Cyprus was given another Christmas present this week, but alas it is a present it cannot unwrap and make use of any time soon.
The news of another gas find in Block 6 of the Cyprus EEZ was announced by the ENI-Total consortium on Wednesday, increasing our inventory of such gifts. The gas find in the Zeus-1 plot was the third in Block 6, following those at Calypso-1 and Cronos-1. It was, admittedly, a small find, between two and three trillion cubic feet (Tcf), a similar quantity to Cronos-1, although it is said that this would help make the region more attractive to energy companies.
Energy expert and Sunday Mail writer Charles Ellinas said that although it was a small find it strengthened the prospects of the region, pointing out, however that two to three Tcf was not enough to change energy companies’ plans. “To develop these gas fields they need long-term contracts,” he explained and urged a caution. Large reserves are needed for long-term contracts.
Experience has taught us caution on energy matters. When Noble Energy announced a gas find in the Aphrodite plot 11 years ago, the general view, encouraged by politicians who were showcasing their ignorance, was that within a few years Cyprus would be selling natural gas to the world. There was even public debate about how the money that we earned from selling gas would be spent.
During those 11 years, the Aphrodite plot has been taken over by another oil company, Chevron, while after years of negotiations Cyprus and Israel have still to reach an agreement on how revenue would be shared given a small part of the plot is in Israel’s EEZ. Without agreement the gas cannot be sold. According to the latest energy ministry forecast, gas from Aphrodite will be sold in 2027, 16 years after the discovery, energy minister Natasa Pilides said on Thursday, expressing confidence that it was achievable.
Pilides conceded that we are not in a position to exploit our gas reserves because the necessary infrastructure was not yet in place. The most likely way of marketing it is via pipeline to the terminals in Egypt, which are also being used by Israel. She said she hoped the floating terminal would also be looked at as an option, although its cost could be a disincentive. At present Chevron was looking at the possibility of exporting gas from the Aphrodite gas field to Egypt and that a study on this would be ready some time next year, after confirmatory drilling is completed early in 2023. As for the finds in Block 6, we would probably have to wait five to eight years before we know what will happen to them.
When it comes to the exploitation of natural gas nothing is straightforward, especially for a small country with limited funds, relatively modest quantities and an aggressive neighbour disputing drilling rights and making threats. Turkey, however, is not the only reason for the delays. Exploitation of natural gas deposits take many years to materialise because many factors have to be taken into account by an oil company before the decision to make the huge investment required is taken. And when quantities found are relatively modest, the financial incentive for companies to drill is limited.
The delays mean that Cyprus is in no position to exploit EU need for new gas supplies. By the time Cyprus’ gas is commercially produced European demand would have subsided as the EU’s objective is to reduce its gas consumption by 2030. Its memorandum of understanding on buying gas with Israel and Egypt has a 2030 end date without provision for an extension, suggesting that Cyprus would have to seek new markets when commercial production finally commences. Cyprus could benefit from the gas discoveries at some unspecified time in the future, but we should not be banking on it.
This has not stopped politicians raising expectations. Listening to some of them anyone could be fooled into thinking that all we have to do is turn some tap on and the gas would flow. One presidential candidate claimed the new discovery “confirmed the big prospect of Cyprus and the eastern Mediterranean region as an alternative source of energy supply for the EU.” Another called for immediate exploitation, because “in the last few years Cyprus, unfortunately, acquired expertise of amassing high prospects of low final yield.” Perhaps we should consider it progress that nobody brought up the EastMed pipeline fantasy, which was for years served by politicians, including the president, as a realistic option.
The only exploitation of our gas reserves we have seen so far is by our politicians. Thankfully, we now have a pragmatic energy minister who refuses to play to the gallery, raising expectations and making empty promises in the way her predecessor and many politicians have done for years and still refuse to stop. Gas exploitation will materialise at some point in the future but we should not get ahead of ourselves.