By Elias Hazou
The government has begun discussing with Noble Energy how the company plans to develop their offshore Aphrodite prospect, energy minister Giorgos Lakkotrypis said on Wednesday.
The minister confirmed that talks with the US outfit are now ongoing and that a meeting with Noble reps would be taking place on Wednesday.
“It is the second such meeting on a technocratic level, many more will follow, the objective being to agree a development plan for Aphrodite for its commercial exploitation,” Lakkotrypis told reporters.
Should the two sides reach an agreement, next the government would issue an exploitation licence for Aphrodite, the minister explained.
Under Cyprus’ production-sharing model, the government is part-owner of the hydrocarbons, and has a say in development and monetisation.
It’s understood the talks with Noble are set to last until around March, at which time the Texas-based company will present its final development plan for their offshore play in Block 12. The government will then review the plan and sign off (or not) on it.
Noble announced the Aphrodite discovery in late 2011. The reservoir holds a mean of 5 trillion cubic feet of gas.
Cyprus issues three types of licences: prospecting, exploration and exploitation. The term of the exploitation licence is a maximum of 25 years, and it may be renewed for a maximum of 10 years, subject to the provisions of the contract.
Noble as well as the government are eyeing regional markets for monetising their Block 12 gas finds, with Egypt and Jordan earmarked as potential buyers.
The Jordanian press has this week been reporting that Jordanian officials are due on the island soon for gas-related talks.
Asked about this, Lakkotrypis neither confirmed nor denied the reports on the pending visits, saying only that an announcement would be made when there was something tangible.
“Jordan does interest us a great deal, and Jordan is interested as well,” he offered.
“There are technical matters which will be discussed [with the Jordanians], for example, the direction of a potential pipeline to Jordan, where the pipeline will start and end, the infrastructure to be used, and other such matters which we are looking at with potential buyers.”
For a deal to export gas to Egypt, the most likely technical solution for would be a floating production, storage and offloading (FPSO) unit combined with a pipeline.
The start of negotiations between the government and Noble over a development plan are a positive sign, hydrocarbons expert Charles Ellinas told the Mail.
“It underscores that Noble are serious about Cyprus…discussing the development plan means we’re now going into the home stretch,” he said.
At the same time, Noble’s move suggests the company won’t be shelving their eastern Med operations, which for a while had appeared a possibility due to their run-in with Israel’s anti-trust authority.
“The fact they’re pressing ahead in Cyprus implies to me that Noble is close to a solution in Israel, and that’s good for the whole region,” said Ellinas.
Assuming Noble and the government reach a deal over the next few months, a final investment decision (FID) by the company should be expected sometime in 2016. It would then take approximately three years to implement the development plan (infrastructure), meaning Cyprus might be able to export its first gas by 2019.
But despite the good news, the expert stressed the fluidity of the situation with regard to Cypriot gas exports.
In the race to supply gas-starved Egypt, Israel has a leg over Cyprus, having already signed a letter of intent with Cairo.
The Leviathan partners have agreed to supply Britain’s BG in Egypt with 8.5 million tonnes of natural gas. In addition, BG itself is producing around 2 million tonnes, for a total of 10.5 million tonnes.
That leaves little if any room for extra gas from other suppliers – such as Cyprus – since the capacity of BG’s facilities comes to 12 million tonnes.
For Noble in Cyprus, their priority is exports to Egypt. However if the Egypt option doesn’t pan out, the US company will need to revise their plans and look at other markets, such as south-east Europe.
Moreover, Ellinas pointed out, for Cyprus the Jordan option has little merit, because of the enormous cost of building a pipeline to the Hashemite Kingdom. As far as the Jordanians are concerned, it would be cheaper for them to buy the gas from Israel.
And because of geography, a Cyprus to Jordan pipeline would also need the approval of Egypt and Israel.
Noble would presumably also build a small-diameter pipeline running from Aphrodite to Vasilikos, with the gas used for domestic power generation.
In this scenario Cypriot authorities might consider shelving or altogether scrapping a tender to import natural gas (the so-called “interim solution”) and wait for the gas from Aphrodite to feed power stations here.
Meanwhile it appears the government and Total have come to terms, keeping live the oil major’s Cyprus operations.
Quizzed by journalists, the energy minister said an arrangement has been found with Total.
“All that remains is for the legal documents to be signed, and if this comes to fruition then we shall have them here until at least February 2016,” Lakkotrypis said.
Earlier, the minister said a legal loophole was found which allowed the extension of Total’s surveying programme in offshore block 11 until Feb. 16, 2016. After that it will be decided whether exploratory drilling is warranted.
A draft agreement revising Total’s contract is being formulated and is expected to be finalized either this or next week.
Last week the government revealed that the oil and gas giant had found no potential drilling targets in its two concessions and was likely to shutter its Cyprus operations.