ENI-Kogas Considered for Cyprus' Blocks 5 and 6

Cyprus is considering the Italian-Korean ENI-KOGAS consortium when it comes to licensing blocks 5 and 6 of its EEZ. Talks will begin by December 2 as reported by Financial Mirror. Earlier in January of this year, the consortium led by ENI (acting as an operator with a 80% interest) signed exploration and production sharing contracts with the government of the republic of Cyprus for Blocks 2, 3 and 9 which encompass an area of around 12,530 square kilometers. French giant Total SA has also been awarded production-sharing contracts for Blocks 10 and 11 which total 2,572 square kilometers of water. Eni-Kogas and total plan to commence exploration activities in the island’s EEZ sometime between the third quarter of 2014 and the first quarter of 2015. In late 2011, Noble Energy, operating Block 12 of Cyprus’ EEZ with a 70% interest ( Delek Drilling and Avner Oil Exploration each having 15 percent working interest), announced a discovery offshore Cyprus with estimated gross mean resources of 5 Tcf. The second appraisal well drilled by Noble confirmed high reservoir deliverability. Estimates were updated by Noble last October to a range of 3.6 trillion cubic feet (Tcf) to 6 Tcf, with a mean of approximately 5 Tcf.  The Cyprus Aphrodite structure represents the third largest field discovered to date within the Deepwater Levant Basin.

The cash-strapped island suffered a major financial crisis earlier in Spring of this year due to the exposure of its banks to Greek debt haircut. Cyprus is accelerating efforts in a quest to monetize its riches in the shortest delay. Its original plan to enter the gas market as a net natural gas exporter by 2020 has been put in doubt when the quantities of natural gas encountered in the Aphrodite field proved less than expected. The multi-billion dollar LNG facility needed to reach European and potentially Asian customers has to be justified by substantial quantities of hydrocarbon discovered off the Cypriot shores. Negotiations over the project between the government and the Texan Noble Energy have been put on hold due to the need of the Cypriot authorities to reflect on important matters such as the stake of the Cypriot government in the LNG project. Officials denied that the reflexion period would cause any delay in the construction of the facility. Cyprus is hoping that Israel will use its services to process its own natural gas as this will justify the commercial viability of the project. The Israeli government has not formulated any preferred export route yet, but opting for a transit route via the LNG plant of Vassilikos would increase Cyprus’ chances of finalising the project in a timely manner before major changes in the natural gas market take place. France’s Total recently declared that it would also consider participating in the LNG project should its exploration activities in Blocks 10 and 11 prove successful. Similar statements were made earlier this year by ENI. With its South-Korean partner, the Italian company might be playing a major role in Cyprus’ path towards natural gas exports if it is awarded additional licenses for blocks 5 and 6.

Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.  Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat