Tuesday, October 21, 2014

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Cyprus and Total Sign MOU To Build Vassilikos LNG Facility

Total expressed its interest to participate in Cyprus’ liquified natural gas facility project on the island. The government of Cyprus signed an MOU with the French giant to build the LNG facility in Vassilikos (an industrial zone on the south coast of the island). The building of the LNG trains is expected to take place starting 2016. Earlier this year, in February 2013, Total was awarded exploration licences for blocks 10 and 11 of Cyprus’ exclusive economic zone (EEZ).

An MOU was also signed between Cyprus, Houston-based Noble Energy and its Israeli partners Delek and Avner on 26 June 2013 for the planning of the LNG terminal on the island. Italy’s ENI and South Korea’s Kogas have respectively 80% and 20% interest in Blocks 2, 3 and 9 of the island’s EEZ. During a meeting with the President of Cyprus Nicos Anastasiades, ENI’s CEO Paolo Scaroni revealed the Italian’s company interest in eventually participating in the LNG project should its exploration activities off the shores of the island prove successful. The company plans to commence its exploratory drilling sometime in 2014. An LNG facility would offer the island the flexibility it needs to monetize its riches by reaching European and Asian markets.

In a press release dated 3 October 2013, Noble Energy declared the successful results of its A2 appraisal well in Block 12 of Cyprus’ EEZ. The company updated its estimate of the gross resources of the field to the range of 3.6 Tcf to 6 Tcf with a mean of approximately 5 Tcf. The field is the third largest discovered made by Noble to date within the Deepwater Levant Basin. Noble Energy who operates Block 12 with a 70% working interest considered that the results encourage further exploration activities within Block 12.

It is important to note that the agreements signed between the Cypriot government and the companies regarding the building of the LNG facility are not binding. Total’s participation in its construction is contingent on the success of the French company’s exploration activities. Although cash-strapped Cyprus’ EU membership offers a great advantage to the island of entering the gas market, the discovery of additional amounts of natural gas in Cyprus’ waters is essential to justify the economic viability of the multi-billion dollar project. Cyprus’ domestic natural gas needs are modest and most of the gas discovered off its shores will be allocated for export. Cyprus’ ambition is to diversify Europe’s energy supply.

Israel’s participation in the project could increase its likelihood of coming to fruition. Neighbouring Israel has discovered substantial amounts of gas off its shores (with the Tamar and Leviathan fields containing respectively 9 and 19 Tcf). The island repetitively urged it to pool costs and use Cyprus’ facility to process and transport the gas via ship to customers. While Israel has taken a final decision on its export quotas, it is yet uncertain whether it will take Cyprus on its offer. Also remain the tension between Cyprus and Turkey, the problem of the division of the island and the time pressure of entering the LNG market before demand, and prices, drop.

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

 

 
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