Cyprus Mail
Cyprus Energy

Plan B for gas pipeline

By Elias Hazou

Rather than laying a pipeline straight from the Aphrodite reservoir to Egypt, a shorter pipeline could be built, connecting to Egypt’s newly-discovered Zohr gas field and then the gas brought to Egyptian shores, energy minister Giorgos Lakkotrypis has asserted.

Under this scenario, the facilities to be built on top of the Zohr site would pool that field’s gas with those of Aphrodite, and then the combined gas transported via a single pipeline to Egypt. The distance between Aphrodite to Zohr is approximately 90km.

This Plan B, Lakkotrypis claimed in an interview with Kathimerini published on Sunday, would be both faster and cheaper than piping the Aphrodite gas straight to Egypt.

He was discussing this alternative with his Egyptian counterpart, he added.

The massive Zohr prospect recently discovered by Italian energy giant ENI within Egyptian waters,

has cast a shadow over Egypt’s prior professed interest in importing Cypriot gas for its short-term energy needs.

But the commercial viability of an alternative pipeline route, as touted by Lakkotrypis, collapses upon closer scrutiny.

That’s because it somehow assumes that no extra cost would be added onto the Cypriot gas (Aphrodite) along the Zohr-Egypt stretch of the pipeline, said energy analyst Charles Elllinas.

Earlier this year, Egyptian officials said the cost of importing Cypriot gas would be no more than $6.5 per mmbtu (one million British thermal units). They were drawing on the findings of a feasibility study for a pipeline running directly from Aphrodite to Egypt.

Broken down, the price comprised $5 for the cost of the infrastructures built atop Aphrodite, plus another $1.5 for transportation by pipeline.

According to Ellinas, the costs do not drop significantly should a pipeline be built to Zohr instead. The shorter conduit might shave off about half of the pipeline cost, say $0.75.

The total cost of piping Aphrodite gas to Zohr would therefore work out to $5.75.

To then accommodate the Aphrodite gas, a larger-capacity pipeline going to Egypt would be needed at a receiving terminal atop Zohr.

And that automatically raises the cost of transporting the gas to Egypt.

“So who pays for that extra cost? Will ENI? Obviously the ‘Cypriot side’ will have to pitch in, and once that happens the price of Cypriot gas goes up,” said Ellinas.

In fact, given the detour, the total length of the pipeline from Aphrodite to Egypt, via Zohr, would be greater than piping directly to Egypt.

Moreover, Lakkotrypis’ argument that ‘Plan B’ leads to faster export of Cypriot gas to Egypt is likewise flawed.

The minister himself had earlier said that producing gas from Aphrodite could be possible by 2019.

By contrast, the Aphrodite-Zohr connection would take longer. In the best-case scenario, Ellinas explained, ENI carries out appraisal drilling at Zohr in 2016. Next it takes another year or so to line up the financing, meaning the earliest date for construction is 2017. Add to that two to three years to build a pipeline to Egypt, and you arrive at 2019 or 2020.

“In either case, we’re looking at a 2020 timeframe. Experts predict that the price of oil – to which natural gas is linked – may jump back to $90 per barrel by that time.

“Currently, liquefied natural gas (LNG) goes for between $6 to $7 in European markets. Let’s suppose that it rises to $8 or even $9 by the year 2020. Now, will Cypriot gas be competitive in Europe? Again, no.”

By the most conservative estimates, Cypriot gas arriving in Egypt through Zohr would go for $5.75 – call it $6. Add $2 to liquefy the gas for export to Europe, $1.5 more to transport it, and $0.5 for re-gasification.

Thus far, the price of Cypriot LNG has shot up to $10. And that’s not even counting the profit margins for British Gas for exporting to Europe.

“Saying that Cypriot gas can fetch competitive prices is one thing….but however you dice it the numbers don’t check out,” Ellinas offered.

“And let’s not forget that Zohr is a long ways from being developed. At the moment, it is a project on paper.”

These question marks were not touched in Lakkotrypis’ interview with Kathimerini, which for the most part lobbed softballs at the minister.

That Lakkotrypis’ claims do not stand up to logic lends credence to the notion that the unveiling of the so-called ‘Plan B’ may be a red herring, aimed at obscuring the reasonable conclusion that gas sales to Egypt were never commercially viable.

 

 

 

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