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Cronos’ time has come if right decisions are made

comment ellinas lng plant at damietta
Lng plant at damietta

We could extract gas from the Cronos field before Aphrodite

In ancient Greek mythology Cronos was the god of time. It now looks that Cronos’ time has come. And it might happen even earlier than the –still – potential development of the Aphrodite gasfield.

The news two weeks ago that Eni’s appraisal drilling of the Cronos gasfield in block 6 was successful was greeted euphorically, with the usual headlines promising riches that Cronos-2 could be an energy treasure and change the map of Cyprus’ EEZ.

Whilst the quantities of gas can only be described as modest – Cronos-1 was estimated to hold about 70 billion cubic metres (bcm) – there is some basis to hopes that this time there is a better chance to progress from just a discovery to actual production. But even though welcome, the likely level of gas exports is not going to make Cyprus rich.

Eni’s need for gas and LNG

Over the last two years, Eni’s CEO, Claudio Descalzi, has been stressing that Italy needs to significantly increase its LNG imports and import capacity to safeguard its energy security.

Before the Ukraine war Italy was importing close to 30bcm gas from Russia, which it had to replace. Even though it has since ramped up its gas imports from Algeria and Qatar, in 2022 it signed an agreement to import as much as 3bcm/yr LNG from Egypt.

But, given Egypt’s dire gas supply problems, it is highly unlikely that this agreement will be fulfilled. In 2022 Italy’s LNG imports from Egypt were limited to 0.7bcm. And that was the year during which Egyptian LNG production and export was at its peak.

Since then, in 2023 Egypt’s total LNG exports were halved, down to 5bcm from about 10bcm in 2022. Given that the country’s gas supply problems are worsening, it will be even more challenging in 2024.

In addition, Eni is the operator of the Damietta gas liquefaction plant, with a capacity of about 7.5bcm/yr that has never reached full utilisation since it started operations in 2005. Given Egypt’s continuing gas problems, Damietta will be highly under-utilised in 2024 and probably longer.

Clearly Eni needs more gas so that it can increase utilisation of Damietta and its LNG exports to Italy. It appears that Cyprus’ Cronos gasfield has come at the right time.

Development of Cronos

The most likely plan to develop Cronos will be very similar to that proposed by Chevron for the Aphrodite gasfield: Production at Cronos using subsea facilities, without a platform, and export to the Zohr gas production facilities in Egypt about 90km away by subsea pipeline. From there it will then be exported to the Zohr gas processing platform offshore Egypt and then to the Damietta LNG plant for liquefaction.

Eni discovered Zohr in 2015, the biggest gasfield in Egypt and in the Mediterranean, with about 850bcm proven gas reserves. Thirty months later it started production in 2017.

Its facilities were designed with a capacity to process 33bcm/yr. But having achieved peak production of about 30bcm in 2021, it has since been declining due to reservoir water infiltration. By late last year it dropped down to the equivalent of 21.7bcm/yr, less than two-thirds of its design capacity.

Even though Eni plans to drill new wells in 2024-2025 to increase Zohr’s production, it will still leave these facilities highly underutilised, with plenty spare capacity to accept and process gas from Cronos at minimal additional cost to Eni.

This makes such a development plan the optimal choice for Eni, since it will only need to fund the subsea production at Cronos and the 90km pipeline to Zohr.

It also makes development of Cronos commercially viable, even if its gas reserves are limited to 70bcm – it is hoped that there will be an upside to this following appraisal drilling in January. There is also increased potential for more discoveries near-by.

Such a plan also offers the option of adding gas production from Eni’s other two gasfields in block 6, Zeus and Calypso, once gas quantities are confirmed through future appraisal drilling.

Where to from here?

The minister of energy said he expects Eni to submit its plan during the next few weeks. Once approved, given that most of the required facilities exist, construction time could be fast-tracked. If agreement between the government and Eni to proceed with the development is reached this year, gas production could start as early as 2027.

That’s 10 years after the exploration licence for block 6 was granted to the consortium of Eni with 50 per cent as operator, and TotalEnergies, also with 50 per cent.

Even if the government and Chevron agree a development plan for Aphrodite this year, it will take at least 20 years between granting the licence and starting gas production.

It is well-known that the ministry of energy prefers the companies operating in Cyprus’ EEZ to examine possible synergies, including joint-development, for the exploitation of their discoveries. The ministry also gives priority to the construction of infrastructure, including offshore platforms, within the EEZ. However, the companies have not shown any interest in this, preferring to take their discovered gas directly to Egypt by subsea pipeline without the use of platforms, as the fastest, cheapest and most viable option.

Hopefully such preferences will not delay approval of Eni’s development plans, as and when these become available.

Given that globally the transition away from fossil fuels to clean energy is accelerating, the fastest Cyprus starts development of its gas the more likely that such developments will be sanctioned.

COP28, the UN climate summit in Dubai in December, for the first time called for “transitioning away from fossil fuels in energy systems”. The clock has already started ticking for oil and gas. The IEA forecasts consumption of oil and gas to start declining globally by the end of this decade. The longer a gasfield remains undeveloped the more likely it becomes that it will not make it.

And for those who still insist on talking about export of Cypriot gas to Europe, European gas consumption has been declining since 2021. It is now down by more than 20 per cent since pre-Covid-19 and it is still declining. Europe does not need new sources of gas. By 2026 half of Europe’s electricity will be produced from non-fossil fuels.

A typical gas project needs at least 15 years of gas exports, preferably 20 years, to be considered viable. So, if Cronos starts production in 2027, it should be guaranteed exports to 2042 – already challenging.

We are inundated with good news but no actual production of gas yet. We have to be patient until we see Eni’s plans – and support them.

 

Dr Charles Ellinas, @CharlesEllinas, is a senior fellow at the Global Energy Centre of the Atlantic Council

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