By Elias Hazou
Whereas the talks in Nicosia on Tuesday provide a political backbone for potential natural gas deals, it is the energy companies that will ultimately call the shots, energy expert Charles Ellinas has told the Cyprus Mail.
British energy outfit BG Group are currently desperate to secure gas supplies for their liquefied natural gas (LNG) facilities in Idku, Egypt, which are operating at below capacity.
The Idku plant has a capacity of around 7.2 million tonnes of LNG per annum, but is currently working with around 2 million tonnes.
BG are exploring a number of options to plug that gap, with Cypriot gas from the Aphrodite field being one such alternative.
If developed, Aphrodite could plausibly yield anywhere from 3.5 to 4 million tonnes a year, channelled to Egypt by pipeline from the Aphrodite reservoir. The pipeline must be coupled with a floating production, storage and offloading (FPSO) unit built on top of the gas well. An FPSO is essentially a platform producing and treating the gas on-site.
The earliest completion date for such a project would be late 2019, Ellinas said. It is less capital-intensive than either onshore or marine-based LNG and, given falling LNG prices worldwide, would make more economic sense for Noble Energy, operators of the Aphrodite field.
Assuming Noble clinches a deal to pipe the bulk of the Aphrodite gas to Egypt, the revenues from the contract might then make it worthwhile to construct a second, small-diameter pipeline running from offshore Block 12 to Vasilikos on the southern coast of Cyprus, supplying small quantities of gas for domestic electricity generation here.
It’s understood that Noble has been discussing these scenarios with BG as well as with the Cyprus Hydrocarbons Company.
By way of example, were Cyprus to buy the Aphrodite gas for $10 per million BTU (mmbtu), and the profits to be made are around $3 per mmbtu, Cyprus would pocket two-thirds ($2 per mmbtu) of the profits, as it owns two-thirds of the Aphrodite gas. That leaves a net cost of $8 per mmbtu for gas purchased from the Block 12 reservoir, a substantially lower price compared to importing natural gas via the so-called interim solution.
But when it comes to supplying BG’s gas-starved export plant, Cyprus faces stiff competition. BG has already signed a letter of intent with the partners in Israel’s Leviathan gas field for approximately 5 million tonnes of LNG a year. And BG is in talks with BP to link their two gas developments off Egypt’s coast. BP’s North Alexandria gas field is expected to come online next year – far sooner than Cyprus’ Aphrodite field – and could provide BG’s plant with up to 2 million tonnes of LNG per annum.
“Right now everything is on the table,” Charles Ellinas said.
The expert also drew a connection between the technical study for a Cyprus to Egypt pipeline – unveiled by the two countries’ energy ministers on Tuesday – and the ongoing gas supply tender put out by the Natural Gas Public Company (DEFA).
DEFA chairperson Eleni Vasiliadou has confirmed to the Cyprus Mail that the validity period of the ‘interim gas’ tender has been extended – for a second time – to the end of January 2015.
DEFA on Tuesday began assessing the three remaining bidders’ revised financial offers. According to press reports, the prices quoted by the bidders hover around the $14 per mmbtu mark.
Time-wise, the new validity period of DEFA’s tender now coincides with the completion of the technical study for the Cyprus-Egypt pipeline.
“It’s very likely that officials are waiting on the Cyprus to Egypt pipeline analysis to come through before plunging ahead with the DEFA gas imports,” offered Ellinas.