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Our View: Putting a terminal on hold might not be such a bad idea

Energy Minister Giorgos Lakkotrypis (c) remains committed to the construction of an LNG plant

NOBLE ENERGY’S announcement of the results of the appraisal drill from well A-2 will have caused disappointment. The quantities of natural gas are not as big as some so-called experts had been predicting, but unjustifiably high expectations often lead to disappointment.

Then again, Noble’s exploratory drilling in 2011 showed “an estimated gross resource range of 5 to 8 trillion cubic feet (Tcf) with a gross mean of 7 Tcf.” The appraisal drill updated the estimate of gross resources of the field, ranging from 3.6Tcf to 6Tcf with a gross mean of approximately 5Tcf. This is significantly lower, but on the positive side the results, said Noble’s Senior Vice President, “confirmed substantial recoverable natural gas resources and high reservoir deliverability.

The lower quantities pose a problem with regard to the creation of liquefaction terminal, which would have been a viable investment only if there was a minimum of 6Tcf. With a gross mean of approximately 5Tcf, the €10 billion investment needed for a terminal that would convert the gas into LNG for export is not economically justified. Noble Energy had signed a memorandum of understanding with the government regarding the construction of a LNG terminal, but the company might want to put this on hold, until more drilling is undertaken in Block 12.

This is unlikely to find the government in agreement as it is eager for work on the terminal to begin as soon as possible. This would make it possible for Cyprus to start selling LNG in five to six years, but more importantly such a major project would create jobs, boost business activity and generally help the floundering economy. Several weeks ago, perhaps anticipating that the results of the appraisal drill would be lower than forecasted, the commerce and industry minister insisted that the government plans would be unaffected by the results.

This would be the case if the government could generate the funds required for a terminal but it is in no position to do so. However, the investment of €10bn by a private company would be determined by business criteria exclusively and ‘helping the Cyprus economy’ does not qualify as such. The government would try to offer incentives to Noble not to delay the project but whether it would be successful remains to be seen.

Putting the terminal on hold might not be such a bad idea, as liquefaction is not the cheapest way of supplying our natural gas, especially as prices are on a downward path. The last thing we need is a terminal that would have to sell LNG at a loss in order to secure a small market share. There may be other, cheaper and speedier ways of marketing natural gas in the near future which would make the huge investment in a terminal unnecessary. In the circumstances, the results of the appraisal drill could prove a blessing in disguise.

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