Cyprus Mail
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Noble execs haven’t abandoned onshore LNG plant yet

By Elias Hazou

A DELEGATION of Houston-based Noble Energy is reportedly in town to talk shop over a potential deal for an onshore liquefied natural gas (LNG) plant, while an energy official has stressed that the window for such a terminal may be fast closing.

Daily Politis wrote that a Noble team has arrived for more talks geared at a final LNG project agreement with the government. The on-and-off talks, described by the government as “ongoing,” began last year, were halted in November, then were set to resume in earnest in January of this year but never did – until now.

The Mail learns that at least two senior Noble officials – Barry Shelden (Cyprus Business Unit Manager) and Greg Beard (Commercial Manager, Cyprus LNG) – are currently on the island, but it was not clear whether they’re part of the mission cited by Politis.

Mike Efthymiou, a non-executive director with the Cyprus Hydrocarbons Company (CHC) and special adviser to the President on energy affairs, told Politis there still exists an opportunity for Cyprus to pool its gas reserves with Israel’s massive Leviathan gas field in a mooted LNG plant at Vassilikos.

Currently, Cyprus’ proven gas reserves are on their own insufficient to warrant operation of an onshore LNG facility.

The proposal for joint Cyprus-Israeli exports – initially floated by Noble’s Leviathan partner Delek – dates back to 2010 or 2011.

Late last year, Noble unveiled their development plans for their East Med gas finds. The first phase of development would see Noble and their partners supply Israel, the Palestinian Authority and Jordan. The second phase is a floating LNG (FLNG), and the third phase is regional supply agreements – with Turkey, Egypt and lastly Cyprus being potential destinations.

Efthymiou conceded that, where the Leviathan project is concerned, the FLNG option is gaining ground over a land-based solution, diminishing the prospects for an LNG terminal in Cyprus. He said the government is currently assessing “all options,” though the onshore facility remains its number one strategic choice.

Eftymiou opined that a Cyprus LNG plant is still possible. But time is running out – the Leviathan partners are expected to reach a decision on the second phase of development (FLNG) by autumn. That in turn indicates that discussions between the government here and Noble over the next few weeks or months will be critical.

At any rate, were a final LNG project agreement with Noble to be clinched, that would not mean a land-based terminal is a dead cert; such a deal would most likely feature get-out clauses for both parties.

Alternatively, should an agreement with Noble fail to materialise, that is not the end of the road for the onshore LNG project due to the possibility of additional discoveries in other Cypriot concessions.

ENI-KOGAS are expected to drill sometime in the summer, and France’s Total will start exploration in the second half of next year. And Noble is planning a second exploratory well in their Block 12 concession by the end of 2014.

As it stands, the Aphrodite prospect in Block 12 contains 3.2 trillion cubic feet (tcf) of gas, at a 90 per cent probability – the probability that energy companies rely on when making commercial decisions. At a 50 per cent probability, Aphrodite has 3.6 tcf to 6 tcf.

Hypothetically, if it were possible for the 3.2 tcf to be monetised, it would fetch some $10bn in profit, 60 per cent of which would go to Cyprus, said gas expert Charles Ellinas.

He noted, moreover, that by the time Cyprus is able to export LNG to Europe – as an alternative to Russian gas, as media outlets have been suggesting amid the Ukraine crisis – the pricing would not be viable.

That’s because the cost of building a pipeline and an LNG plant would be in the area of $8 to $9 per million British thermal units (BTU), not including even regasification expenses.

But LNG in Europe by that time (after 2020) is expected to go for $9 to $10 per million BTU – not much of a profit margin for Cyprus and its partners.

The only way exports to Europe would be commercially viable is via ships transporting gas from floating LNG platforms, said Ellinas.

Meanwhile, in an interview with Bloomberg, energy minister Giorgos Lakkotrypis said Cyprus will have “a pretty good idea” of its gas and hydrocarbon reserves within about 12 to 15 months.

Lakkotrypis said ENI and KOGAS will start intensive exploration within weeks in their licenses in blocks 2, 3 and 9, a campaign to last 12 to 18 months.

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