ENI-KOGAS to Commence Drilling in Cyprus' EEZ by the End of Summer
Cyprus intends to contribute in Europe’s plan to diversify its sources of supply. The right infrastructure would allow Cyprus to become an energy hub for the whole Eastern Mediterranean region and allow Europe access to natural gas from the Mediterranean. Cyprus has adopted an LNG terminal project as the island’s strategic plan. An onshore terminal in Vassilikos would allow Cyprus and its neighbours to export gas to Europe and eventually East Asian markets.
Cyprus’ project was delayed due to insufficient quantities of gas discovered in its Exclusive Economic Zone (EEZ). The island was originally hoping to encounter large reserves that would commercially justify the construction of the terminal. The participation of Israel in the costs of the project would have also allowed the launching of the undertaking, but Israel seems to be inclined towards other options.
Cyprus has to wait until other exploratory successes are made in its EEZ. Total, ENI and KOGAS plan to commence exploration activities in 2014-2015. The results of their explorations in Cypriot waters will largely determine whether the island will be able to pursue its LNG project and become a regional energy hub for the Eastern Mediterranean.
Cyprus’ economy has largely suffered from a financial crisis caused by the exposure of its banks to Greek debt. Cyprus’ transformation as an energy center would not only generate gas revenues but would create a general boost to the economy through job creation. Cyprus would also position itself as the center of oil and gas expertise and would attract oil and gas professionals that would further contribute to the economy.
The Italian-Korean consortium ENI-KOGAS which holds concessions on blocks 2, 3 and 9 has informed the Cypriot government of its plan to commence exploratory drilling in four wells starting the end of the summer. Its activities are expected to last 12-18 months. Cyprus’ minister of energy Yiorgos Lakkotrypis has agreed with ENI that the Italian company would proceed with appraisal drilling as soon as a discovery is made.
Noble Energy also plans to conduct further drilling in Block 12. Noble has made the Aphrodite discovery in Block 12 of Cyprus’ EEZ. The field is estimated at 3.6-6 Tcf, not enough to make the LNG terminal viable. Total also holds concessions for blocks 10 and 11 of Cyprus’ EEZ and plans to commence drilling towards the end 2015.
Time is of essence here. The Eastern Mediterranean will be competing with new players in a changing energy scene. It is debatable whether Cyprus will be able to compete with the forthcoming relatively cheap shale gas delivered in the international market. Also, future gas prices are unpredictable and the quantities needed to make the LNG terminal viable might increase in light of a decrease in future gas prices. Cyprus’ access in the offshore business tremendously depends on the discoveries made in the next two years.
Karen Ayat is an analyst focused on energy geopolitics. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat