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Cyprus needs to decide whether it really wants the oil industry, executive says (Updated)

If Cyprus expects more benefits from the oil and gas industry than merely receiving revenue from sales and related taxes, it must offer a stable operational framework to hydrocarbons companies who wish to use the island as a base, an oil and gas industry consultant said.

“When you are lucky enough to have oil and gas reserves in your territory you know you can get two things,” Pierre Godec, a former executive at France’s energy companies Elf and Total and currently chief executive officer at the Cyprus subsidiary of the Norwegian Petrolia said in an interview. “Money from sale and taxes when companies develop and sell the gas, but also by developing an industry in your country. So you don’t (necessarily) need to have the industry in the country”.

Since Cyprus, a service-oriented economy, is unaccustomed to dealing with industry, it will have to realise that the oil and gas industry “requires millions in investment in facilities and infrastructure which take time to complete before actual production can begin,” he said. “Therefore, you need stability in your country to invest which includes all types of stability, institutional, financial, political and social”.

The fundamental question which emerged in recent days, after the Larnaca municipality decided to evict oil and gas companies from the town’s port is whether “a local authority can challenge a government decision,” said Godec who was commenting on the decision of authorities to encourage hydrocarbons companies to relocate to Limassol.

“When we were planning our operations, we planned for everything but not for something like this. I never thought that this would happen”.

“This will be in the mind of decision makers of oil and gas executives,” Godec, a French national residing in Larnaca for the past years continued. “If we don’t have a good answer, we shall manage to operate, but from elsewhere”.

The Larnaca decision angered hydrocarbons companies, which invested several million euros in production and storage facilities in the area, prompting them to reconsider their options.

Godec said that the decision by authorities to divert oil companies from Larnaca to Limassol may have to be reconsidered without anyone having “to lose face” as Larnaca continues to remain the most suitable option, a view also shared by Energy Minister Yiorgos Lakkotrypis who on Tuesday described Larnaca as “ideal”.

“Nothing is engraved in marble forever,” the energy industry executive said.

From a spatial point of view, Limassol is not in position to serve the hydrocarbons companies’ needs as things stand now, he said, adding that the situation could change in the case of a settlement of the Cyprus problem as the U.K. offered to return adjacent land currently part of the Akrotiri base to the Republic of Cyprus. The area near the Vasilikos power plant is not entirely suitable because of the nearby operation of the cement plant, he added.

Therefore, if relocating to Limassol is a “take it or leave it” offer, then France’s energy company Total and Italy’s ENI, which announced the discovery of a 30 trillion cubic feet gas reserve off the coast of Egypt in September, may decide in favour of Limassol, the oil and gas professional said. “But I have doubts that Total and ENI can carry out exploration from Limassol while (Royal Dutch) Shell and Noble carry out development work the same time. Support companies could however relocate and provide services from abroad”.

On Tuesday, a day after a meeting with hydrocarbon companies, Lakkotrypis said that the government may have to foot the cost for the relocation of the hydrocarbon companies which invested millions of euros in storage and production facilities in Larnaca, after Cyprus begins to receive revenue from the sale of gas. The minister acknowledged that a proposed 25,000 square metre site at the Limassol port may be inadequate for the companies’ needs and that the relocation to Limassol may delay Total’s drilling programme.

Shell last year took over British Gas, the company which has a stake in Egypt’s Idku gas liquefaction plant and acquired a 35 per cent stake in Aphrodite, Cyprus’s 4.5 trillion cubic feet reserve and so far single gas discovery. The Cypriot cabinet decided on Tuesday to launch a third hydrocarbon exploration round.

The influence of Shell, the company which won a €7bn competition to supply Cyprus with natural gas five years ago before the government cancelled it, “will be very important,” he said.

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