by Houston-based Noble Energy in late 2011, Ellinas thinks it will remain on ice for some time to come, and for the same fundamental reasons – the high cost of development.
Noble Energy are busy pouring their resources into developing the massive Leviathan gas field in Israeli waters and, with the company having spent billions buying up a Texas shale oil company earlier this year, the cash is not there to develop Aphrodite as well.
“Again, I have to stress that Cyprus doesn’t dictate what happens. Our role, the government’s role, is simply to facilitate the companies in any way we can.”