Wednesday, April 15, 2015

End Of The Road For Cyprus ‘Gas Hub’ Dreams | Oilpro

End Of The Road For Cyprus ‘Gas Hub’ Dreams

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Cyprus’ hopes of becoming a regional natural gas player are all but dead more than three years after the discovery of the 5 tcf Aphrodite field. The five blocks awarded in early 2013 have yielded nothing, with no further drilling planned before their February 2016 expiry.
Before arriving in Cyprus in January 2012, your correspondent did some reading up on the state of the economy. “Cyprus is hugely leveraged…[with a] formidable refinancing schedule,” the FT said. So he expected to find a sense of foreboding at the coming economic storm. Not a bit of it.
Instead he found a population high on gas. Aphrodite gas to be precise. A month earlier, on 28 December 2011, US firm Noble Energy had announced that it had struck gas with the first ever well drilled offshore Cyprus, on Block 12.
In something of a reversal of the normal procedure, the island’s politicians had already named the ‘field’ even before its discovery: ‘Aphrodite,’ after the legendary beauty who rose from the waters off the south coast of Cyprus (MEES, 22 August 2011).
How big was the field? 7 tcf was Noble’s estimate of recoverable reserves (MEES, 9 January 2012), but the island’s politicians and other supposed experts didn’t stop there: figures of 10, 15 or even 20 tcf were regularly bandied about. And of course the amount the island could hope to make was as simple as multiplying the reserve size by the international gas price: Cyprus was going to be the next Kuwait.
Fast forward three years and few are quite so bullish. A second well drilled on Aphrodite in June 2013, led to the mean recoverable reserves estimate being downgraded to 5 tcf (MEES, 11 October 2013). And the two exploration wells drilled since have both been flops.
These more recent wells were the result of a bid round launched in February 2012, at the height of ‘Aphrodite euphoria’ (MEES, 20 February 2012): before this only one block, Noble’s Block 12, had been awarded. The 2012 round was a moderate success, with heavyweights Total and Eni (with Korean state firm Kogas) snapping up blocks – two and three respectively, a total of five out of the 12 on offer.
This interest came despite Turkey threatening to sanction any firm that took part. Turkey claims part of Cyprus’ Exclusive Economic Zone (EEZ) for itself and says that, even though exploration to date has been south of the island, all exploration offshore Cyprus must be undertaken in conjunction with the Turkey-backed ‘Turkish Republic of Northern Cyprus’ which occupies the northern third of the island.
HIGH WATER MARK
In retrospect these awards, finalized in February 2013, marked the high point of Cyprus’ gas hopes. The plan was that Aphrodite, together with that other soon-to-be-found nearby fields would be tied back to a to-be-constructed LNG liquefaction plant at Vassilikos on the island’s south coast. Maybe a 1,500km pipeline to Greece could be thrown in for good measure.
And of course there would be plenty of gas left for the Cypriot domestic market, and, so the population was told, this would lead to a slashing of utility bills that are the highest in Europe.
REALITY CHECK
The first reality check for the island came the following month, in March 2013, when the island’s newly elected President, Nicos Anastasiades was forced to accept a €10bn bailout from the EU and IMF after his predecessor, communist President Demetris Christofias, had managed to delay seeking assistance for the country’s crumbling economy. Even a last-ditch trip by former Finance Minister Michalis Sarris to persuade Russia’s President Vladimir Putin to help out rather than accept money from the EU and IMF – as Mr Christofias had done with a €2.5bn loan at sub-market rates the previous year – failed to secure the required billions. Even Mr Putin knew a bad investment when he saw one and politely said ‘nyet’ to the prospect of accepting Cyprus’ supposed future gas output as collateral.
ENI DISAPPOINTMENTS
Cyprus’ latest drilling disappointment came when Italian firm Eni’s second exploratory well on Block 9 last month failed, as with the first drilled last year, to locate exploitable amounts of natural gas (MEES, 20 March). This appears to mark the end of the road for exploration offshore Cyprus – possibly for several years. The Italian firm operates Blocks 2, 3 and 9 with an 80% working interest while Kogas holds the remaining 20%.
No further drilling will take place before the February 2016 expiry of the initial three-year exploration period for the blocks awarded in 2012. MEES understands that if Eni seeks an extension then Nicosia will grant it, but “this is a big if,” says a source with knowledge of the situation. On Blocks 2 and 3 seismic has failed to turn up drillable targets.
Though Eni is contracted to drill four exploration wells across the three blocks under the terms of the January 2013 award, MEES understands that Nicosia has shown flexibility with both Eni and Total – the other key exploration player – in the hope of keeping both firms active in its offshore. Eni’s two unsuccessful wells have already cost some €300mn and the best the Italians have been able to offer Nicosia is that they plan to reconsider their modelling of Block 9 seismic in the hope of turning up more targets.
TOTAL ALL BUT OUT
Total is even closer to the exit. In February it relinquished Block 10 without drilling any wells and was only just persuaded by Nicosia not to quit the country (MEES, 23 January).
Cyprus has absolved Total from its original two-well drilling commitment (across two adjacent blocks, Blocks 10 and 11, which lie on the maritime border with Egypt) on the condition that it continues to evaluate 3D seismic on Block 11 in an attempt to locate a possible target. But “unless they come up with something spectacular” the French firm will quit Cyprus when their initial exploration period expires in February, Charles Ellinas, former head of Cyprus’ state-run hydrocarbons company CNHC tells MEES.
If, as seems likely, Total and Eni both quit, then it’s back to square one for Cyprus in terms of exploration.
Cyprus scored a coup in getting such sizable players to sign up amid threats from Turkey; in the light of the exploration setbacks and international capex cuts since, it would do well to repeat the trick. In its most recent act of protest Turkey sent a research vessel in December to perform 3D seismic near Block 9, whilst Eni was drilling.
This Turkish “aggression” led Mr Nicos Anastasiades to withdraw from talks to reunify the island with the Turkish Cypriots, claiming Turkey had breached Cyprus’ exclusive economic zone. UN Special Envoy to Cyprus Espen Barth Eide is in Cyprus this week looking to broker a new round of talks between the two sides which would most likely begin in May following elections in the north, although not many hold high hopes that a solution will be found any time soon.
ONLY APHRODITE REMAINS
All of this means that in terms of Cyprus gas development the 5 tcf Aphrodite field is the only game in town. Any talk of a gas hub, or an onshore liquefaction plant, must be thrown out of the window – for a field of this size, 200km from Cyprus and separated from the island by a 2,500meter-deep trench, it simply isn’t economic. Cypriot gas discoveries for the foreseeable future will begin and end with Aphrodite: the country’s politicians will have to scale back their expectations.
The only economic options are either a floating LNG production facility (or possibly floating CNG) or else a pipeline to Egypt, where two existing LNG liquefaction plants lie idle. (Though Egypt is somewhat further away, the seabed topography is less challenging, and of course a new liquefaction plant is not needed.)
However even these two options have their problems – international LNG prices have fallen sharply in recent months, denting the economics of any new LNG development; whilst the Egypt option owes its relative attractiveness to the stasis in that country’s offshore gas development. There are undeveloped fields in the Egyptian Mediterranean of similar size and much closer to the coast than Aphrodite. If Cairo can sort out the investment conditions to facilitate their development – and it seems the government is well on the way to doing this (MEES, 27 March) – then the relative economics of piping Aphrodite gas to Egypt lose their sheen.
IT’S ALL ABOUT THE MONEY
In addition, it is clear that for Aphrodite operator Noble, in these cash-tight times, the field’s development is not its first priority. The firm devoted a mere three lines to Cyprus in its recently-released 152-page annual report, compared to several pages on neighboring Israel where it operates fields with total reserves of 40 tcf. And the main thing that Noble had to say about Aphrodite is that it is looking to farm down its 70% stake.
“There is also potential for a farm-out arrangement of our working interest,” Noble says.MEES understands that Noble is looking to divest 30% of Block 12 in order to reduce its exposure in light of the current low oil and gas prices.
Noble’s partner at both Aphrodite and its Israeli fields is Israel’s Delek Group. And Delek, which holds a 30% stake in Aphrodite, has had difficulties in raising the cash to finance its share of development costs for Israel’s 22 tcf Leviathan field – a priority ahead of Aphrodite for both firms. Noble says it has “supported the efforts of our Leviathan partners to obtain appropriate financing for their share of development costs, and we have sought other arrangements with experienced industry participants to ensure the required technical support for the execution of the (Leviathan) project.”
Table
‘DEVELOPMENT PLAN’?
In some ‘good news,’ Noble says it will submit a development plan for Aphrodite in the second half of this year (MEES, 20 March). However, in something of a Kafkaesque twist, this supposed development plan – or at least the version of it mentioned in Delek’s recently-released 2014 annual report – would not actually enable the field’s development.
The submission “will include a preliminary plan for the establishment of a FPSO (Floating Production Storage and Offloading Unit) with an estimated initial production capacity of approximately 800mn cfd,” Delek says. This sounds like the ‘Egypt option,’ but with one major catch: both Noble and Delek have made clear that they will not be paying for the pipeline needed to land the gas in Egypt, that is to say the most expensive part of development.
In another indication that this does not constitute a serious development plan, Delek also floats the option of a pipeline to Cyprus – if someone else will be paying for it then why not continue to indulge the fantasies of the island’s politicians? FPSO development will “enable the supply of natural gas to the local market in Cyprus as well as the export of natural gas via pipelines to other markets, including Egypt,” it says. So the “development plan” would get the gas to the surface of the sea, 200km from shore: if it’s going to go anywhere from there then someone else can pay for it.
ECONOMIC LIFELINE?
Nicosia was hoping that revenue from possible gas finds would help the country’s economy rebound swiftly after it was forced to accept a €10bn bailout package from the IMF and European institutions (collectively labelled ‘The Troika’) in March 2013 (MEES, 20 September 2013). But, even if the government promptly jettisons its hopes of a larger project tying in yet-to-be-found or Israeli fields and prioritizes Aphrodite development, Nicosia-based financial expert and Director of Sapienta Economics, Fiona Mullen tells MEES that any income from natural gas will most likely be after 2020.
CLOSER TO RECOVERY
Nicosia moved a step closer to exiting its bailout program when it this week lifted capital controls put in place in March 2013 to stem the outflow of bank deposits, after the Troika ordered the island’s second largest bank, Laiki, to be wound down while also imposing a one-time levy of 47.5% on all uninsured deposits of over €100,000 at the island’s largest lender, Bank of Cyprus (MEES, 4 April, 2014).
“This sends the message that the Cyprus crisis is now behind us, although there are plenty of challenges ahead of course,” Ms Mullen says.
These challenges include passing a long-delayed foreclosure and insolvency bill and the privatization of state firms.
Ms Mullen tells MEES that despite these challenges, she is more worried about growth in the long term. “Cyprus has the lowest investment rate in the EU. It is only around 10%, more like a developing economy than a developed economy, compared with an EU average of 20%,” she says. She adds it is difficult to see where the growth will come from, “unless there is a lot of time and effort put in by both the private sector and the government into creating the foundations for new growth.”

Source: http://oilpro.com/announcement/859/end-road-cyprus-gas-hub-dreams?utm_campaign=newsletter406&utm_source=dailyNewsletter&utm_medium=email

Tuesday, April 14, 2015

IEC to take up $6b option for Tamar gas | Globes

IEC to take up $6b option for Tamar gas

Tamar  
14/04/2015, 14:11

IEC will exercise only part of its option, allowing it to do business later with new suppliers.

Israel Electric Corporation (IEC) (TASE: ELEC.B22) will partially exercise its option to increase the quantity of gas it is to buy from the Tamar gas reservoir partnership, according to talks in recent days between the company and the gas partners. The decision has not been postponed, and the deadline for final notification of the partners that the IEC wishes to exercise the option is in two days. The amount of additional gas under the option is believed to total $6 billion.

IEC and the Tamar partners signed a gas supply contract in 2012, in which the partnership undertook to supply 42.5 BCM, up to a maximum of 77 BCM, over 15 years. The agreement included an option to increase the amount of gas to 99 BCM in two installments. According to the reports of Noble Energy and Delek Drilling Limited Partnership (TASE: DEDR.L), the original agreement amounted to $14 billion, and together with the two added amounts, to $23 billion.

In April 2013, the IEC board of directors approved the first increase of $3 billion, which will be in effect until the end of 2019. As part of the option, the take or pay (the consumers' undertaking to pay for a minimum proportion of the purchased gas, even if they do not need the full amount) rose from 3.5 BCM annually to 5 BCM. It was decided that if IEC wishes to extend the option until 2028 by an additional $6 billion, it must notify the Tamar partners no later than April 15, 2015, in other words, two days from now.

IEC hoped that the notification deadline would be postponed at least until the new gas suppliers enter the sector, enabling it to conduct negotiations with a number of suppliers and obtain a lower price. These hopes soared when the Antitrust Authority director general decided several months ago to intervene in the natural gas sector and split the sole gas supplier in the economy into a number of suppliers. An inter-ministerial committee was established for this purpose, headed by National Economic Council chairman Eugene Kandel, who formulated a draft plan that included a sale and diluting of the partners' holdings in the reservoir, price controls, and separate marketing of the gas.

The draft proposal, however, included no intervention in the IEC's gas contract, nor did it postpone the deadline for IEC's notifying the partners of its wish to exercise the second installment of the option. This fact aroused severe criticism of the inter-ministerial team. Critics pointed out that the contract with IEC was the only contract important to electricity consumers in Israel. Cheaper gas purchased by IEC will be translated into cheaper electricity for consumers.

In any case, the draft proposal was not approved, competition was not achieved, the gas sector in Israel has come to a standstill, and the rest is history. IEC thus has no choice other than to negotiate with the Tamar partners for $6 billion of gas. The Ministry of Finance and the Israel Antitrust Authority therefore asked the Tamar partners to allow IEC to partially exercise its option. In this way, IEC will be able to undertake two days from now to buy a certain amount of gas, and negotiate with additional suppliers entering the market for the rest. The Tamar partners agreed, and their senior executives are currently meeting with senior IEC executives to formulate an agreement facilitating partial exercise of the option.

IEC declined to respond to the report, saying that business information was involved. The Tamar partners also declined to respond.

Published by Globes [online], Israel business news - www.globes-online.com - on April 14, 2015
Source: http://www.globes.co.il/en/article.aspx?did=1001028171&from=iglobes

Eide’s remarks on EEZ not correct, expert on Law of the Sea Convention tells CNA | Cyprus Mail - CNA


Eide’s remarks on EEZ not correct, expert on Law of the Sea Convention tells CNA




Andreas Jacovides, Cyprus` former Ambassador to Washington, who negotiated and signed on behalf of the government of the Republic of Cyprus the UN Law of the Sea Convention, believes that references by the top UN envoy on the Cyprus problem to the sovereignty of states in their exclusive economic zone do not reflect the provisions of the said Convention.
Invited by CNA to comment on Espen Barth Eide`s remarks in an interview with CNA, Jacovides points out that “the correct position is not as stated by Eide,” who said “It is a question of how much a violation has actually happened because many countries do not see seismic exploration as a violation as long as they don`t lead to exploitation. Because the Economic Zone is not sovereign territory, anybody can basically do anything there but for taking out the resources. But that’s a very technical issue.”
Jacovides also said that Eide`s reference to “a hijack state” in Cyprus, with regard to the legal government of the Republic of Cyprus, is not correct either, noting that this is an allegation adopted by the Turkish side in the early 1960s.
The correct position, on the basis of the 1982 UN Convention, is stated in Articles 56 and 58 and in UN Security Council resolutions, Jacovides, who currently and for the past several years has also been a Faculty Member of the Rhodes Academy of Maritime Law and Policy (Virginia University,Max Planck Institute,Iceland Law of the Sea Institute,Rotterdam Law of the Sea Institute,Aegean Institute), explained.
“It is clear that seismic research by the Turkish vessel “Barbaros”, escorted by warships, contrary to the declared position of the Republic of Cyprus, is incompatible with these provisions of the Convention, which has become customary international law, having been adopted by the overwhelming number of the members of the international community,” Jacovides, special adviser to the Foreign Ministry on the Law of the Sea, has told CNA.
With regard to the reference to a “highjack state”, a Turkish allegation since December 1963, Jacovides points out that “SC resolution 186, adopted unanimously by the Council on 4 March 1964, makes not one but five references to the Government of Cyprus”, a fact which, as he notes, Eide seems to have overlooked.
In addition to that there are also the resolutions 541 and 550 which call on all states not to recognise the UDI, declared by the Turkish Cypriots in November 1983, and the self styled Turkish Cypriot regime in occupied Cyprus, describing the unilateral declaration of independence as “legally invalid.”
According to the UN Convention on the Law of the Sea, and with reference to the legal status of the territorial sea, of the air space over the territorial sea and of its bed and subsoil “The sovereignty of a coastal State extends, beyond its land territory and internal waters and, in the case of an archipelagic State, its archipelagic waters, to an adjacent belt of sea, described as the territorial sea. This sovereignty extends to the air space over the territorial sea as well as to its bed and subsoil. The sovereignty over the territorial sea is exercised subject to this Convention and to other rules of international law.”
In Part V, Article 56, paragraph 1, the Convention states “In the exclusive economic zone, the coastal State has sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to the seabed and of the seabed and its subsoil, and with regard to other activities for the economic exploitation and exploration of the zone, such as the production of energy from the water, currents and winds.”
Article 58, paragraph 3 notes “In exercising their rights and performing their duties under this Convention in the exclusive economic zone, States shall have due regard to the rights and duties of the coastal State and shall comply with the laws and regulations adopted by the coastal State in accordance with the provisions of this Convention and other rules of international law in so far as they are not incompatible with this Part.”
Article 57 says that “The exclusive economic zone shall not extend beyond 200 nautical miles from the baselines from which the breadth of the territorial sea is measured.”
CNA

Source: http://cyprus-mail.com/2015/04/14/eides-remarks-on-eez-not-correct-expert-on-law-of-the-sea-convention-tells-cna/

Sunday, April 12, 2015

Exporting gas to Europe and Egypt | IN CYPRUS / CYPRUS WEEKLY

12/04/2015

Last week we examined the current status of hydrocarbon exploration in Cyprus and gas exports options such as through a land-based LNG plant, floating LNG and by pipeline to Europe.


Here we examine the remaining gas export options which include exports to Europe by CNG, by pipeline to Egypt for its own domestic use and by pipeline to Egypt’s LNG plants.

Exports to Europe by CNG
The Russia-Ukraine gas transit crisis has brought to the fore central and southeast Europe’s need for supply diversification.

The East Med gas discoveries could help mitigate this significantly. Gas from Aphrodite could be supplied to these countries by CNG before 2020. Given current proven reserves, this could be 7-8 bcm per year, with the potential to grow, sufficient to make an impact. Cyprus gas is indigenous to the EU and could offer EU Member States in central and southeast Europe energy security and contribute to Europe’s energy union drive. These countries have already expressed interest in accessing East Med gas. This option merits further consideration.

Exports by pipeline to Egypt for domestic use

Talks are under way between Cyprus and Egypt for selling Aphrodite gas to Egypt. In March Cyprus Hydrocarbons Company (CHC) and the Egyptian EGAS signed a memorandum of understanding for a feasibility study into a subsea pipeline for exporting the gas to Egypt.

Egypt faces domestic gas shortages and has already entered into various agreements to import LNG over the next few years. An agreement has also been reached to sell gas from Tamar to Dolphinus Holdings Ltd, an Egyptian company, over the next three years.

However, Egypt sees this need to import gas for domestic use as short term. Egypt believes concessions awarded to IOCs over the past year, such as BP, ENI, Total and BG, underpinned by new discoveries in the Nile Delta, will restore the country to energy self-sufficiency by 2018 and stop the need for gas imports by 2020. In addition, domestically produced gas would cost from $3.50 to $5.00 per mmBTU, whilst gas piped from Cyprus would cost $7-$8.

On this basis, it is difficult to see how this could help the development of Aphrodite. Not only is it expensive gas in comparison to Egyptian gas, but by the time the Aphrodite project is completed (the earliest in 2019), Egypt will no longer require gas imports.

Exports by pipeline to Egypt’s LNG plants

Discussions are currently under way to export gas from Aphrodite to Egypt’s underutilised LNG plants at Idku and Damietta. This was covered extensively in the article on ‘Israel, Egypt gas and Cyprus’ in the March 27 edition.

There are two main challenges to the success of Cyprus gas sales to Egypt:

1. MoUs have been signed with Leviathan and Tamar to supply gas that will take about 70% of the capacity of the two LNG plants, with the remainder taken by BG and BP gas in Egypt.

2. Prices for LNG delivered to Europe and Asia are about $7 per mmBTU. The cost, excluding profits, of transporting Aphrodite gas to Idku, liquefying it, shipping to Europe and regasifying it may be of the order of $11 per mmBTU. This may make such a project uneconomical at least for the time being.

Noble has made great progress with the Israeli government in the last few weeks to create a framework to overcome regulatory hurdles, and with Netanyahu’s re-election this now looks likely. Noble expects that this will enable regional export deals to supply Egypt and Jordan with Israeli gas to be completed in the near term. Should this be the case, there will not be sufficient spare capacity left in the two LNG plants to accept Aphrodite gas. It would also make a deal between Cyprus and Jordan redundant, as Jordan would get its gas from Israel.

However, failure of the Israeli deals to materialise would leave the door open for Egypt’s Idku and Damietta LNG plants to explore alternative possibilities such as importing natural gas from Cyprus. But a new factor in this is the acquisition of BG by Shell. It remains to be seen how Shell deals with Idku, Israeli and Cypriot gas, especially given its major interests and investments in Turkey.

Implications

It can be seen from the above that Plan A, the preferred option, which at present relies on exporting Cyprus gas to Egypt, has many hurdles to overcome. There is no clear Plan B and this perhaps should be considered by including all possible export options in Noble’s forthcoming development plan. Given all developments described in recent editions of the Cyprus Weekly, it would be even better if Cyprus had its own Hydrocarbons Master Plan, something which underpins development in most countries embarking on such far-reaching exploration and exploitation of a national resource.

Whichever export option is finally implemented, there is much work still to be done, with the most important of all to find creditworthy clients and enter into gas sales agreements. This is a long-term process which may require several years to be completed. In the meanwhile, regional geopolitics and global oil and gas markets change and such changes may still influence final choices. As a result, all options must be kept open and reviewed on a regular basis.

An important aspect of the development of the Aphrodite gas field is the supply of gas to Cyprus for electricity generation. The quantities are small, less than 1 bcm per year, and this would be possible only if developed in conjunction with the chosen export option. However, with oil prices as low as they are now, and possibly to 2017 and beyond, the urgency for this may have gone.

With drilling perhaps delayed by two years and the ending of Turkey’s Navtex on April 6, the ‘window of opportunity’ diplomatically referred to by the Special Adviser to the UN Secretary-General on Cyprus, Espen Barth Eide, has now become a reality, enabling the stalled negotiations on the Cyprus problem, to be restarted. In an interview in Kathimerini on March 29, Sibel Siber, who is claiming the leadership of the Turkish Cypriot community during this month’s vote, said “if we do not find a solution to the Cyprus problem we will not be able to exploit the income from the natural wealth of the island” – an ominous statement.

There is still a long way to go, and we should be careful that what some have dubbed ‘the non-commercial exploitation of Cyprus hydrocarbons’ does not become a reality.

SOURCE