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Cyprus

Developing Aphrodite field should be ‘immediate priority’

Michael Leigh consultant and senior advisor to the German Marshall Fund in Nicosia

By Staff Reporter

CYPRUS’ immediate priority on the hydrocarbons front should be to develop the Aphrodite gas reservoir, and although an export pipeline to Egypt appears to be the best solution for monetising the gas, there are question marks over its feasibility, recent research has concluded.

The findings of two policy papers commissioned by the German Marshall Fund of the United States(GMF) were presented to media in Nicosia yesterday.

Presenting the papers’ main findings was Michael Leigh, consultant and senior advisor to the GMF.

The two policy papers are titled “Financing gas projects in the Eastern Mediterranean” and “Egypt: A market for natural gas from Cyprus and Israel?”

The first provides a detailed assessment of the factors that influence investment in gas and related infrastructure projects worldwide with a focus on the Eastern Mediterranean. It examines the relative merits of project finance and corporate finance for the development of offshore gas resources and for bringing the gas to market.

In the authors’ opinion, Cyprus’ most immediate priority will be to develop the Aphrodite field and to continue exploration, in light of some initially disappointing results and low oil prices. Given the country’s financial position, the authors suggest project finance might make sense as it allows the state to participate.

The main uncertainties in Cyprus focus on the ultimate size of the resource. The preferred solution at the moment seems to be a pipeline to Egypt, if this proves commercially feasible. However, alternative gas monetization options, such as LNG (Liquefied Natural Gas) could again be considered if additional gas quantities are discovered.

The second paper analyses the opportunities and risks associated with the possible export of natural gas from Israel and Cyprus to Egypt. It finds that there will be significant shortfalls in gas supplies to the Egyptian market in the decade ahead despite major new investments, efforts at energy saving, and the reduction of subsidies.

The commercial case for re-exports via Egypt is stronger than the case for supplying the Egyptian market. Both scenarios, however, face legal, political, and commercial challenges.

Moreover, the paper found, a race between Israel and Cyprus might develop since Egypt may not be able to absorb gas from both. Ultimately, success in the pipeline trade will depend on finding a commercial structure that balances risks and rewards for the different parties involved.

Regarding the prospects of solving the Cyprus problem in relation to energy, Leigh said that a settlement will create stable conditions to attract investors and also conditions in the gas market allowing companies to proceed with further research for natural gas reserves.

Also on Monday, Leigh briefed energy minister Giorgos Lakkotrypis, and on Tuesday he will be meeting with President Nicos Anastasiades, and on Wednesday with foreign minister Ioannis Kasoulides.

During his stay in Cyprus, Leigh will see Turkish Cypriot leader Mustafa Akinci and representatives of companies active and in the field of energy in Cyprus.

The GMF is an American public policy think tank and grant-making institution dedicated to promoting greater cooperation and understanding between North America and Europe.

Founded in 1972 through a gift from the West German government on the 25th anniversary of the Marshall Plan, GMF contributes research and analysis on transatlantic and global issues.

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