By Poly Pantelides
WARNINGS were issued yesterday that not only was Cyprus falling behind in exploitation of its hydrocarbons reserves but also that natural gas should not be seen as the saviour of the economy.
The first warning came from the chairman of the Cyprus National Hydrocarbon’s Company, Charles Ellinas, and the second from Finance Minister Harris Georgiades who said that the economy would need to be back on its feet long before any gas was brought onshore.
Both men were speaking at a Nicosia-based workshop on hydrocarbons and sustainable development in Cyprus and the Eastern Mediterranean, organised by the University of Nicosia and the German Marshall Fund of the United States, a non-profit body promoting transatlantic cooperation.
“I’m afraid to say that we’re gradually falling behind,” Ellinas said, referring to an increasingly competitive environment in a growing global liquefied natural gas (LNG) market.
By 2020 at the latest, Cyprus should be able to start LNG exports. “The year 2020 is almost like a watershed,” Ellinas said. “The more Cyprus delays, the harder it will be to find buyers and secure sales contracts. Time is the issue.”
Cyprus signed in July a MoU with US-based Noble Energy and its Israeli partners Delek and Avner, with a view to jointly seeking investors for the LNG plant, estimated to cost up to €8 billion.
The aim is agree on a special purpose vehicle by December in order to have an entity dedicated at finding the investors, and then to secure an engineering procurement construction (EPC) agreement with a contractor to start works on the LNG plant by early 2016.
Noble energy is expected to announce the results of its appraisal drilling at the Aphrodite gas field in October to update its 2011 estimates on the natural gas prospects.
Other companies have exploration licenses on other offshore blocks, and the more gas is found, the better Cyprus’ outlook in securing long-term buyers.
But a lot of this is uncertain and Cyprus needs to focus on what is within its control, said senior consultant with global engineering and consulting firm Pöyry, Anastasios Giamouridis. Cyprus can control costs and the relationships it fosters with customers, Giamouridis said. This requires scrutinising contracts and pushing economies of scale, he added.
In the meantime, a gas master plan needs to be developed, Ellinas said. “We are behind, we need to do it,” he said. He also added that as part of the master plan, authorities needed to simplify and modernise procedures to enable big companies to do business more easily.
Ellinas reiterated the need for young Cypriots to seek training abroad in order to be able to find higher skill employment in the natural gas sector. About a third of some 7,500 jobs created as part of construction of a Cyprus-based LNG plant could go to lower skilled Cypriots, Ellinas said. But locals need to seize training and learning opportunities and bodies need to coordinate to maximise employment opportunities for Cypriots, Ellinas added.
Georgiades, also a keynote speaker at the workshop said that Cyprus could not rely on hydrocarbons to fix its economy.
“We are not basing our hopes for recovery on hydrocarbons… That’s an over and above prospect,” he said.
Georgiades said that Cyprus was now on a correction path following an international €10 billion bailout in March and a Memorandum of Understanding (MoU) which has given authorities the “necessary discipline” to enforce structural reforms within a defined timeframe.
In the medium-term, Cyprus should see revenues from its natural gas resources, Georgiades said adding the government was speeding up the necessary processes.
But Cyprus needs to rebuild its economy and lay strong foundations to “maximise prospects,” he added.
Georgiades said Cyprus had avoided the risk of a full collapse of the banking system that followed the EU decision to seize people’s deposits to recapitalise banks.
“The worst is behind us as far as the banking system is concerned,” Georgiades said. “We have exited the danger zone and we are now on a correction path.”
The minister reiterated that capital controls would be lifted in the next few months.
Georgiades pledged that the administration would correct the public deficits created in the past, not through additional tax hikes but by rationalising expenditure.
“There is still a lot of fat in the area of expenditure and public administration,” he said.