A new oil and gas exploration round in the island’s Exclusive Economic Zone (EEZ) was announced by the government announced on Tuesday.
“Today the cabinet has decided to move forward with a third licensing round within the EEZ of the Republic,” government spokesman Nicos Christodoulides told reporters.
The cabinet authorised Energy Minister Giorgos Lakkotrypis to come back with proposals for implementing the decision as “swiftly as possible,” the spokesman said.
At this time, he added, no further details could be given until the necessary procedures were completed.
Media reports suggested the move could be related to the interest conveyed by energy companies to President Nicos Anastasiades when he was at the World Economic Forum in Davos in January.
Energy expert Charles Ellinas called a new licensing round a “good idea” due to the heightened interest in the eastern Mediterranean’s gas potential, but also advised caution as to its timing.
With oil prices down, and energy companies across the globe shoring up costs, Ellinas wondered whether this was the right moment.
By bidding in the new round, he said, companies would commit to paying the licensing fee should their tender be successful. A typical licensing fee is in the double-digit millions, not a huge amount for corporate behemoths, but not negligible either, said Ellinas.
Also, Cyprus should be mindful of Egypt’s experience. Following the discovery of the massive Zohr gas prospect late last year, the neighbouring country launched a new licensing round, which attracted relatively low interest.
Therefore, the government should consider the possibility that if the new round turns out to be a ‘flop’, this could reflect poorly on Cyprus with regard to future endeavours.
“That’s why timing is of the essence,” offered Ellinas.
Moreover, the expert told the Mail, the government here needs to think about how it will ‘sell’ the new exploration round, due to the recent failures of Total and ENI to identify drilling targets.
This would require a carefully planned campaign abroad, explaining these failures and citing the new data available.
Asked to estimate how soon a new round could be launched, the expert said in theory it could be done in three to four months. The government would need to prepare the tender documents, but this should not take up a great deal of time, as the document templates are already in place.
“Still, there’s no need to rush into it. Perhaps it would be best to roll it out later in the year, which is when the industry expects oil prices to start picking up.”
Currently, the offshore blocks under concession are: 2,3,9 (ENI-KOGAS); 11 (TOTAL); and 12 (Noble Energy).
Asked which unlicensed blocks could be up for play in a fresh licensing round, Ellinas suggested Block 10 would almost definitely be among them.
Block 10 lies near the border of Egypt’s EEZ. Total had a concession on the block, but relinquished it in early 2015 without drilling any wells.
But new survey data available since then – and in the wake of the Zohr discovery – has apparently rekindled Total’s interest in the block.
In general, said Ellinas, the acreages attracting interest would likely be those lying within the Eratosthenes formation, covering parts of Blocks 8, 9, 10 and 11.
In particular, companies were interested in the carbonate layers in these formations. The success of the Zohr discovery was due to the fact that ENI, operating in Egypt, had turned its attention to carbonate layers containing natural gas.
And according to the analyst, industry chatter points to Exxon Mobil as well taking an interest in the Cypriot EEZ.
Meanwhile, on the issue of relocating the hydrocarbons logistics base from Larnaca, the energy minister said the government would refund hydrocarbons companies for the cost of their relocation to Limassol.
“Every relocation costs money, which the government will have to cover as expenses are refundable,” Lakkotrypis said on Tuesday, a day after he and his colleague, Transport Minister Marios Demetriades, met hydrocarbon companies operating in Cyprus’ exclusive economic zone (EEZ).
“The government will be called upon to pay from its share from profits at some point. We have to finish this, find them bases from which they can smoothly carry out their drilling activities and the development of the Aphrodite reserve”.
On the Limassol option, Lakkotrypis confirmed that an area of 25,000 square meters inside the new port has been earmarked for the logistics base, which would need to be built from scratch.
Another issue, other than the real estate, would be the congestion at Limassol port if all three companies decided to move their onshore base there.
Lakkotrypis revealed also that other energy companies – beyond ENI, TOTAL and Noble Energy – were also interested in setting up operations here.
“Sometimes, it is unbelievable how we react,” the minister told the state broadcaster.
“Right now, we could be missing out on an incredible opportunity, given that activity in the eastern Mediterranean is expected to intensify, especially after the Zohr discovery, but instead of focusing on how Cyprus will become the base for companies operating in other countries, we are scrambling to ensure that the companies operating here do not relocate elsewhere.”
Larnaca municipality last week voted to evict energy giants from further use of its port. “From the moment that the municipal council took a decision, even with a marginal majority, that it does not accept any activities to take place there, we have to find a permanent solution,” Lakkotrypis said.
Asked by how much Total’s drilling schedule would be delayed if relocating to Limassol, Lakkotrypis estimated three to four months.
“So instead of September or October, we are now looking at [exploratory] drilling toward the end of the year or – I hope this is not the case – early next year.
Averof Neophytou, leader of the ruling DISY party, said a new facility in Limassol might require around €5 million. “Once again, populism is costly,” he remarked.
“The trade unions of PEO, DEOK and SEK are sending the [Larnaca port] workers to the transport ministry to protest, while AKEL, DIKO and EDEK, the very parties [on the Larnaca municipal council] who support these unions, voted so that 100 to 150 families would lose their jobs.
“There is a limit to tolerating irrationality. I sometimes wonder whether we are living in a European country.”
However it is also true that the government, if it wanted, could override the municipal council, since the permit was issued by a government agency – the Ports Authority.
But it appears that, with parliamentary elections looming in May, the administration is reluctant to antagonise Larnaca voters.