Cyprus Mail

Noble wants to pipe gas for domestic use

By Elias Hazou

NOBLE Energy, operators of the Block 12 offshore licence, has reportedly renewed a proposal for piping gas from the Aphrodite well for the purpose of domestic electricity generation.

Daily Politis writes that the Houston-based energy company has quoted a delivery price of $9 or $10 per million btus (mmbtu).

That’s significantly lower than the price offered by Itera during the ‘interim gas’ tender procedure. Itera’s offer is understood to have been around $15.5 per mmbtu.

Politis said the cost of electricity generation – and thus the price of electricity to end-consumers – could on paper drop by 15 to 20 per cent if Noble’s proposal were implemented.

The deputy government spokesman yesterday neither confirmed nor denied reports of Noble’s offer, saying only that the government “is exploring all avenues…regarding interim gas so that the cost of electricity can be reduced.”

Noble envisages extracting the gas with a spar platform, the ‘Red Hawk’, which is currently located in the deepwater Gulf of Mexico. The gas would be brought ashore via a subsea pipeline, to be built by

Noble, and burned to generate electricity for domestic consumption.

Advanced negotiations are said to be underway between the energy ministry and Noble. The proposal has a tight window, because the ‘Red Hawk’ platform is set to be decommissioned in January of 2014.

According to Politis, the US firm is now proposing use of the spar platform for a period up to 20 years. The Americans are said to intend to build a 20 to 24-inch pipeline. This large-diameter pipeline could subsequently be used also for the more ‘permanent’ solution of piping gas to an LNG terminal at Vasilikos for the purposes of export and domestic consumption – allowing Noble to kill two birds with one stone. The total investment cost to Noble would be in the region of $1bn, the paper said.

Sources told the Mail that Noble’s original spar platform pitch – made a few months back -involved a five-year contract, for €12 per mmbtu. Under that initial offer, Noble would lay a 12-inch pipeline capable of piping up to 100 million cubic feet of gas a day. Under that scenario, Noble would have had to construct another larger pipeline for the subsequent LNG project.

Noble’s initial proposal entailed a total investment cost of some $800 million, with the spar platform accounting for around $300 million.

Assuming the government and the Americans clinch a deal, the spar platform could be moved to Cypriot waters by next summer, and actual gas production could start in 2016.

By contrast, an LNG plant is not expected to be operational anytime before 2019.

Charles Ellinas, chairman of the Cyprus National Hydrocarbons Company (CNHC), stressed the need to push ahead with the spar platform project.

“It’s partly our own gas, so the net cost would be less than the sales price, since around 60 per cent of the profits would go to Cyprus,” he said.

But Cyprus needs to move swiftly to make the project happen. Noble would need at least a serious commitment from the government by the end of this month if it is to go ahead and make a gambit for buying the spar platform. Next, a formal agreement between the two sides would ideally have to be signed by December.

A possible complication could be the current tender for the ‘interim gas’ solution. Although talks between the Natural Gas Public Company with Itera and then Vitol came to nothing, the tender is still open. The government cannot move until and unless the tender process has been wrapped up.

In a related development, the Cabinet yesterday decided the establishment of a Ministerial Committee on Hydrocarbons and Geopolitical Issues.

The committee will be headed by the foreign minister and comprise the ministers of energy, defence and transport.

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