Cyprus Mail

LNG project ‘teetering on the precipice’

A land-based LNG facility here is viable only if gas reserves from Cyprus' Aphrodite field and Israel's Leviathan field are pooled

By Elias Hazou

PROSPECTS for an onshore liquefied natural gas (LNG) plant in Cyprus are fast slipping away and immediate action is needed if the tide is to be reversed, industry sources have told the Cyprus Mail.

The sources pointed to a confluence of developments in the energy industry that seem to render slim the chances for an LNG project.

Noble Energy and Delek, the senior partners in Israeli gas concessions, are due to visit Turkey this week for talks with Turkish energy companies, according to reports yesterday.

Turkish newspaper Hurriyet said Noble and Delek would discuss with four Turkish companies – Zorlu, Enka, Turcas and Calık – the possibility of piping Israeli natural gas to Europe via Turkey.

The paper said the talks will revolve around the logistics of the project, including planning, cost, the possibility of selling Israeli gas to the Turkish market and other issues of a technical nature.

Because a possible pipeline would have to pass through the exclusive economic zones of three countries (Israel, Cyprus and Turkey), the stakeholders would need to look at how the necessary permits can be obtained.

Citing energy experts, Hurriyet said a pipeline – costing an estimated $2bn – would be the most cost-effective means of exporting gas to Turkey, compared to an onshore liquefied natural gas (LNG) plant that might carry a price tag of at least $10bn.

And Turkey’s Energy Minister Taner Yildiz was quoted as saying the Israeli government has yet to formally request a meeting with Ankara to discuss natural gas issues.

Were such a request to be made, the Turkish government would assess it, added Yildiz. In the meantime, he added, private energy firms in Turkey and Israel have been holding contacts to explore the possibility of gas collaboration.

Energy would act as a catalyst for regional stability, Yildiz said.

To date, Israeli gas suppliers have signed one export deal, with the Palestinian Authority.

In November last year, Noble CEO Charles Davidson told an investor convention in Miami that even though the Leviathan gas field business would include LNG, the major export markets would be nearby and get the gas through pipelines. This would let the Leviathan partners begin exporting more quickly and cheaply. Davidson did not mention Turkey, Cyprus or Greece as export markets.

“We still believe we’ll have a component of LNG in there, but it will probably not be as many trains,” Davidson said in remarks. “It could be floating LNG, or it could be LNG over in Cyprus.”

As it now stands, a land-based LNG facility here is viable only if gas reserves from Cyprus’ Aphrodite field and Israel’s Leviathan field are pooled.

Foreign minister Ioannis Kasoulides has flown Israel to prepare the ground for Israeli prime minister Netanyahu’s upcoming state visit to Cyprus. But he will also be sounding out the Israelis over their gas export intentions.

The pooling of Leviathan and Aphrodite gas into a Cyprus LNG plan was first proposed by Delek – Noble’s Energy’s Israeli partners in both concessions – as far back as 2010.

The mooted project, sources say, was still viable until mid last year, when Noble and Delek signed an MoU with the Cyprus government for the LNG project. The MoU was supposed to be followed by talks leading to a final project agreement which, had it materialised, would have given a big nudge to the LNG project and begun the search for investors.

But the stop-start talks did not go very far, and by November 2013 Delek stopped talking about the LNG plant altogether.

“Right now the LNG project is teetering on the precipice,” the same sources commented.

Even in the best-case scenario, an LNG facility would not be ready any time before 2020. But by that time experts anticipate that the price of LNG in Europe will drop markedly, making Cypriot LNG uncompetitive.

Meanwhile this Thursday the plenum will be voting on legislation setting up the Cyprus Hydrocarbons Company, the successor to the Cyprus National Hydrocarbons Company.

The new entity will feature a board of seven non-executive directors plus a general manager. The relevant bill was examined by the House commerce committee yesterday.

Committee chairman Lefteris Christoforou (DISY) said all the company’s directors will work pro bono.

It’s expected that the board directors to be named will be civil servants and technocrats.

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