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Cyprus

Experts debate the viability of a LNG plant

By Elias Hazou

US ENERGY firm Noble Energy reiterated on Monday that it remains committed to an onshore LNG project in Cyprus despite the discovery of less-than-anticipated gas reserves at the Aphrodite-2 well.

“LNG commercialisation is the preferred path,” said Gregory Beard, Noble’s commercial manager for LNG, referring to the company’s plans for gas development in Cypriot waters.

Speaking at a conference in Nicosia organised by the Economist, the exec said Noble and the Cyprus government are in talks aimed at hammering out a commercial framework agreement for the LNG project.

Following such an agreement – which other speakers tentatively placed at early 2014 – the Houston-based company would take its final investment decision (possibly in 2016).

After the final investment decision, the start of gas production would take at least 38 months, Beard said. Noble has been advised by engineers that it possible to have an LNG plant built within 48 months at the latest.

Other speakers at the event were less convinced of the LNG option. Fiona Mullen, director of Sapienta Economics, said their own research, based on similar facilities elsewhere, indicated it can take up to 10 years to have a LNG plant in operation, including the time needed to raise finance and for actual construction.

Sapienta calculated the threshold of gas reserves that would justify financing each of the export options open to Cyprus. The compressed natural gas (CNG) method would require 1.5 trillion cubic feet (tcf) of gas, a pipeline to Turkey 5 tcf, LNG to Asia (at current prices) 6 tcf, LNG to Europe 9 tcf, and a pipeline to Greece 10 tcf.

The Asia exports option delivers the highest returns, but actual revenues from sales would take several years. The ‘quick buck’, option, as Mullen put it, would be a pipeline to Turkey, which also requires the least amount of gas (bar CNG) to draw investment.

But LNG, and more so the Turkish pipeline, are dependent on the solution of the Cyprus problem. By contrast, Mullen said, their findings pointed to CNG as the ‘middle ground’ alternative – immediately financeable, less gas required, and less contingent on politics.

Julian Lee, a senior energy analyst for Centre for Global Energy Studies (UK), observed that history has shown that hydrocarbons very rarely resolve crises between nations.

“You shouldn’t pin your hopes on hydrocarbons precipitating a [Cyprus] solution,” he said.

Given the island currently does not have enough proven gas reserves to warrant the construction of a single-train (production line) LNG terminal, debate in recent months has shifted to how a plant here can become commercially viable.

Nicosia wants to pool Israeli gas from the Leviathan field with its own reserves to secure sufficient quantities.

But according to Lee, that would be a hard sell to Israel, because there “has not been a single case where one country liquefies its gas in another country”.

“It takes a great deal of trust,” he noted.

Still, the analyst did not rule out the possibility of Israeli gas being exported via an LNG hub at Vasilikos, adding that it could be one of several complementary methods by which Israel could market its gas – another way being through a undersea pipeline from Israel to Turkey.

Constantinos Filis, research director at the Institute of International Relations, PanteionUniversity, described the dilemma of Cyprus-Turkey energy cooperation via a pipeline as the “chicken and egg problem” – does one resolve political disputes first and then work together in developing hydrocarbons, or vice versa?

Filis hastened to add, however, that political reconciliation first-cooperation later is a false dilemma; one cannot indefinitely put on hold energy projects in the hope that nations – in this case Cyprus and Turkey – resolve their differences.

Charles Ellinas, executive chairman of the Cyprus National Hydrocarbons Company, said speed is of the essence in pushing the LNG project.

Citing research, Ellinas spoke of a projected spike in LNG supply around 2020, which could drive prices down by 10 per cent. Cyprus therefore must move quickly if it wants to export its gas at premium prices, particularly to Asian markets.

He, too, noted that Cyprus should not expect “significant revenues” from gas earlier than 10 years from today.



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