By STANLEY REED
LONDON — If there are any bright spots in the gloom surrounding the
economy of Cyprus, one place to look would be about 170 kilometers south
of the coastal city of Limassol. There, about 1,700 meters below the
surface of the Mediterranean Sea, is a potentially lucrative natural gas field called Aphrodite.
Noble Energy, the Houston-based company that found Aphrodite in 2011,
has drilled only a single exploratory well in the mile-deep water 100
miles south of the island. But based on that early look, the company
estimates that the field contains 142 billion to 227 billion cubic
meters, or 5 trillion to 8 trillion cubic feet, of gas. It is a
significant find — potentially worth $45 billion or more at current
prices, if it proves extractable. That would be enough to supply
Cyprus’s domestic needs for years and turn the debt-strapped country
into an energy exporter.
“I am certain that gas will be the answer to our future,” said Charles
Ellinas, chief executive of the Cyprus National Hydrocarbons Co., a
state concern that was recently formed to help spearhead development of a
Cypriot natural gas industry.
Cyprus has the potential to become one of the hubs of an eastern
Mediterranean region that could become an important source of natural
gas for Europe, at a time when political unrest is making supplies from
North Africa uncertain.
Over the past two decades an Israeli-American-led group of small and midsize oil
companies has made a series of big discoveries in what is known as the
Levantine basin, an area loosely bounded by Cyprus, Syria, Lebanon,
Israel and Egypt. Israel, which has begun gradually tapping the gas,
began production in a big offshore field called Tamar on March 30.
Gideon Tadmor is the chairman of Delek Drilling and chief executive of
Avner Oil, affiliates of Delek Group, an Israeli company that has led
exploration in the area since the 1990s. He said the Israeli oil
explorers had taken their cues from successful previous exploration to
the south, in waters off Egypt. “We had a notion there was a good reason
for the geological play to extend beyond the geopolitical borders,” Mr.
Tadmor said.
While it is still hard to predict how large an exporter the eastern
Mediterranean might eventually become, it is attracting industry
attention well beyond the region.
“If you look at new sources of supply in the eastern Mediterranean, with
what we’ve seen in Cyprus, in Israel and other places — you’ve got to
say those will probably be the real competition,” said Al Cook, a vice
president on the giant Shah Deniz pipeline project that BP is leading in
Azerbaijan, which is meant to transport natural gas to Europe.
But enabling the Mediterranean to approach its energy potential will
require navigating potentially treacherous politics. Any export deals by
the Greek Cypriot government in Nicosia will risk the ire of Turkey,
which warned during recent bailout negotiations that the Turkish Cypriot
northern part of the island should share in any exploitation of natural
resources. Cyprus has been divided since a Turkish invasion in 1974.
Meanwhile, Israel, where larger gas finds have been made by Noble and
Delek, will also need to figure out what export routes make geopolitical
and economic sense.
The priority for the Israeli government will be to make sure the
country, which has long been dependent on imported fuel, is assured of
sufficient domestic supplies. Only then would exports be authorized.
When the government does choose export routes for its gas — a decision
expected soon — security and political considerations will probably take
precedence. While pipelines might be less expensive, Israel is wary of
sending gas north through Syria and Lebanon, both of which may have
offshore gas deposits of their own.
Mr. Tadmor said many options were on the table for Israel as the
industry awaited a decision from Prime Minister Benjamin Netanyahu’s new
government on whether to permit exports and in what form.
“It could be L.N.G. onshore or offshore and also piped gas solutions
like Jordan or even Turkey,” he said. L.N.G. is liquefied natural gas,
which can be carried on special tanker ships.
The recent thaw between Israel and Turkey brokered by President Barack
Obama has made energy cooperation between the two countries more likely.
Sending gas to Egypt, which has been running short of late, is also
possible, analysts say.
Also under consideration is piping some Israeli gas to a Cypriot L.N.G.
processing plant — if one is built. Some of the companies are involved
in both Cyprus and Israel. And the Aphrodite field may extend into
Israeli waters, analysts say, which would be further reason for the
countries to collaborate.
Mainly, it is the lure of substantial amounts of natural gas within easy
reach of Europe, a huge consumer and importer of the fuel for industry
and power generation, that has drawn some major fossil-fuels players to
Cyprus. In January, Eni of Italy, with the South Korean giant Kogas as a
20 percent partner, signed an exploration deal for a huge swath of sea
bottom off Cyprus. France’s Total signed a similar agreement with Cyprus
a month later.
“It is promising for Cyprus that companies the caliber of Eni and Total
are getting involved — that is an early sign of confidence,” said
Catherine Hunter, an analyst at the energy research firm IHS in London.
As for Cyprus, it is uncertain how much the country’s gas can do for its
besieged economy, and how quickly. In one big concession in its
recently arranged bailout, the troika of international lenders — the
International Monetary Fund, the European Central Bank and the European
Commission — agreed that the country’s gas reserves would remain under
Cypriot jurisdiction.
Noble and its partners are preparing to drill a second well to help
confirm the size of Aphrodite. So far, the volumes of gas that the
companies think they have discovered, while suggesting a large find, are
not far above the minimum analysts say would justify building a
multibillion-dollar facility to liquefy the gas for transport by ship.
Mr. Ellinas says that L.N.G. is the preferred option for exporting the
gas but that the big liquefaction plant he envisions for Vassilikos, an
industrial site on the south coast, would cost $6 billion for the first
of what might eventually be three export units.
But if the costs can be justified, such a plant would provide
“flexibility, security and everything else,” he said. “We can export to
Europe and everywhere else. If you have a pipeline and gas prices go
down you are stuck.”
Construction of an L.N.G. plant would take four to five years, once a
final investment decision was made, which could stretch the finances of
the Cypriot government and the balance sheets of the companies that hold
the leases for the Aphrodite field.
To put the potential construction bill into perspective, Cyprus’s entire
economy — before the crash, at least — was only about €18 billion, or
$23 billion, and the country is counting on its recently arranged €10
billion bailout to prevent more of its banks from collapsing.
Noble, for its part, has a relatively modest annual capital budget of
about $4 billion, and has commitments elsewhere, including Israel.
One banker, who requested anonymity because of the sensitivity of the
matter, said the costs of developing Cyprus’s deepwater gas would
probably be so high that an L.N.G. project would be only marginally
profitable for the government at current gas prices, unless more gas was
found. Mr. Ellinas, though, predicted that much more would be
discovered.
Other options include a less-expensive floating L.N.G. facility. The
most affordable approach might be an offshore pipeline to Turkey. But no
matter how grim its financial predicament, the government of Cyprus may
have little interest in supplying its longtime enemy.
“A subsea pipeline is a lot cheaper than an L.N.G. terminal, but a no-go
politically,” said Laura El-Katiri, a research fellow at the Oxford
Institute for Energy Studies.
Of course, Cyprus’s financial meltdown could lead to new attitudes. The
country could come under pressure from its international creditors to
adopt quicker ways to turn gas into cash — even if it meant a Turkish
pipeline. And the role of Mr. Ellinas’s company, which was created by
the previous Cypriot government, voted out of office in February, may
come under review, said Ms. Hunter, of IHS.
L.N.G. might be the preferred choice of the Israelis. A liquefaction
plant would be easier to guard than a long pipeline, which could be cut.
Or if Cyprus built a plant, Israel might want to shunt some gas to that
facility, to gain economies of scale. Delek is already a minority
partner in Aphrodite.
“Setting up an export facility in an area under Israeli control appears
to be the best alternative,” an Israeli inter-ministerial committee said
in September. The committee also recommended that a major international
company be brought in to orchestrate development of the gas industry.
The offshore Tamar field, which began piping gas to the Israeli domestic
market in late March, was developed by a consortium led by Noble and
Delek. Tamar alone holds enough gas to power the Israeli economy for
many years.
Now the two companies are working on plans for exploiting a much bigger
field near Cypriot waters called Leviathan, which is double or triple
the size of estimates for Aphrodite.
In December, Noble and its Israeli partners brought in an experienced
L.N.G. player by reaching an agreement in principle with Woodside
Petroleum, a company that operates a half-dozen L.N.G. plants in
Australia. Woodside said at the time that the pact, which gave it a 30
percent stake in Leviathan, could lead to “a key role in the potential
development of a liquefied natural gas industry in Israel. ”
Mr. Ellinas, of Cyprus, said he hoped the Israelis would use the Cypriot
L.N.G. plant and would hook Leviathan into it. That solution would
certainly be one way to reduce costs. But in the end, each country may
want to keep its big gas-processing investments close to home. In a
tough neighborhood, control may trump economics.
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