Years of speculation over what hydrocarbon resources might exist in the East Mediterranean off the southern coast of Cyprus may be soon reaching an end as Noble Energy of the US prepares to drill its first exploratory well. Executives from Houston-based Noble met with Cypriot government officials on 15-16 February and announced that they would be ready to move a drilling rig into Cypruss Block 12 later this year or early next and get operations underway.
Noble is currently on a roll. In 2009 it discovered the Tamar and Dalit gas fields offshore Israel with reserves of 8.4 tcf and 500 bcf respectively and in December 2010 it announced the discovery of the Leviathan field offshore Israel, with reserves estimated at 16 tcf of gas, plus the possibility of oil at deeper levels. According to Cypriot Energy Department officials, a structure has been identified in Block 12 in which Noble holds a 100% stake as the result of a 2007 licensing round large enough to contain 10 tcf of natural gas, or around 283 bcm. Combined, those estimated Israeli and Cypriot gas reserves could be compared to Azerbaijans Shah Deniz offshore Caspian gas field, where gas-in-place is estimated at 1 trillion cu ms (tcm). According to the Cyprus Energy Department there are a total of 14 structures worthy of examination within the Cyprus exclusive economic zone (EEZ).
Nobles desire is to get the well drilled as soon as possible, the companys head of East Mediterranean operations, Chris Kendall, was quoted as saying by the Cyprus Mail after a meeting at the Ministry of Commerce and Industry in Nicosia on 15 February. We previously had planned on doing it within a two-three year timeframe, but it looks like now we will be in a position to do it possibly as early as the end of this year to the first part of next year. Under the terms of Nobles production sharing agreement (PSA) awarded by the Cyprus government in 2008, Noble is obliged to drill a well between October 2011 and October 2013. Furthermore, Nobles key partner in Israel, the Delek Group, holds an option to acquire a 30% stake in Block 12 depending on Cypriot government approval.
Nobles desire to get moving in Cyprus follows a proposal made last month by the Delek Group to the government of Cyprus that a joint effort be put into establishing an LNG facility on the island. In a letter addressed to President Demetris Christofias and the Ministers of Commerce and Industry, Finance and Foreign Affairs, Delek said it wanted to bring natural gas from the Tamar and Leviathan fields to Cyprus where it would be processed along with any natural gas discovered in the Cyprus offshore into LNG for sale on international markets (MEES, 24 January). The Tamar and Leviathan structures lie in close proximity to the Cyprus-Israel delimitation line at a distance of 60 km and 35km respectively from Block 12.
The Cypriot government has yet to respond to the Delek proposal, but MEES has learned from Israeli diplomatic sources that Delek is very serious about the plan, and due to Deleks partnership with Noble this suggests that the US firm also supports the idea. Noble has stated that it is currently examining its options in the East Mediterranean, which are either LNG exports or a pipeline some hundreds of kilometers in length.
Following a meeting in the presidential palace in Nicosia, where Noble executives explained their plan for work on Block 12 to President Christofias, Nobles Vice President of International Operations Terry Gerhart told the Cypriot media that Noble had a good meeting with the president during which the company had shared its plans for drilling operations in Block 12, which it intended to accelerate. He reiterated Mr Kendalls remarks that Noble hopes to be able to start the well as early as the fourth quarter of 2011 or possibly slipping into 2012. Commenting on questions about the possible size of resources there, Mr Gerhart said: We dont have an exact number on the amount of resources available, but the structure looks very favorable to be a sizeable quantity. Mr Gerhart also commented that Noble looks forward to working with the Delek Group in Block 12 if their participation is approved by the government.
Mr Gerhart said Noble is looking at ways to bring any gas discovered offshore into Cyprus: One involves a pipeline being constructed and bringing the gas to Cyprus. We are very excited about the prospect and very excited about working in Cyprus and hopefully finding some gas and being able to bring that to the Cypriot market.
East Mediterranean Gas In Cyprus By When?
Noble Energys arrival in Nicosia with an offshore plan and the proposal made by Delek for the building of an LNG facility on the island are likely to hold consequences for a plan under consideration by the Cyprus government to import LNG through an agreement with Shell. At a parliamentary committee meeting on 15 February after an initial meeting with Noble executives, Cypruss Minister of Commerce and Industry Antonis Paschalides said there exists the possibility that Cyprus could draw natural gas from its own offshore resources by 2016. Referring to the drilling that Noble intends to undertake offshore Cyprus, Mr Paschlides told the committee: If there is a large reserve, the experts assurances are that an undersea pipeline can be built to carry gas to Cyprus.
If that is the case then it is likely that Deleks proposal to pipe natural gas from Tamar where full-scale development is expected to get underway this year and Leviathan to Cyprus for processing at an LNG plant is feasible. Furthermore, MEES sources suggest that Israels Tamar gas could be developed to arrive on the island as early as January 2014.
Cyprus announced in late December that it had reached an initial agreement with Shell for the supply of LNG over a 20-year period after meetings between Shell representatives, and officials from Cypruss Ministry of Commerce, the Energy Department and the Natural Gas Public Company (DEFA). The importation of LNG to Cyprus would require the construction of an LNG regasification terminal at the islands designated Energy Center on the south coast near Vassiliko, at a cost of some 600mn. The supply of natural gas by Shell over a 20-year period was estimated at $6bn, or around 4.5 billion (MEES, 3/10 January). When the cost of the supply deal was announced in early January it created an uproar among the political parties and within the news media. A little more than a week later, Delek Group made its proposal for an LNG plant in Cyprus, creating further confusion and debate within the islands political and business circles.
Now, however, with the minister of commerce publicly acknowledging that there is the possibility that Cyprus could be drawing on its own natural gas resources by 2016, the Shell/LNG import/regasification terminal scenario is very likely to change. Asked by MEES on 17 February if the Shell LNG deal is still under consideration, Costas Ioannou, Chairman of DEFA said: Yes. We are waiting for the government to assess all the information that is now available and give us direction in which way to go. So the option is still there. However, Mr Ioannou agreed that the possible arrival of Cypruss own natural gas by 2016 would make a difference on the gas supply decision process. Im sure it is going to have an impact, he said. The government will probably have to rethink its whole strategy regarding natural gas, not just LNG, and I am sure they are doing this right now.
Should the government decide to forego the Shell LNG deal, Cyprus would very likely need to examine short term solutions to its energy supply problem. Right now the island relies on heavy fuel oil to generate power, but possesses the capability of running its power plants off natural gas. The new situation stands the chance of reopening a debate on the island over how it might best reduce the usage of heavy liquid fuel and improve its standing with EU regulations by turning to natural gas.
A law passed in 2007 gave DEFA which is 56% owned by the government and 44% by the state-owned Electricity Authority of Cyprus (AEK) exclusive right to import LNG, but only to an onshore regasification terminal. As the law stands, Nicosia has essentially painted itself into a corner by excluding proposals to import LNG through an offshore floating regasification facility or import compressed natural gas (CNG). If the Shell LNG supply deal is set aside, these proposals may need to be revisited with a view that they will be interim solutions until Cyprus gets its own energy production industry underway. Shell and several other companies, including Golar LNG, could give the island the option for a floating storage and regasification unit (FSRU), while the prospect of natural gas delivery by CNG tanker might be complicated by a lack of tanker availability. But to look at any option, it appears that the government will need to amend the 2007 law or see it revoked.
Also, there is the Delek Groups LNG plant proposal. Such a plan would take a number of years to materialize, but at present, the development of the Tamar field is expected to deliver natural gas onshore Israel for power generation usage by the end of 2013. If the Cypriot government should decide to work with Delek (and Noble) towards the joint development of offshore fields and Delek could deliver natural gas to Cyprus by pipeline for the purpose of power generation in 2014, the island could decide that that in itself is the short term solution.
Copyright MEES 2011.
