Cyprus Mail
Business Cyprus Energy

Is LNG plant a dead duck?

By Elias Hazou

THROUGH deliberate delay or wavering, Cyprus may be letting plans slip for an onshore LNG plant, a gas expert has warned.

Charles Ellinas, former head of the national oil and gas corporation Kretyk, told the Cyprus Mail that a confluence of developments leads one to conclude the liquid natural gas project is becoming increasingly unlikely.

He was commenting, among others, on a report by Reuters yesterday claiming that Israel may have put on the backburner earlier plans to pump its gas reserves into a future export plant in Cyprus.

“Israel’s new plans throw Cypriot developments into doubt as investors would require more gas than Cyprus has on offer to make returns on multi-billion dollar investments,” the news agency said.

Reuters quoted one unnamed source involved in developing Cyprus’ gas reserves as saying: “If Israel has really ditched Cyprus as a partner to develop the region’s gas resources, then we (Cyprus) really do have to find quite a lot more gas if we want to become a viable exporter, and that would inevitably throw our plans back by several years.”

According to the same news story, energy companies with concessions in Israeli gas fields are actively exploring a twin-track export policy: piping gas to idle LNG terminals in Egypt, and building floating liquefied natural gas (FLNG) platforms above the Leviathan field to ship LNG to Asian and South American markets, where gas fetches better prices. At the same time, talks are underway between Israeli and Turkish companies on a pipeline from the Leviathan field to Turkish shores.

And in a report on Sunday, local daily Kathimerini suggested the Israeli government as well as energy stakeholders feel Cyprus is not serious about pooling its own resources with Israel’s into an LNG terminal on the island.

Kathimerini said the absence of concrete action from Nicosia over the last year has puzzled the Israelis, who have come to suspect that the government here is deliberately dragging its feet. To the Israelis, it appears the Cypriots are stalling due to ongoing peace talks and the possibility of energy collaboration with Turkey once and if a settlement to the Cyprus question is achieved.

This is despite public assertions by President Anastasiades, who just this past weekend ruled out discussing natural gas as part of the island’s reunification talks.

Anastasiades did, however, go on to say that Turkey can be Cyprus’ customer after a solution, but not a strategic partner.

Publicly, the administration insists it’s committed to the land-based gas terminal – precluding a pipeline to Turkey as well as any other export alternatives such as FLNG.

During an investors’ conference held in the United States late last year, Noble Energy floated – as one option – a plan to divert some of the gas in Israel’s Leviathan field to a mooted LNG terminal at Vassilikos.

But since then, says Charles Ellinas, the Americans and the Israelis have not got any feedback from Cyprus.

To date, Cyprus’ proven reserves are insufficient for an onshore LNG plant. At least 5.5 trillion cubic feet (tcf) are required to render viable such a facility.

Actual recoverable reserves within the Aphrodite well – operated by Noble Energy – are most likely 3.1 tcf. And an additional site in the Block 12 license – where Noble intends to drill later this year – is not expected to hold more than 1 tcf, bringing the total to around 4 tcf, still not good enough for a land-based production plant.

Then again, according to Ellinas, that quantity is ideal for an FLNG vessel. The consortium with the license on Israel’s Leviathan gas field, he said, is currently designing an FLNG platform with a capacity of precisely 4 tcf.

“Unless something happens fast – and it doesn’t look like it – Cyprus may de facto be forced to abandon the LNG project and switch to FLNG instead,” he said.

Ellinas anticipates that Noble will present its development plan for Block 12 around mid-2015. By then, the US energy outfit will have a far better idea of the combined gas reserves in Aphrodite as well as in the second well they’re drilling this year.

“My guess is they’ll go for FLNG,” he said.

Meanwhile, state gas company DEFA said yesterday it has received four proposals to supply natural gas to the island.

In January, DEFA invited proposals for an interim solution for power generation before Cypriot gas reserves come on line.

DEFA did not release details of the bidders, saying it was bound by confidentiality agreements. Based on its initial invitation for proposals, it was seeking a supply line of seven to 10 years, starting in January 2016.

The state-controlled company said at the time it wanted a comprehensive solution involving all commercial and infrastructure requirements including sourcing, transportation and processing.

DEFA is by law the sole importer and distributor of natural gas in Cyprus. Once it clinches a deal for natural gas with a supplier, DEFA would then sell the fuel to the Electricity Authority of Cyprus. Any contract therefore requires back-to-back agreements – one between DEFA and the supplier, the other between DEFA and the EAC.

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