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East Mediterranean Energy Plans Taking Shape

East Mediterranean Energy Plans Taking Shape

June has seen a flurry of debate as interest in the East Mediterranean offshore hydrocarbon play gains international attention. The latest revelations came at the 2^nd Levant Energy Forum in Nicosia on 26 June. At the conference, Cypriot President Demetris Christofias outlined the island�s energy plans and Lebanon�s Minister of Energy and Water Resources, Jibran Basil, reported on Beirut�s work to launch its hydrocarbon industry. Noble Energy updated delegates on the company�s East Mediterranean activities and Cypriot energy officials discussed the island�s future. Gary Lakes reports.

Regional cooperation among the littoral states in the southeast corner of the Mediterranean Sea was a topic touched upon throughout the forum, organized by Gulf Intelligence in Nicosia. Cypriot President Demetris Christofias, days away from assuming the presidency of the EU, told the gathering that the discoveries of energy resources in the East Mediterranean made it possible for Cyprus to serve �as a bridge for peaceful cooperation and co-existence among the countries of the region, and also between Europe and the Middle East.� Cyprus will take over the EU presidency on 1 July and its geographical location, as the closest EU member to the Middle East, is expected to attract attention to a number of regional issues.

Since the discovery of significant natural gas resources in the offshore territories of Israel and Cyprus over the last few years, the energy focus in the East Mediterranean has been on further exploration, the development of the resources for domestic needs and exports for the sake of earnings from a new economic sector � for both Cyprus and Israel. Lebanon still has several issues to resolve before it can launch its first bidding round, but numerous foreign companies have expressed an interest in bidding for Lebanese blocks.

President Christofias said Cyprus seeks first of all to secure a long term supply of energy. Since the discovery of 5-8 trillion cu ft of natural gas in the Aphrodite field in Block 12 last December by Noble Energy, the island can count on that resource alone being able to provide sufficient fuel for power generation for many years to come. But the Aphrodite discovery upgrades the role of Cyprus on the international energy map, Mr Christofias said, adding that it gives new impetus for the long term economic development of the island. Cyprus was forced to secure an EU bailout of around �10bn last week but natural gas is expected to contribute substantially to Cyprus�s economic and social growth Mr Christofias said.

Mr Christofias said the Council of Ministers had decided to proceed with the establishment on the island of an LNG facility. �A liquefaction plant is the necessary infrastructure that will contribute to a substantial diversification of supply sources, since it will form a flexible hub connecting the large quantities of natural gas in the Mediterranean and exporting these to the European and global market,� the president said. He acknowledged that the cost of this undertaking would be extremely high and that multi-national involvement would be likely. For now, Cyprus envisages one 5mn tons/year LNG train. During the course of the conference, Noble Energy Vice-President for the East Mediterranean Terry Gerhart confirmed that there were sufficient resources in the Aphrodite structure to support an LNG plant of that capacity.

The president went on to say that Cyprus planned to form its own state-owned hydrocarbon company as well as a national hydrocarbon fund, where earnings from the hydrocarbon sector would be deposited and invested for future generations. The government has also commissioned a feasibility study on the economics of an LNG industry in Cyprus from the Massachusetts Institute of Technology (MIT). Furthermore, plans are underway to construct an onshore gas pipeline system to deliver natural gas to the island�s three power generation locations, he said. The island�s electricity plants are undergoing refurbishment and will be capable of burning natural gas by 2015. Electricity is now produced by burning heavy fuel oil (HFO) and diesel. As it may be 2018 before a pipeline is constructed to deliver natural gas from Block 12 to the island�s designated energy center at Vassilikos, Cyprus is expected soon to examine the possibility of an interim solution for gas supply from Israel in the form of compressed natural gas (CNG).

Commenting on Cyprus� second licensing round, which concluded in mid-May, Mr Christofias said the bids are now being evaluated by the government committee assigned with the task.

With reference to Cypriot-Lebanese relations, Mr Christofias said he expected that soon the Lebanese parliament would ratify a delimitation agreement signed in 2007 and that he was looking forward to close cooperation with Lebanon in the development of the region�s hydrocarbons. Commenting on the election of Muhammad Mursi as president of Egypt two days before the Nicosia event, the president said he had spoken with Mr Mursi and the two had agreed to maintain their countries� close relations.

During a question and answer session President Christofias was asked to identify the biggest challenges facing Cyprus as it entered this new period of hydrocarbon development. He said the discovery of hydrocarbons was a blessing for the region, but acknowledged that it had been controversial due to Turkey�s continuing occupation of the northern part of the island and its �aggressive� policy. Mr Christofias reiterated that Cyprus has a sovereign right to exploit the hydrocarbon resources in its exclusive economic zone (EEZ) and create a LNG terminal in Cyprus. He went on to say that never before had Cyprus been able to enjoy its natural resources, but that �hopefully� that time had come.

Lebanon Awaits Petroleum Administration, Licensing Round

Jibran Basil, Lebanon�s Minister of Energy and Water, told delegates that the Lebanese government was in the process of selecting the members of its Petroleum Administration and expected the membership would be finalized within a matter of weeks. The six-member board will be decided upon sectarian lines and have an annual rotating chairmanship.

He stressed that throughout its modern history, Lebanon has had to import energy and that the country�s energy bill takes up 15% of Lebanon�s GDP. He said like other nations, Lebanon�s goal is to attain a degree of energy self-reliance and avoid the region�s geopolitical problems. Most of the legislation and decrees required to launch the country�s hydrocarbon sector are complete, and most of Lebanon�s offshore waters have been covered with 2D and 3D seismic surveys, he stated. Analysis of geological data has led Lebanese and international experts to predict a 25% success rate for drilling offshore Lebanon. He said naming the petroleum administration will be the last act taken by the government before launching the country�s first offshore licensing round.

A feasibility study for the positioning of an offshore LNG regasification terminal has been completed and expressions of interest have been invited, Mr Basil said, adding that Beirut hoped to soon start negotiations for LNG supply. He said that Lebanon was working to rehabilitate its refining and oil storage facilities in Zahrani and Tripoli. He also noted Lebanon�s plans to make future use of its connection with the Arab Gas Pipeline (AGP), which may eventually provide gas from Middle East suppliers other than Egypt, although for now gas shipments from Egypt remain closed.

Mr Basil addressed the dispute over an 854 sq km offshore area with Israel, stating that Lebanon had drawn up its EEZ in accordance with the conditions of the UN Convention on the Law of the Sea (UNCLOS). Lebanon, which has signed UNCLOS, expects the countries in the region to respect this international agreement, he said, and addressing President Christofias, requested that he use his office during the EU presidency to promote UNCLOS to have other countries in the region � particularly Israel, which has not signed UNCLOS � join the UN treaty.

Appraisal Drilling Planned For Aphrodite Field

During a presentation about Noble Energy�s activities in the East Mediterranean, Mr Gerhart said appraisal drilling in the Aphrodite field should begin in late 2012 or early 2013, depending on rig availability and tenders for services. Noble has in the Levant Basin had six consecutive discoveries, he said, totaling 35 tcf. Noble clearly has a significant part of the 122 tcf that the US Geological Survey predicts lies in the Levant Basin, he said.

Mr Gerhart said that Noble would be working with the Cypriot government towards the creation on an LNG plant in order to monetize the gas discovery in Block 12. �One of the things about a deepwater development is that it takes a lot of money,� he said. �Cost estimates just on the upstream part of this are in the $3-4bn range. That�s for the wells, the subsea architecture and the infrastructure to get the gas to shore.� He said that timing for the sort of project being considered for offshore Cyprus ranges from three to eight years. �But we have looked at this very hard, and we believe we can do it in 38 months,� Mr Gerhart said. He added that a LNG plant could be operational 48 months after a final investment decision.

Water depths of around 1,700ms along the route of a 185km pipeline from Block 12 to the southern coast of Cyprus would pose a challenge, Mr Gerhart said, in that there would be very steep grade plus a number of canyons that the pipeline would have to traverse. Preliminary work shows that there is a route suitable for the pipeline. He also noted that while the current plan calls for a 5mn t/y LNG train, the facility could be expanded in the future as more gas discoveries are made.

Strategic Guidelines

George Shammas, Chairman of the Cyprus Energy Regulatory Authority (CERA), presented the strategic guidelines that his office had prepared at the government�s request. According to CERA, the development of an LNG facility would be the preferred option for Cyprus to monetize its newfound hydrocarbon resources. Domestic demand on the island is expected to reach no more than 1.5 bcm/year over the next 15-20 years. As the Aphrodite field holds enough gas to meet domestic demand for generations, any future discoveries in the Cyprus EEZ would be slated for export.

Mr Shammas said CERA also recommended that the government form a state-owned hydrocarbon company as well as a national hydrocarbon fund. President Christofias earlier in the day said that he would be acting on these recommendations.

Meanwhile, Costas Ioannou, Executive Chairman of the Natural Gas Public Company (DEFA), outlined the planned onshore gas distribution network, which will distribute gas across southern Cyprus once the subsea gas pipeline arrives ashore from Block 12. Phase 1 of the project will be 80km in length and cost some �60mn to complete. DEFA has already secured a �10mn grant from the EU. Later phases of the project will be designed to supply industries, hotels and households directly at an overall estimated cost of �500mn. Mr Ioannou said a route for the pipeline system had been decided upon and negotiations with municipalities through which it will pass are underway.

© Copyright MEES 2012.

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