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Anastasios Giamouridis

2013 The German Marshall Fund of the United States. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the German Marshall Fund of the United States (GMF). Please direct inquiries to: The German Marshall Fund of the United States 1744 R Street, NW Washington, DC 20009 T 1 202 683 2650 F 1 202 265 1662 E GMF Paper Series The GMF Paper Series presents research on a variety of transatlantic topics by staff, fellows, and partners of the German Marshall Fund of the United States. The views expressed here are those of the author and do not necessarily represent the views of GMF. Comments from readers are welcome; reply to the mailing address above or by e-mail to About GMF The German Marshall Fund of the United States (GMF) strengthens transatlantic cooperation on regional, national, and global challenges and opportunities in the spirit of the Marshall Plan. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 as a non-partisan, non-profit organization through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has offices in Berlin, Paris, Brussels, Belgrade, Ankara, Bucharest, Warsaw, and Tunis. GMF also has smaller representations in Bratislava, Turin, and Stockholm. About the Mediterranean Policy Program The Mediterranean Policy Program promotes transatlantic analysis and dialogue on issues affecting Southern Europe, North Africa, the Levant, and the Mediterranean basin. Priority areas include: understanding trends in Mediterranean societies; exploring opportunities for south-south cooperation and integration; research on key functional issues affecting Mediterranean security and development; and strengthening the North American policy debate on the region and transatlantic cooperation on Mediterranean strategy. GMFs Eastern Mediterranean Energy Project addresses the political and economic implications, risks and opportunities of the recent energy discoveries in the Eastern Mediterranean region. It aims to promote the conditions for the peaceful development of the new energy opportunities in the Eastern Mediterranean and to promote regional cooperation on energy issues. See more at: Cover photo: An offshore exploration platform. AndrCGS

Natural Gas in Cyprus

Choosing the Right Option
Mediterranean Paper Series September 2013

Anastasios Giamouridis1

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii Economic Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 First Licensing Round: The Aphrodite Gas Discovery . . . . . . . . . . . . . . . . . . . . 3 Is Aphrodite a Commercial Discovery? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Second Licensing Round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Likely Economic Benefits and Time Horizon . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Export Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Commercial Cooperation with Israel? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1 Anastasios Giamouridis is a senior consultant at Pyry, a global energy consulting/engineering firm. His expertise includes gas monetization, LNG, and long-term supply contracts including price reviews and new contract negotiations. Before joining Pyry, he worked with the Oxford Institute for Energy Studies, the Greek Public Gas Corporation (DEPA), international oil & gas consultants PFC Energy, and the U.K. House of Commons.

The author would like to thank the German Marshall Fund (GMF) and in particular Sir Michael Leigh and Charlotte Brandsma for the excellent cooperation and active support they offered to this project, as well as to Christine Chumbler for preparing the text for publication. The paper also benefitted from the substantial experience on relevant issues of Howard Rogers from the Oxford Institute for Energy Studies (OIES) and Andy Morris from Pyry Management Consulting, who kindly took the time to read and comment on some earlier drafts. The author is indebted to them. Many thanks also go to other colleagues at Pyry Management Consulting and in the industry who shared their views on gas across the value chain, notably to Angus Paxton, Kostas Theodoropoulos, Ole Njaerheim, and Andy Flower. The author also expresses his gratitude to George and Evi Giamouridis and Demetra Kazantzidou, whose continuous support and encouragement has proven invaluable in both this and other projects. The author alone is responsible for views expressed in this paper and any mistakes are solely his.


Bcm Bcma Brownfield

Billion cubic meters Billion cubic meters per annum Energy industry jargon that refers to the development of expansion infrastructure at locations with suitable prior infrastructure in place, which can accordingly result in considerable savings for the project. In the liquefaction framework, the notion of brownfield economics relates to the utilization by an expansion project of some unavoidable pre-investment made by the initial phase such as site preparation and access, water and utility supplies, and loading jetties. See Monetization The marketing sector of the oil & gas industry Exclusive Economic Zone European Financial Stability Fund European Investment Bank European Stability Mechanism European Union Exploration & Production Farm-in agreements allow license holders in upstream contract areas to assign part of their equity to third parties for a combination of cash and the latter assuming an agreed work obligation in other words to assume part of their investment program as per PSC obligations. gross domestic product Energy industry jargon for the construction of new plants at locations where there is no other relevant infrastructure already in place. Existence of suitable infrastructure could lower overall development costs and accordingly re-label this development as Brownfield. International Monetary Fund international oil company Cyprus National Hydrocarbons Company

Commercialization Downstream EEZ EFSF EIB ESM EU E&P Farm-in agreements

GDP Greenfield



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The process under which gas is treated and cryogenically cooled to -162 C with the aim of reducing its size by a factor of about 1:600 and turning it into a liquid that can be transported with LNG tankers. liquefied natural gas The transportation sector of the oil & gas industry. This can refer to infrastructure such as liquefaction, gas pipelines, LNG tankers etc. million British thermal units million tons per annum Monetization, or commercialization, refers to the commercial development of hydrocarbons resources (gas and/or oil), which is aimed at bringing these resources to market and hence establishing revenue streams for the upstream partners.

LNG Midstream mmbtu mmtpa Monetization

Natural gas condensate Natural gas wells can sometimes include what is known in the oil and gas industry as natural gas condensate yields, namely hydrocarbons that turn to liquids when the pressure and the temperature decrease in the course of processing this gas to grid specifications. Such yields can be important and may include light oil and other natural gas liquids (NGLs) such as ethane, propane, butane, and higher alkanes, which are used as feedstock by chemical plants. These are high value products and the additional revenue that can be generated for project developers from their sales can contribute significantly to overall gas project development economics. Natural gas liquids Price review See natural gas condensate Price reviews are a normal process in long-term gas supply contract and are normally triggered by changes in the relative positioning of the given contract in the downstream natural gas market in question. This includes potential changes as a result of the introduction of new and more competitive sources of gas supply in these markets. production sharing contract The PSC is the contractual agreement between the government and its licensee that defines how profits are split between the two sides. In PSCs, the licensee normally assumes relevant E&P costs and risks. If the development is successful, the licensee recuperates all costs and then shares profits with the government in line with contractual arrangements under the respective PSC. Proved reserves refer to estimated quantities of hydrocarbon sources that analysis of geologic and engineering data demonstrates with reasonable certainty they are recoverable in existing economic and operating conditions


Proved reserves

Natural Gas in Cyprus


TCF Train (LNG)

trillion cubic feet Energy industry jargon for a production unit in a liquefaction plant. Larger numbers of such units (i.e. trains) tend to achieve lower costs on a unit basis, due to economies of scale and shared infrastructure. Unitization represents an oftentimes complex, albeit not uncommon, practice in the upstream sector. It seeks to unitize different contract areas with different shareholders into a single upstream unit, in cases where an oil and/or gas reservoir extends beyond the boundaries of the original contract area. Its aim is to improve upstream economics. Unitization agreements serve to clarify commercial arrangements between the partners, including how future hydrocarbons production from these joint fields is to be shared between the respective partners. They are often a reiterative process with revision clauses allowing for more accurate geological and other necessary data to be taken into account, as they gradually become available from the operations. Cross-border unitization agreements are also possible. The exploration and production sector of the oil and gas industry.




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Economic Context

his paper examines the monetization options available to Cyprus for the significant resources of natural gas that have been discovered in its exclusive economic zone (EEZ). These options are analyzed against the background of the economic challenges facing the country following the financial and economic crisis. A number of the papers conclusions call into question widespread assumptions about the commercial viability of certain of these options. The goal is to contribute to the development of an energy strategy for Cyprus that will maximize the benefits for the country and contribute to its economic revival. Between 2005 and 2008, the Republic of Cyprus followed an adjustment program aimed at meeting accession criteria for the euro, which it adopted as its national currency in January 2008.1 GDP grew by an average of 3.8 percent year-on-year from 2000 until the start of the financial crisis in 2008. Problems emerged in the immediate aftermath of the global economic crisis, which hit the Cypriot construction, tourist, and financial sectors, and resulted in negative growth in 2009 (-1.9 percent) The significant exposure of the local banking sector to Greek sovereign debt, and the disproportionate weight of this sector in the national economy, undermined Cypruss previous economic model. In March 2012, the then Cypriot Finance Minister Kikis Kazamias resigned, invoking health reasons, two days after the relegation of Cypriot sovereign bonds and three banks to junk status by the rating agency Moodys (following a similar decision by Standard and Poors in January). The government submitted a request for support to the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM), a few days before Cyprus assumed the EUs rotating presidency
1 Cyprus will in this paper be used interchangeably with the Republic of Cyprus, the only internationally recognized sovereign states in the island. The Turkish Republic of Northern Cyprus, which is recognized only by Turkey, will be referred to separately as TRNC or northern Cyprus.

on July 1, 2012. In 2012, the countrys economy contracted by 2.4 percent. By March 2013, Cyprus was faced with the prospect of an uncontrolled default and eurozone exit. Against this background, and after a confused negotiating process, Nicos Anastasiades, who had been elected president the previous month, accepted a rescue loan from the European Union (EU) and the International Monetary Fund (IMF). The EU and IMF provided Cyprus with a bail-out loan of 10 billion, subject to strict conditionality. This included a requirement for the government to reduce by half the countrys banking sector to reach average EU levels by 2018. The loan was insufficient to meet essential government expenditure. The Cypriot government, therefore, sought to meet these needs by imposing a levy of up to 100 percent on the uninsured deposits (i.e. over 100,000) of both Cypriot and foreign nationals in banks in Cyprus. This, combined with structural weaknesses and the stringent economic policies to be implemented in the coming years, created substantial recessionary pressures that are likely to persist into the medium term.2 Against this background, there is considerable interest in Cyprus and abroad in the role hydrocarbons can play in reviving the countrys economy. Certain economic benefits, albeit modest, can already be realized during the exploration phase, through signature fees paid to the government when licenses are issued. Once key investment decisions have been taken, the construction of onshore and offshore infrastructure can be a source of jobs and bring multiplier benefits to the economy.

2 For more details see Michael Leigh, Cyprus bailout and IsraelTurkey dtente present new opportunities, 25 March 2013, www.; and Reuters, Factbox: outlines of Cypruss bailout by the euro zone, 16 March 2013,

Natural Gas in Cyprus

Finally, when production comes on stream, there will be substantial savings from the replacement of expensive imported oil products with domestically produced gas as well as significant export revenues for the Cypriot government through profit sharing with the companies concerned. The government and the relevant companies will need to agree to a timetable for the recovery of costs incurred. Electricity prices, now amongst the highest in

Europe, will come down, benefitting business and domestic consumers. Achieving these potential benefits will require sound management of the economy and of the countrys natural resources. Best practice in Europe and elsewhere can guide the countrys authorities in developing a balanced energy policy and avoiding excessive dependence on a single sector.

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First Licensing Round: The Aphrodite Gas Discovery

Even without new discoveries, Aphrodite (the name given to this offshore gas field) is larger than the proved reserves of Poland, Romania, and the U.K., albeit in certain cases as a result of depletion.4 Cypruss potential reserves still fall well short of the largest proved natural gas reserves in large established producers such as Norway with 73 tcf; Algeria, 159 tcf; Qatar, 885 tcf; and the Russian Federation 1,575 tcf.5

n the early 2000s, the government of the Republic of Cyprus hired the Norwegian company PGS to make a preliminary assessment of Cypruss hydrocarbons potential through seismic surveys. Such surveys help to determine whether it is worthwhile to pursue much more costly exploratory drilling. PGSs results proved largely favorable, and in February 2007, the Cypriot authorities issued an invitation to tender for exploration and production (E&P) licenses for 11 offshore blocks. However, only three small to medium-sized companies made bids. The larger international oil companies (IOCs) did not show interest in Cyprus at the time because of their access to more attractive, established opportunities around the world. As a result, the government of Cyprus awarded only one license in October 2008 to Noble Energy, a medium-sized E&P company from the United States, which already had strong interests in the region (Israel). Following preparatory work and additional data assessment (including 2D and 3D seismic surveys), the company drilled its first exploratory well in Block 12 in September 2011. This indicated a 5-8 tcf natural gas deposit in deep water of about 1,700 meters.3

4 According to the Energy Information Administration (EIA), proved reserves refer to estimated quantities of sources that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable in existing economic and operating conditions; see EIA, Glossary: proved energy reserves, accessed 15 April 2013, 5 However, the potential combined reserve base of Israel and Cyprus could bring the Eastern Mediterranean to the level of substantial regional players with current or planned gas exports to Europe including the Netherlands and Azerbaijan (39 and 45 tcf of gas respectively). Information from BP Statistical Review, Natural gas: proved reserves, accessed 13 March 2013, www.

3 Ashurst, Energy briefing: the oil and gas regime in the Republic of Cyprus, March 2012,; John Tomich, Noble Energy: Cyprus gas discovery, Presented at the First Cyprus Energy Symposium, 26 January 2012,; Petrostrategies, The World Energy Weekly, p.5, 10 October 2011.

Natural Gas in Cyprus


Is Aphrodite a Commercial Discovery?

Commercial Viability ydrocarbons discoveries, including Aphrodite, do not necessarily translate into actual production of gas or oil. Indeed, commercial viability relates to a fields upstream (production) and midstream (monetization) costs set against expected downstream revenues. Potential revenues must exceed costs by a significant margin for a project to be commercially viable. Estimates of the monetary value of hydrocarbons discoveries, and particularly of gas discoveries, that are calculated simply by multiplying estimated resources by a given price are unhelpful, as they fail to take into account uncertainties concerning cost and selling price. Figures 1-3 provide a schematic presentation of the commercial viability, of natural gas projects.

lead to negotiations on servicing the domestic market, downsizing of proposed infrastructure, or postponement until new resources are proved. In practice, more than 6 tcf may be required to permit the high utilization needed to allow economic operations at an LNG plant. There are strong indications from available 3D seismic data that there is a second field within Block 12 that could be of a magnitude of 2-5 tcf.7 However, additional seismic surveys and drilling are needed to confirm the commercial availability of additional resources. Confirmation of the higher end of the 5-8 tcf gas resource estimates at Aphrodite and/or of substantial additional resources in Block 12 beyond Aphrodite would allow economic operations at Cypruss export facility (i.e. offer high utilization rates) and potentially set the basis for expansion infrastructure that would benefit from economies of scale and brownfield economics, thereby reducing unit costs and improving its overall profitability.8 Production Costs and Gas Quality at Aphrodite Specific production costs and gas quality at Aphrodite are an important parameter for its development. Indeed, Aphrodite is an offshore natural gas field roughly 180 km from the Cypriot coastline and in deep waters of as much as 1,700 meters. It could therefore be a potentially expensive
7 On KRETYKs views regarding potential reserve base at Block 12 beyond the Aphrodite offshore gas discovery, see for example the recent presentation by Charles Ellinas, the companys CEO, at the Eastern Mediterranean New Frontiers conference in London (22-23 April 2013), Cypruss offshore exploration: the current status and way forward; also Energy Press, 8 .. 12 , 4 June 2013,; and Sigma Live, : , 11 March 2013, 8 In the liquefaction framework, the above notion of brownfield economics relates to the utilization by an expansion project of unavoidable pre-investment made by the initial phase such as site preparation and access, water and utility supplies, and loading jetties.

Resource Base in Aphrodite/Block 12 The presently available 5-8 tcf range of estimates for Aphrodite is too broad to confirm the commercial viability of the field. The lower end of these estimates may not provide the critical mass needed to allow Cyprus to move forward with the construction of an LNG plant. The prevailing assumption is that proven resources of 6 tcf or more would justify the construction of an LNG export facility with a capacity of 5 million tons per annum (mmtpa). But the overall resources available for export need to be calculated after subtracting likely domestic consumption.6 Confirmation of the lower end of current estimates (i.e. 5 to 6 tcf) could
6 Additional reserve basis also allows for the normal natural gas losses in upstream operations and usage in relevant liquefaction operations. In his paper on monetization of the substantial recent discoveries in East Africa, David Ledesma of the Oxford Institute for Energy Studies assumes that 8-10 tcf are enough for an 8 mmtpa (11 bcma) LNG facility. This should be seen in light of other considerations as well. For example, Statoil does not consider its 9 tcf gas discoveries in Tanzania large enough to proceed with a liquefaction facility on its own. More in David Ledesma, East Africa gas potential for export, Oxford Institute for Energy Studies, March 2013,

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Figure 1 Basic parameters determining the commercial viability of a gas project

stand at about $0.75 per mmbtu or higher if gas quality is an issue.9 Oil and Liquids Credits Natural gas wells sometimes include natural gas condensate yields, i.e. gas that turns to liquid when the pressure and the temperature decrease in the course of processing. Such yields may include light oil and (after some further processing) other Natural Gas Liquids (NGLs) such as ethane, propane, butane, and higher alkanes. These are typically used as feedstock by chemical plants. They are high value products and the additional revenue they generate can contribute significantly to the overall development economics

Figure 2 Basic breakdown of the revenue of a natural gas project

development. Preliminary production cost estimates stand at below US$2 per million British Thermal Units (mmbtu) in both Cyprus and Israel. However, this looks optimistic when contrasted with other upstream areas and may not include costs associated with gas processing, which could

9 For example, some third-party estimates assume cost levels of below $2 per mmbtu for Cyprus and slightly higher costs (but still below $2) for production in Mozambique. In contrast, Ledesma assumes a price of $3 per mmbtu (and potentially higher) for Mozambique gas including gas processing costs while the countrys Gas Master Plan assumes as much as $6.40 per mmbtu for some of its higher-cost gas prospects, namely Tubarao. Moreover, our only available guide for the Eastern Mediterranean region remains the long-term contract signed in March 2012 with Israels Electric Corporation for supply from Nobles adjacent Tamar field. The sales price is estimated at $5.75 per mmbtu in its initial phase. See David Ledesma, East Africa gas potential for export, Oxford Institute for Energy Studies, March 2013,; Noble Energy, Analyst conference, 6 December 2012,; and Anastasios Giamouridis, The offshore discovery in the Republic of Cyprus: monetization prospects and challenges, Oxford Institute for Energy Studies, July 2012,

Natural Gas in Cyprus

Figure 3 Basic breakdown of the cost basis of a natural gas project

There are no plans to assess Aphrodites deep oil potential at this stage because of technical constraints (this will be postponed to a later stage and undertaken if deemed sufficiently promising). Similarly, clarification of additional recoverable natural gas resources in Block 12, over and above those in Aphrodite, would require additional drilling.

of a gas project.10 The potential existence of crude oil in a deeper reservoir would be an additional benefit. Important Milestones for Aphrodites Development Noble Energys appraisal drilling, which commenced in June 2013, will clarify the volumes of recoverable resources and applicable costs at Aphrodite. Drilling operations are expected to require approximately three months. An additional two to three months will be needed for interpretation of the appraisal drilling results, which should be available around the end of the year. However, there may be a need for additional drilling for final conclusions.11

Current planning in Cyprus with regard to the development of Aphrodite and of a related LNG plant assumes completion of Front End Engineering and Design (FEED) in the first part of 2015, finalization of supply negotiations and the signing of binding gas sales contracts in the summer of 2015, and bidding and selection of the Engineering, Procurement, and Construction (EPC) contractor by the end of 2015. The Final Investment Decision (FID) is expected in early 2016, with construction of associated infrastructure beginning in the same year.12

Information from EIA, Glossary: natural gas liquids, accessed 19 June 2013,; Gazprom, Glossary: gas condensate fields, accessed 19 June 2013, Cyprus News Agency, Noble Energy starts A-2 appraisal drilling in Block 12, 7 June 2013,; Cyprus Mail, Noble firms up drilling date, 10 April 2013, www.cyprus-mail. com.



More information can be found in the presentation of Charles Ellinas, KRETYKs CEO, at the Eastern Mediterranean New Frontiers conference which took place on April 22-23, 2013 in London, Cypruss offshore exploration: the current status and way forward.

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Second Licensing Round

New Licenses Under Cypruss Second Round onfirmation of Cypruss gas potential and growing interest from industry prompted the authorities to launch a second licensing round in 2012. Unlike the first round, this saw good participation from IOCs, upstream independents, natural gas buyers, gas and LNG traders, and smaller regional players that sought to benefit from potential synergies and market positioning.13 Licenses were awarded for five offshore blocks out of twelve on offer (of which nine received bids) in the first quarter of 2013. Offshore blocks 2, 3, and 9 were awarded to a consortium led by the Italian major ENI and the worlds largest LNG buyer, Korean utility KOGAS; Blocks 10 and 11 were awarded to the French major Total. A bid for Block 9 by a consortium led by Total, including Novatek and Gazprom Bank of Russia, was initially preferred but later dropped, in favor of the ENI-KOGAS consortium. Based on available seismic (but no drilling) data, block 9 is considered to have the highest potential of all offshore blocks in Cyprus, with potentially as much as twice the quantity of gas discovered in Aphrodite.14 Some blocks under offer in this second licensing round were not awarded, despite offers for them (including from the ENI-KOGAS consortium for offshore blocks 5 and 6). There is an option for

these offshore blocks to be awarded to ENI by December 2013.15 Prospects There are indications of good hydrocarbons potential in all these offshore blocks,. This could ultimately lead to significant hydrocarbons production levels including natural gas, condensates, and even crude oil, to be confirmed by exploratory drilling. This could lead to economies of scale and improve project economics. Current licensed areas (i.e. offshore Blocks 2, 3, 9, 10, 11, and 12) could contain up to 40 tcf of gas, with some 60 tcf in total in the Cypriot EEZ.16 If confirmed, this would enable Cyprus to go ahead with the LNG project and associated infrastructure, independently of the precise gas quantities and quality in the Aphrodite field. In July 2013, Paolo Scaroni, the CEO of ENI, confirmed that ENI plans to commence exploratory drilling in the second half of 2014. Scaroni also confirmed that ENI would invest in the planned liquefaction facility in Cyprus if the company discovers commercially viable gas. Similarly, Total could start offshore exploratory drilling for oil in its contract area in Block 10 before the end of the year. Total is also said to be interested in opportunities to farm-in to Noble Energys Block 12.17 The Cypriot authorities and the licensees are working to a feasible but ambitious schedule. If


See Upstream Online, Players warm response to Cyprus license round, 17 May 2012,; and also Stock Watch, 15 , 11 May 2012, www. See Energypress, 1 , 15 March 2013,; also Platts, Cyprus call time on more license awards, 1 February 2013,; and Middle East Economic Survey, Noble Energy expects more gas in Block 12, 26 October 2012,

In Cyprus, No date for bidding, 22 June 2013,; Platts, Cyprus call time on more license awards, 1 February 2013,; Middle East Economic Survey, Noble Energy expects more gas in Block 12, 26 October 2012,


Charles Ellinas, Cypruss offshore exploration: the current status and way forward, Eastern Mediterranean New Frontiers conference, London, April 22-23, 2013. More details in Philelephtheros, , 22 July 2013, www.; as well as from Globes, Total mulls buying Noble, Delek Block 12 rights, 21 July 2013,; Bloomberg, Cyprus studies LNG export expansion beyond $12 billion terminal, 12 July 2013,



Natural Gas in Cyprus

there are firm indications of available resources in the different blocks that have been allocated in 2014-2015, there will be a better basis for a positive final investment decision on the LNG plant and related infrastructure in 2016, even if resources at Aphrodite alone do not prove sufficient.18


Assessing the prospectivity of these new blocks will require: ENI and Total proceeding as operators with any geological and geophysical (G&G) studies; and making new seismic surveys in their respective license areas. ENI and Total proceeding as operators with drilling a number of exploratory wells in their respective license areas. Provided that this exploratory drilling results in a hydrocarbons discovery (of gas and/or oil), ENI and Total proceeding as operators with appraisal drilling(s) to clarify its commerciality. Provided appraisal drillings confirm commerciality, the license holders will have to agree with the authorities on a specific development and production plan, and proceed to implementation.

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Likely Economic Benefits and Time Horizon

companies that sell services and equipment to upstream operators.19 The expertise of Norways supplier industry has allowed it to market its services and products abroad and to capture high market shares in its immediate periphery in the North Sea and the U.K., as well as in North Africa and the Mediterranean (with more modest success in other locations). Norway achieved these benefits over many years and was aided by existing competitive advantages (mining and maritime sectors) as well as innovation and direct input from foreign sources. This was encouraged and promoted by the Norwegian government.20 In the first phase, the Cypriot economy can benefit from exploration activities including seismic and exploratory drilling in both Block 12 and the blocks recently awarded to ENI-KOGAS and Total. Potential benefits for the local economy from such exploration operations could include job creation, as well as opportunities for Cypriot companies to market their products and/or services to new clients. However, exploration operations in offshore Cyprus are unlikely to contribute substantially to job creation or GDP because of the current lack of technical expertise in Cyprus. In a recent study of employment opportunities and planning needs in the hydrocarbons framework, the countrys Human Resource Development Agency estimated that each vessel involved in seismic surveys will have a staff of 20, with about 100 workers on drilling platforms in the exploratory phase. However, the Agency highlighted that

Structure of Economic Benefits yprus can expect to reap potentially significant economic benefits in the coming years, provided it has commercially viable hydrocarbon resources. These benefits include a) general economic benefits and b) direct government revenues. General benefits include job creation, foreign direct investment, a stronger balance of trade as local natural gas replaces oil imports, and greater economic competitiveness through potentially lower electricity costs. Direct government revenues refer to payments to the Cypriot government from two main sources: signature bonuses when awarding new licensees and profit sharing if fields are profitably developed. Figure 4 below provides a schematic representation of the economic benefits that Cyprus can hope to capture over the coming years from hydrocarbons developments in its EEZ. General Benefits for the Economy of Cyprus

Exploration and Production Operations

Exploration and production operations can boost economic activity and stimulate growth in the country of operations in a number of ways. These can go beyond signature bonuses received by a sovereign when a new block is awarded to a licensee and direct revenue through profit sharing or other contractual and tax arrangements relating to hydrocarbons sales. The overall value creation from Norways very substantial hydrocarbons resources, for example, amounts to approximately one-third of GDP, with as many as 136,000 employees working in the oil and gas sector (based on 2008 data), according to a study from the BI Norwegian Business School. Almost 85 percent of these jobs and 6 percent of GDP relate to the supplier industry, i.e. Norwegian

The supplier industry includes geology, seismic, reservoir; drill & well; field development (topside and subsea); and support. More information on this is available at Amir Sasson and Atle Blomgren (2011), Knowledge based oil and gas industry, Research Report 3, BI Norwegian Business School, Department of Strategy and Logistics, Ibid.


Natural Gas in Cyprus

Figure 4 Structure of economic benefits in Cyprus from hydrocarbons developments

opportunities for Cypriot staff remain limited in this phase, due to a lack of relevant experience.21 At present, Cypriot companies are unable to satisfy the business needs of the upstream sector. Interested companies need to assess the opportunities that upstream operations create for them in the short, medium, and long term. They will then need to tailor their own products, skillsets, and competitive advantages to the expectations of potential clients. Cypriot downstream companies could consider opportunities in supplying marine and other material to upstream operators; companies and port authorities should consider opportunities from improved utilization of local ports, as their traffic increases to meet offshore needs; companies and investment funds should consider land acquisition opportunities for natural gas and other relevant infrastructure development as well as offices, housing, etc. The hospitality sector should be ready to accommodate upstream

staff as well as senior IOC management teams that now visit Cyprus often. Developing more specialized technical capabilities in the future could add significant value to the economy and boost GDP over and above direct contractual revenues, while helping to diversify the Cypriot economy further. This will require careful strategic planning, covering the regulatory environment, education, and training. The Cypriot authorities and companies are already becoming increasingly active in this context. These first steps will need to be considerably strengthened with the involvement of the public and private sectors.22
Gas Infrastructure Development

There are significant opportunities for developing onshore and offshore infrastructure. These include

The Human Resource Development Authority of Cyprus, , November 2012,

For example, in June 2013, the Cypriot press extensively covered the inauguration ceremony of local Cypriot company EDT Offshore. EDT invested 31 million in a facility at the port of Limassol. Its facility includes a mud-plant aimed at supporting Nobles appraisal drilling operations at Block 12, whilst the University of Nicosia has started offering eight graduate and postgraduate paths in oil and gas studies. Information from Energypress, : , 12 July 2013; and also the Cyprus Gas News, Energy job boost, 1 June 2011,


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the construction of gas production and processing facilities; the construction of (one or more) sub-sea pipelines to link the offshore fields with onshore Cyprus; construction of the Cypriot natural gas transmission and distribution network to cover domestic needs; and the development of gas export infrastructure (an expandable LNG plant). The Human Resource Development Agency estimates 100 personnel per production/processing unit will be needed. Some 350 personnel could be needed for the construction and the laying of a sub-sea pipeline to link the offshore gas fields with onshore Cyprus. Some 200 workers will be needed for the development of the domestic gas transmission and distribution network. However, by far the largest contributor to job creation will be the construction of a liquefaction plant (LNG terminal), with a peak workforce of 4,000 at the busiest phase of its construction. These figures have been calculated on the assumption of monetization of Aphrodite and development of a 5 mmtpa liquefaction plant onshore Cyprus, and could be revised upwards if there are new discoveries in Block 12 and/or in some of the blocks licensed to ENI-KOGAS and Total.23 Cyprus will capture value from such infrastructure development when the commercial viability of the Aphrodite offshore discovery and/or other potential discoveries in Cypruss offshore blocks have been confirmed and final investment decisions taken by project developers.

The lack of specialized expertise in Cyprus will reduce the overall number of jobs available to Cypriots, which will be largely limited to lowerskilled jobs in initial phases. Nonetheless there will be a multiplier stimulus to employment in various sectors supplying the industry. Although Cypriot companies lack the capability to provide specialized upstream and downstream services at present, they are better equipped for supporting the development of the domestic natural gas network.
Improvements in Economic Competitiveness and the Balance of Trade

Cyprus is currently almost exclusively dependent on expensive and polluting oil products (diesel and heavy fuel oil) for its power generation. End-user electricity prices for industrial consumers in Cyprus are the highest in the EU, while retail prices are the second highest after Denmark.24 This is particularly problematic for companies and individuals in the current economic situation, and there is strong public pressure to reduce costs. If Cyprus had been in a position to use gas procured at average European prices in the 2000s, it could have achieved significant savings. For example, if in 2010 Cyprus had been able to procure gas at the average European prices of the time, Cypriot consumers could have saved as much as 1.1 billion in that year alone. There would be substantial savings even if gas were to be used only in stationary sectors, i.e. power generation and other non-transport uses of energy (industrial, commercial, residential).25 Depending on actual gas penetration levels, efficiency rates

These figures refer specifically to the construction/development phase of such gas infrastructure. Development of the latter will be spread over a number of years but does not imply any permanent employment opportunities in this context. In their operational phase, the facilities will still generate some jobs, although this is normally a fraction of requirements seen in the actual development phase. More information can be found in The Human Resource Development Authority of Cyprus, , November 2012,

Europes Energy Portal, Electricity Industry and Electricity Households, accessed 15 September 2013, This probably offers a more realistic estimate of potential savings for Cyprus, as gasification of the transportation sector (road and marine) remains at very early stages globally. For additional information on limitations on the penetration of gas in the transportation sector, see for example Pyry Management Consulting, How can small-scale LNG help grow the European gas market?, June 2013,


Natural Gas in Cyprus


Table 1 General economic benefits from hydrocarbons developments in (in power Cyprus generation), and taxation, Cypriot Opportunity When? Value? consumers could have saved a total Exploration and production Partially achieved for block Small to moderate (seismic, drilling, produc12 (and upside in new of between 1.5 tion) blocks) and 7.4 billion Gas infrastructure developAfter gas commercial viabil- Moderate to high (nominal) over the ment ity has been confirmed course of the past Improvements in Cypruss Once Cypriot gas reaches Moderate to high decade.26 Cyprus balance of trade local and/or export markets could have improved Improvements in economic Once Cypriot natural gas Moderate to high depending its balance of competitiveness reaches the local market on cost of Cypriot gas payments by some 1.3 billion in 2010, bonuses for Blocks 2, 3, 9 and 10, 11 respectively.28 and as much as 9 Specific signature bonuses for each block are not billion (cumulatively, nominal) over the decade. predetermined but rather a matter for contractual The actual benefits to Cypriot consumers in the negotiations between the parties. They normally future depend on various cost, supply, and taxation reflect informed assumptions concerning the considerations, which are hard to calculate at prospects for each field. Additional direct revenue present.27 from such signature bonuses could come from new offshore licenses, beyond those awarded in the Table 1 offers an overview of potential indirect countrys first and second rounds. economic benefits from hydrocarbons development.
Tax Revenue

Direct Government Revenues

Signature Bonuses

In February 2013, the government received 150 million from the ENI-KOGAS consortium as well as 24 million from Total as signature

More details including relevant assumptions are available in Anastasios Giamouridis, The offshore discovery in the Republic of Cyprus: monetization prospects and challenges, Oxford Institute for Energy Studies, July 2012, LNG imports as an interim solution until locally-procured natural gas becomes available i.e. as currently planned by Cypriot authorities could help reduce the electricity bill for local consumers. However, these improvements are likely to be marginal as the global LNG market remains relatively tight and prices high, especially for medium-term contracts that do not shield suppliers from longer-term competition. This already potentially significant cost base for Cyprus is expected to be increased even further by the high charter rates for LNG tankers, which would increase leasing costs for a Floating Storage and Regasification Unit (FSRU).

In line with relevant contractual arrangements between the government of Cyprus and its licensees, there is at present no taxation of hydrocarbons production revenues beyond profitsharing. The Cypriot government will tax the income of domestic and foreign workers employed by these companies at the countrys standard income tax rates. Tax revenues will flow both during the intensive infrastructure development phase and during long-term operations.
Profit Sharing


Cyprus will start receiving direct revenues soon after hydrocarbons (gas and/or oil) sales commence. According to the draft contract (Model PSC) published by the Cypriot government in February 2012, Cypriot government revenues

Philelephtheros, 150 , 15 February 2013,


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will include a share of hydrocarbons production in the licensed offshore blocks. This share will be calculated after subtracting from the total hydrocarbons production the amounts that will need to be produced and sold by the governments licensees to recover their capital and operational expenditure. The exact timing for starting this profit-sharing mechanism will be subject to the contractually agreed cost recovery timetable and other relevant terms between the Cypriot government and its licensees. (ie how soon licensees will be able to recover their capital expenditure).29 This represents normal industry practice in PSC arrangements and does not require investment on behalf of the government (as in the case of equity arrangements) to be eligible to receive its share. For illustration purposes only, if the Aphrodite field were on-stream and succeeded in producing and exporting 5 mmtpa (7 bcma) of gas/LNG in 2011, then it would have generated total revenue of $3.8 billion if it sold its output at average Japanese prices of $14.7 per mmbtu; or $2.7 billion if it sold its output at average 2011 European prices of $10.6 per mmbtu. However, the governments actual receipts would be only a portion of this total revenue, which would be determined by contractual arrangements (profit share), technical limitations, and expenditure incurred on the production, monetization, and transportation costs, before these gas volumes reached their downstream markets. Cypriot authorities have on various occasions given estimates of approximately $4 billion for upstream and pipeline costs (this probably includes processing costs) with an additional $6 billion required for the construction of a single-train liquefaction plant.

Assuming some $3 per mmbtu for transportation (LNG tanker) costs to the Far East, a government share of overall profits at 65 percent, and project costs spread equally across a 20-year lifetime, then LNG sales to the premium Japanese market, which is often used as a reference premium market, would have fetched the Cypriot government more than $800 million in direct revenue in 2011 alone. However, these direct revenues for the government could be as low as $500 million if the costs of a onetrain LNG plant exceeded $6 billion. Conversely, Cypriot national accounts could have been boosted by almost $1 billion in that year if Cyprus achieved economies of scale at its LNG plant through a three-train plant. Moreover, this already broad range of potential revenue becomes even wider if inherent uncertainties regarding upstream costs, transportation costs, and potential gas/LNG sales prices are also taken into account. This is the reason why efficient development and marketing of domestic hydrocarbons resources is such an important issue for both the government and license holders Noble, ENI-KOGAS, and Total. The monetization section below looks into these issues in more detail.30 Table 2 summarizes direct hydrocarbons revenue opportunities for the government of Cyprus and provides an overview of their potential timing and value for the country.


Ministry of Commerce, Industry, and Tourism, Model Exploration and Production Sharing Contract, Nicosia, February 2012,; and also authors discussions with regional government and industry officials, April and June 2012.

Lead times for relevant infrastructure development as well as financing terms and return-on-investment can also have a very significant impact on the projects profitability. Estimates by former Minister of Commerce, Industry, and Trade Neoklis Sylikiotis of some $1.2 billion (900 million) from the monetization of the Aphrodite natural gas field are feasible but highly dependent on the combination of achieving high gas sales prices and low development costs; this also holds true for estimates based on realization of Cypruss full theoretical gas upstream potential. More information in Financial Mirror, Cyprus natgas gains at 4 bln a year, says Kretyk, 15 April 2013, Quoted prices come from BP, Statistical Review 2011,

Natural Gas in Cyprus


Table 2 Direct hydrocarbons revenue opportunities for the government prices that implied a unit of Cyprus value of between $220 million and $280 million Opportunity When? Value? per tcf.33
Signature bonuses Tax revenues Revenues from natural gas production and sales When awarding blocks During hydrocarbons operations Once Cypriot natural gas reaches local and/or export markets Small to moderate depending on block

Pre-Selling Rights to Block 12 There have been heated debates in Cyprus on whether, and under what circumstances, it might be possible for the government to leverage Aphrodite to help meet its financing needs.31 This proved impossible in the run-up to its loan agreement with the EU and the IMF due to the uncertainties mentioned above, such as the size of resources in the Aphrodite field, production and monetization costs, sales prices, profitability, and related contractual arrangements. Moreover, any attempt to sell Cypruss contractual rights in future hydrocarbons profits at this relatively early stage of upstream development would probably result in offers below expectations. Recent farm-in transactions offer insights in this context.32 For example, East African upstream acreage with substantial commercial potential recently saw increasing interest from IOCs as well as a number of large national energy companies. This culminated in three high-profile transactions for areas offshore Mozambique (Areas 1 and 4), at

However, the eastern Mediterranean lacks Small to moderate depending the very considerable on phase of development hydrocarbons potential of Small to high depending on East Africa (and particularly numerous variables offshore Mozambique) favorable geography for access to premium Asian LNG markets, and the extensive involvement of IOC investors.34 Indeed, a more appropriate guide could be the recent provisional deal in Israel with the Australian energy company Woodside for the offshore Leviathan gas field. This deal implies a price less than half of that seen in the Mozambican transactions mentioned above. This could rise, however, to $230 million per tcf if commercial uncertainties are overcome and to $420 million if Leviathan were to support LNG exports that


See for example Middle East Economic Survey, Cyprus Energy Minister says confirmation drilling top priority, 13 March 2013, Farm-in agreements allow license holders in upstream contract areas to assign part of their equity to third parties for a combination of cash and the latter assuming an agreed work obligation (in other words part of their investment programme, as per contractual obligations).

Information from Bloomberg, CNPC to buy stake in ENI Mozambique assets for $4.2 billion, 14 March 2013,; Reuters, Mozambique Oks PTT bid for Cove, despite Shell, 29 May 2012, For more information on upstream developments and prospects for LNG monetization in Tanzania and Mozambique, see David Ledesma, East Africa gas potential for export, Oxford Institute for Energy Studies, March 2013, www.oxfordenergy. org; for some recent relevant developments see for example Upstream Online, Indians confirm Mozambique block deal, 25 June 2013,




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received higher prices than those agreed in advance between the parties.35 The above point to a value of between $900 million and $2 billion for a farm-in into Block

However, this prospect appeared to run into significant difficulties (including withholding payments) in the immediate aftermath of Israels decision to restrict its natural gas exports to 40 percent of available reserves. According to the Australian press, Woodside considered a quota of 50 percent or more to be both likely and necessary in order to justify further investment. More information on Woodsides deal in Israel and recent difficulties is available at, Woodside holds off on $750 m for Israel, 5 July 2013,; Globes, Woodside reviewing Israel plan report, 30 June 2013, www.globes.; Noble Energy, Analyst conference, 6 December 2012,; Upstream Online, Woodside takes Leviathan stake, 3 December 2012,; and the Financial Times, Woodside snaps up Leviathan stake, 3 December 2012,

12 at its current stage of development, with some potential scope for improvements. Under this set of assumptions, Cypriot authorities would receive only between $600 million and $1.3 billion of the aforementioned total sums, reflecting the reported 65/35 profit split in Block 12. Although this range excludes positive commercial developments such as Woodsides agreement on Leviathan, it clearly accounts for only a fraction of the value Cyprus could hope to extract from Aphrodite under its profit sharing agreement with Noble, provided Aphrodite proves commercially viable. It seems, therefore, that pre-selling rights is unlikely to be a financially attractive option for Cyprus.

Natural Gas in Cyprus



Export Options

Monetization onetization refers to the means for bringing hydrocarbon resources to market and establishing revenue streams for partners. Monetization options are assessed and investment decisions taken on the basis of their envisaged profitability across the projects life. The cost of each monetization option represents only one of a number of profitability drivers. Decisions to invest also need to take into account assessments of the long-term attractiveness of specific gas markets. This includes an assessment of price differentials (which can be substantial between regions), competitive pressures (e.g. from other suppliers in target markets), gas transit regimes and costs, access to and dependency on infrastructure, market risk, and the possibility of diversifying exports. Cypruss main export options are the development of a liquefaction plant targeting premium downstream gas markets in Asia, Europe, and globally; or construction of a pipeline to Greece or Turkey, aimed at meeting demand in European markets. These options are presented in Map 1 and examined in more detail in the sections below. They are analyzed from a geopolitical perspective in the accompanying paper by Simon Henderson.36 Pipeline to Turkey
Cost Element

a practical proposition only under significantly changed political circumstances and confidence building between the Republic of Cyprus and Turkey. The following discussion focuses on the technical and economic rationale for such a pipeline, setting aside political constraints. A pipeline to Turkey would probably entail lower development costs than other proposed monetization options (pipeline to Greece or liquefaction), because of the geographical proximity of Cyprus to Turkey. It would offer Cypriot gas access to a growing market with relatively high import prices. Demand in the downstream market in Turkey has been growing rapidly in the past few years and could require an additional 20 bcma by the beginning of the next decade, provided the countrys economy and demand for energy continue to grow at recent rates. Turkish import requirements could increase further, if, for example, various long-term supply contracts currently in force are not renewed (in whole or in part) when they expire in the 2020s. However, the significant sea depth between Aphrodite and Turkey, relatively problematic sub-sea terrain, and the potential need for additional natural gas processing facilities closer to the Turkish delivery point could increase costs significantly and reduce the commercial attractiveness of this option.38
Market Risks

Turkish officials have informally expressed interest in the possibility of a sub-sea natural gas pipeline to Turkey.37 However, this option could be considered
36 Simon Henderson, Natural Gas Export Options for Israel and Cyprus, Mediterranean Policy Paper, German Marshall Fund of the United States, September 2013, archives/natural-gas-export-options-for-israel-and-cyprus/. 37

Producers of Cypriot (and/or Israeli) gas may be unwilling to accept the risk of selling all their output to the Turkish gas market. The commercial risks and uncertainties associated with this option are summarized below.

See for example Aksam, Akdenizdeki gaz dmnn zm Trkiyeden geiyor, 31 January 2012,; and also Kathimerini Cyprus, : , 31 January 2012, www.; Kathimerini Cyprus, : , 22 December 2011,

Specific costs are always project-specific and impossible to estimate with accuracy without knowledge of reservoirs, gas quality etc. Indicatively, David Ledesma assumes upstream costs are increased by approximately $0.75 per mmbtu due to such processing needs. See David Ledesma, East Africa gas potential for export, Oxford Institute for Energy Studies, March 2013,


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Map 1 Examples of available monetization options in the Eastern Mediterranean

Source: Oxford Institute of Energy Studies

First, Turkey is Gazproms largest export destination, after Germany, in its core European gas market and one of the few markets in the broader European region with a strong natural gas demand outlook. However, Russia is already under pressure from other suppliers in this valuable market (see below) and might defend its market position in Turkey by offering better supply terms. This could undermine the attractiveness and profitability of Cypriot gas in the Turkish market. Secondly, it remains unclear at what prices and under what specific contractual terms Turkish companies might be willing to buy Cypriot gas. The net return for producers in Cyprus might be less attractive than from selling LNG to Asian and other premium gas markets. Until there is more clarity on

the envisaged netbacks for either option (e.g. costs, prices, terms etc.), one option cannot be considered superior in commercial terms to another. In fact, recent reports presenting monetization of East Mediterranean (including Cypriot) natural gas by pipeline to Turkey as an obvious solution fail to capture uncertain commercial elements and can potentially be misleading. Thirdly, any gas supply contract between Cyprus and Turkey would be unlikely to commence before the end of the decade, for the practical commercial reasons described above. Any such contract would require a duration of some 20 years for investment in the necessary infrastructure to be forthcoming. This means that any Cypriot gas (and/or Israeli gas) would need to remain competitive with alternative

Natural Gas in Cyprus


sources of gas in Turkey until the 2040s. Over such a prolonged period, gas from Cyprus or Israel might face downward price pressures from new market entrants that could trigger price reviews and undermine profitability.39 Thus, even if a long-term supply contract could be signed today with Turkish buyers at prices that offer more attractive netbacks to the sellers than from other available marketing options, this would still present the sellers with significant long-term commercial risks that they might be unwilling to accept. They would be locked (both physically and contractually) into a single gas market, which could see competition increase significantly even before exports from Cyprus commenced.40 One major new source of supply to the Turkish market is the Shah Deniz field in Azerbaijan. The BP-led international consortium of the giant (40 tcf) Shah Deniz field will probably complete full field development (i.e. Shah Deniz Phase II) by the end of this decade. Upon completion, it will be able to provide an extra 6 bcma to the Turkish market, as well as 10 bcma to Greece, Italy, and other European natural gas markets through the TransAdriatic Pipeline (TAP).41 These natural gas volumes are likely to be made available at attractive prices, for two main reasons: a) Shah Deniz is a condensate field and, as a result,

enjoys very competitive upstream economics; and b) Shah Deniz gas has limited flexibility with regard to its export markets (due to pipeline constraints) and will therefore need to be competitive with other sources of gas supply. Further increases in Azeri gas production (i.e. beyond Shah Deniz II) are likely in the longer-term, given the substantial prospects of Absheron, ACG deep, Umid, and other fields.42 Besides new Azeri gas, potential competitors in the Turkish market in the longer term (but within the contractual reference period) could include Iraq, Iran, and Turkmenistan. Indeed, they will probably seek to sell at least part of available export volumes to the relatively near Turkish market when they overcome current supply difficulties. Additional pressures may come from offshore production in the Black Sea or European shale gas, with Turkey itself pushing forward with an assessment of its offshore (Black Sea, southeast Turkey) and unconventional natural gas (Thrace, southeast Anatolian, Salt Lake, and Sivas basins) potential.43 Finally, Cypriot and other East Mediterranean gas could become a victim of its own success. If Cyprus or Israel manage to export to Turkey more than the 5 mmtpa (7 bcma) likely to be available for export from the Aphrodite field, the Turkish gas market could become further saturated. Turkish gas buyers

Price reviews are a normal process in long-term gas supply contract and are normally triggered by changes in the relative positioning of the contract in the given downstream markets, including the introduction of more competitive sources of gas supply in these markets. Turkey already has contractual arrangements in place for gas imports from Russia, Azerbaijan, Iran, Algeria (LNG), and Nigeria (LNG), while it also procures LNG volumes from the global spot market. For more information on the Turkish natural gas market, see for example Energy Market Regulatory Authority (EPDK), Natural gas market: 2011 sector report, 2012, www. ( Upstream Online, EU hails TAP boost to European energy security, 28 June 2013,; BP, About BP Caspian: Shah Deniz, accessed 21 April 2013,



See Simon Pirani, Central Asian and Caspian gas production and the constraints on export, Oxford Institute for Energy Studies, December 2012, The U.S. Energy Information Administration estimates that technically recoverable shale gas in Turkey stands at as much as 24 tcf in the aforementioned basins. This is of course a preliminary estimate, which will have to be reviewed many times as more drilling data gradually become available for the country. More details are available in Energy Information Administration, Technically recoverable shale oil and shale gas resources: an assessment of 137 shale formations in 41 countries outside the United States, June 2013,




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could then initiate price reviews, which might well result in substantial downward price revisions.44 In light of these considerations, the widespread assumption that pipeline sales of gas from Cyprus (or Israel) to Turkey would be the most attractive and natural export option in purely commercial terms is open to question. Other Pipeline Options

But onward transit of Cypriot gas through Turkey to European markets would erode the proximity benefit as Cyprus would incur fees for using Turkish and other more distant pipelines. Assuming fees of between $2 and $5 per 1,000 cubic meters of gas for each 100 km transited, then Turkish transit alone, i.e. transporting gas through Turkey to the Greek or Bulgarian border, could increase costs for exporters of Cypriot natural gas by between $1 and $2 per mmbtu. This incremental cost could exceed $3.5 per mmbtu for reaching gas markets in Central Europe. It would be lower for supplying markets in Southeastern Europe. Such exports require spare capacity in the Turkish gas transmission system to accommodate additional volumes. If the Turkish system is fully utilized, there would need to be system upgrades. The Turkish regulatory framework would also need to be transparent and allow access to Cypriot gas on commercial terms. Lack of transparency or access would increase risks for suppliers significantly. The export of Cypriot gas to Italy would require sufficient access to TAP or another pipeline, while access to Southeastern and Central Europe requires a number of bilateral gas interconnectors. However, TAP has secured third-party exemption for 100 percent of its capacity, which will be made available in full to Shah Deniz II gas, with no obligation to facilitate flows from any other supplier.46 Furthermore, there are considerable uncertainties regarding certain proposed pipeline projects in Southeastern Europe and Central Europe and whether they will offer access to their capacity on attractive commercial terms.47

Pipeline to Greece

Monetization of Cypriot and Israeli offshore gas by a sub-sea pipeline to Greece faces similar risks: competitive pressures (i.e. alternative supply sources), difficult transit routes, dependency on the construction of extensive new infrastructure, and market risk and diversification options.45 A sub-sea pipeline to Greece would suffer from two additional commercial disadvantages, compared to the Turkish option. These can be summarized as a) higher development costs, as a result of the need to construct a longer sub-sea gas pipeline to connect the offshore fields in the Eastern Mediterranean with mainland Greece (roughly 1,200 km); and b) a pipeline to Greece would fail to offer the sellers easy access to a large and dynamic gas market, given that the Greek natural gas market is about ten times smaller than the Turkish market.
Onward Transit to Other European Markets

Cyprus would need to diversify its export options beyond the Turkish and/or Greek gas markets.

In contractual terms, the model PSC seems to place an obligation on Cypruss licensees not to sell any hydrocarbons that are produced in the offshore contract area to an entity that is effectively controlled by countries declared hostile to Cyprus, or nationals of such countries. This is probably a reference to northern Cyprus, which remains outside the effective control of the government of Cyprus. It is unclear whether such provisions could be used also to block hydrocarbon sales to Turkey.


This monetization option has been advocated by Greeces (state-owned) natural gas wholesaler DEPA SA. For a description of how the companys CEO imagines this project moving forward, see for example Harry Sachinis, The role of the ITGI System: New opportunities and synergies rise from the East Mediterranean, Presented at the 1st Cyprus Energy Symposium, 26 January 2012,

Reuters, TAP gas pipeline project gets vital legal approval, 17 May 2013, For more details on planned midstream infrastructure level in Southeastern Europe including an assessment of its feasibility and impact see Anastasios Giamouridis and Spiros Paleoyannis, Security of gas supply in Southeastern Europe: potential contribution of planned pipelines, LNG, and storage, Oxford Institute for Energy Studies, July 2011,


Natural Gas in Cyprus


Moreover, the pipeline option locks suppliers into a relatively limited number of regional markets where there are significant uncertainties about future demand. For example, optimistic forecasts about natural gas demand in Southeastern Europe are largely based on their low starting point but ignore risks relating to the regions cost sensitivities. Similarly, views from market participants on the persistence of relatively high natural gas prices and oil-indexation in this region overlook the fact that prices are increasingly under pressure due to the diversification of supply and planned gas interconnections.48 Potential gas exports to Greece, Italy, Southeastern Europe, and Central Europe would compete not only with the existing long term contracted natural gas supplies from Russia but also with new Azeri gas from Shah Deniz Phase II and other potential fields. In the longer term, exports from the Eastern Mediterranean might have to compete also with natural gas exports from new suppliers to Europe such as Iraq, Iran, and Turkmenistan or even with offshore Black Sea and shale natural gas production in eastern and Southeastern Europe.
Pipeline to Neighbors in the Eastern Mediterranean

especially considering the unavailability of sufficient export volumes from Egypt and Syria.49 The proximity of these potential export markets to the Eastern Mediterranean offshore fields implies that capital requirements for pipeline infrastructure development would be relatively low. However, the risks associated with this option are very significant and include: The substantial levels of political risk, which could complicate project finance and undermine overall export potential; The capacity of authorities in these countries to succeed in the gasification of their power generation; The ability of downstream gas buyers in these countries to offer contractual terms and prices at levels that will meet the sellers profitability expectations;50 and The risk of competition in the longer term from increased production in Egypt,51 indigenous offshore production, and exports from Iraq and Iran.

Pipeline gas exports to regional neighbors such as Jordan, Lebanon, Syria, and Egypt have not received detailed attention in Cyprus. Independently of political uncertainties, these countries could see potentially significant increases in their gas consumption in the coming years as a result of gasification of their power generation and other sectors. This could create opportunities for sellers of natural gas from Cyprus and Israel,


See Hakim Darbouche, Laura El-Katiri, and Bassam Fattouh, East Mediterranean gas: what kind of a game-changer, Oxford Institute for Energy Studies, December 2012, www.oxfordenergy. org; Brenda Schaffer, Energy resources and markets in the eastern Mediterranean region, Eastern Mediterranean Energy Project: Policy Brief, German Marshall Fund of the United States, June 2012,; and Simon Henderson, Energy discoveries in the eastern Mediterranean; source for cooperation or fuel for tension, Mediterranean Energy Project: Policy Brief, German Marshall Fund of the United States, June 2012, For more information on low subsidized prices in the broader region, see Bassam Fattouh and Jonathan Stern (eds.), Natural gas markets in the Middle East and North Africa, Oxford Institute for Energy Studies, 2011, More information with reference to Egypts efforts to address its growing inability to capture value out of exports of natural gas can be found in Ali Aissaoui, Between a rock and a hard place: Egypts new natural gas supply policy, Arab Petroleum Investments Corporation, Volume 8, No 3, March 2013, www.


51 48

These are of course very positive developments (and in fact long overdue) for consumers in this region, but not necessarily equally appealing for a new producer which might be considering market entry.


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Liquefaction and Hybrid Options


Liquefaction is the monetization option preferred by the Cypriot authorities and investors, with a particular focus on the development of a scalable onshore LNG facility of 5 mmtpa capacity. Against this backdrop, the government signed a memorandum of understanding (MoU) in June 2013 for the construction of a liquefaction plant in the Vassilikos area with the companies involved in Block 12, i.e. Noble Energy and minority partners Delek Drilling and Avner Oil Exploration.52 According to KRETYK, Vassilikos has adequate space for a three-train development, while there are hopes Cyprus could eventually accommodate up to eight liquefaction trains for its own and regional needs. This would allow Cyprus to emerge as an important regional supply hub for LNG, one of the countrys key strategic ambitions.53 Liquefaction offers some important commercial advantages over the pipeline options analyzed above (to Turkey, Greece, or regional neighbors). LNG is an attractive market segment for gas sellers, as global demand for LNG has been growing three times faster than for gas as a whole. This trend is driven by growing use of LNG by existing importers and by an increasing number of countries becoming LNG importers across the world.

LNG is well-positioned to capture new gas market opportunities. For example, there is growing interest in Europe and elsewhere in LNG as a marine fuel. This could be relevant for Cyprus as it would allow it to leverage its own LNG production, island status, and geographical position to offer LNG bunker services in the 2020s. Other applications that could boost global demand for LNG include road transportation and small-scale LNG facilities to bring gas to remote areas.54 LNGs inherent flexibility enables it to reach premium markets irrespective of their location. This includes markets in Asia and Latin America, where sellers are in a better position to sign long-term, oil-indexed contracts at prices closer to oil parity. This contrasts with a push by buyers in Europe to break away from oil-indexation.55 Provided this flexibility is embedded in sales contracts, there is also room

MoUs are not legally binding and in no way replace and/ or guarantee a positive FID for the LNG project. The latter is now scheduled for early 2016 and presupposes the favorable clarification of all of the technical and commercial uncertainties, which were mentioned in sections above. Still, the MoU does highlight the desire of these stakeholders to move forward in this direction, and it also serves the purpose of pushing Cypruss proposed liquefaction project into the spotlight of both regional and global media, promoting the countrys position as an LNG frontrunner and supporting its bid for potential regional synergies and EU support. More information on this MoU in Cyprus Gas News, Memorandum of understanding signed, 26 June 2013,; Upstream Online, Cyprus inks MoU on LNG, 26 June 2013,

54 See for example the recent Point of View by Pyry Management Consulting on LNGs penetration potential in such new market segments: How can small-scale LNG help grow the European gas market?, June 2013, 55


Energy Press, 8 .. 12 , 4 June 2013,

For more details on the increasing influence of traded hubs on European pricing mechanisms and their significance see Patrick Heather, Continental European gas hubs: are they fit for purpose, Oxford Institute for Energy Studies, June 2012, www.; and also Jonathan Stern and Howard Rogers, The transition to hub-based gas pricing in continental Europe, Oxford Institute for Energy Studies, March 2011,; Jonathan Stern, Continental European long-term gas contracts: is a transition away from oil product linked-pricing inevitable and imminent, Oxford Institute for Energy Studies, September 2009,

Natural Gas in Cyprus


for potentially profitable arbitrage opportunities between the Atlantic and Asia-Pacific Basins.56 To be sure, there will be competitive pressures in the LNG market, for example as a result of Australian coal-bed methane, US shale gas, and East African offshore gas. There is market risk in premium markets in Latin America, Asia and other global regions with regard to gas price levels, price formation mechanisms, and gas demand levels.57 Nonetheless the geographical and sectoral diversification LNG offers reduces risk levels and offers better opportunities for capturing higher returns across a projects life, especially if Cyprus succeeds in its ambitions to become a major gas producer beyond Aphrodite (and is therefore able to achieve economies of scale and contractual flexibilities).58
Combination of Monetization Options

The alternative of developing a pipeline as a complement to rather than a substitute for liquefaction has been put forward primarily by some executives of Greeces Public Gas

Corporation DEPA SA, who have argued that the size of Cypriot (and Israeli) gas resources support this monetization strategy. However, mere estimates of resources, as are currently available for offshore hydrocarbons resources in Cyprus, are an inadequate basis for a multibillion dollar investment decision. The adoption of a multiple export strategy at this stage would unnecessarily sacrifice economies of scale and could even undermine project viability altogether. LNG projects tend to significantly improve their profitability as they expand, capturing crosstrain synergies and ensuing cost efficiencies. For example, additional trains tend to cost 65-70 percent of the cost incurred for the first train. They can achieve synergies through joint use of some of the facilities developed for the first train. Such savings can reduce the plants integrated unit cost by some 23 percent assuming an initial single-train development can be expanded by an additional two trains at 65 percent of the initial unit costs. Furthermore, expansion projects in existing liquefaction plants tend to enhance their access and financing terms vis--vis global capital markets and even to improve sales terms. This applies both to LNG sales agreed by contract and to more flexible spot sales. Hence, any early decision to monetize Cypriot natural gas resources through several options before this becomes a technical or commercial necessity e.g. because of substantial new discoveries that cannot be accommodated through expansion of the proposed liquefaction facilities at Vassilikos could undermine project

Nevertheless, this flexibility is normally achieved in expansion phases of existing liquefaction plants. In the first Greenfield phase, developers usually need to have signed firm long-term supply contracts with buyers, in order to guarantee a revenue stream for the project. This revenue stream is in turn used to underpin the projects bankability and to secure financing for its (very capital-intensive) development. However, requirements for having signed long-term LNG supply contracts tend to be lower (as a percentage of the capacity to be developed) for brownfield expansion in existing liquefaction plants, thereby offering some scope for pursuing more flexible gas supply arrangements. On the whole, more experienced companies and/or more established (and reliable) supply projects tend to be able to secure better terms, both in terms of the supply contracts they sign as well as in their financing terms. For a background in Atlantic basin and global LNG trading including some details on project economics, see Howard Rogers, LNG trade-flows in the Atlantic basin: trends and discontinuities, Oxford Institute for Energy Studies, March 2010, See for example Platts, Japan seeking U.S. LNG, to ask for U.S. waiver during Kuwait meeting, 13 March 2012, Cypriot liquefaction would also be the first such facility in the EU, albeit it cannot be assumed that this may automatically translate into tangible commercial benefits.




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profitability and income levels for both the government and its licensees.59
Choosing the Right Option

develop its upstream potential.60 According to the Cypriot authorities, this assessment process is underway. Besides economic benefits, rapid development of LNG infrastructure could offer better market positioning before new competitors in East Africa, North America, and elsewhere enter the global market. An early start for Cyprus LNG could make it a more appealing partner to other Eastern Mediterranean producers, notably Israel and potentially Lebanon. If they eventually decide to send gas to Cyprus for liquefaction, this would boost economies of scale, to the benefit of all parties involved.

The decision on the preferred monetization option is a fundamental one that directly affects plans for upstream field development. It requires structured studies by the companies concerned. These studies need to include both scoping and costing of development options for upstream field(s), as well as detailed market feasibility studies. Discussions with potential customers should clarify such commercial issues as pricing, contract duration, flexibility, diversion rights, force majeure provisions, and transit fees (if applicable). Only after such work has been completed can a rational decision on export options be taken, allowing Cyprus to


The original failure of Shtokman to monetize by a combination of pipeline and liquefaction despite its much more substantial natural gas resources and the presence of more experienced players (Gazprom, Total, and Statoil) serves as a useful warning of the pitfalls of this particular approach. For more details see for example Upstream Online, Shtokman revamp could center on LNG, 23 April 2012,; and Upstream Online, Statoil backs LNG bid on Shtokman, 11 April 2012, www.


For a more detailed discussion of monetization options, see Anastasios Giamouridis, The offshore discovery in the Republic of Cyprus: monetization prospects and challenges, Oxford Institute for Energy Studies, July 2012,

Natural Gas in Cyprus



Commercial Cooperation with Israel?

Unitization Agreements ooperation with Israel and other regional players could facilitate the emergence of economies of scale through unitization and monetization. The former brings together contract areas, which are operated by different companies or consortia but overlap the same gas or oil reservoir, into a single unit. The aim of unitization agreements is to improve the profitability of upstream operations. Cross-boundary unitization is also possible, as evidenced in the North Sea and other parts of the world.61 In the Eastern Mediterranean, unitization agreements may be required between Cyprus and Israel for the Aphrodite field and elsewhere, as the reservoir may extend beyond Block 12 into Israels EEZ. Discussions are underway between the two sides. Unitization could eventually become necessary with Lebanon and Egypt as well if the five blocks awarded to ENI-KOGAS and Total yield commercial discoveries that include reservoirs extending to their respective EEZs. Unitization agreements require a sound institutional framework, offering companies safety, transparency, and efficiency. Cyprus and Israel have already taken steps in this direction. In 2012, they signed agreements on defense cooperation, classified information exchanges, and search and rescue. The Cypriot government aims to conclude

similar agreements with all neighboring countries, preferably before the start of operations.62 Joint Monetization

Definitions and Relevance for Cyprus

The necessary infrastructure for bringing gas onshore will consist of a sub-sea pipeline to supply the small local market from Aphrodite (and/or other yet undiscovered resources, if commercially viable). However, due to the small size of the local market, by far the most important piece of monetization infrastructure will be the export facility, which will probably take the form of a liquefaction plant. Against this backdrop, potential joint monetization of Cypriot gas resources with the resources of one or more of its neighbors could offer both political (e.g. strategic alignment and security cooperation) and commercial benefits. Commercial benefits include the opportunity for Cyprus to reach the critical mass necessary to achieve economies of scale more quickly without having to wait two to five years for ENI-KOGAS and/or Total to prove potential new reserves in their respective offshore blocks. Moreover, the joint monetization of Cypriot resources with other regionally available resources could improve project economics (and profitability), even if Aphrodite is commercially viable on its own. This could produce government revenue much earlier and/or at higher levels, as economies of scale reduce unit costs and boost profitability.



Information from Avril Lee Wong, The North Sea experience an analysis of cross-border unitization and move towards establishing an international legal framework, University of Dundee, Centre for Energy, Petroleum and Mineral Law and Policy,; Anozie Ikechukwu Awambu, Unitization of contract areas: is it an obligation defeating the stability of international petroleum agreements, University of Dundee, Centre for Energy, Petroleum and Mineral Law and Policy, www.

Information from Financial Mirror, Cyprus, Israel offshore gas fields to get navy protection, 3 May 2013,; authors discussions with regional government and industry officials, April and June 2012; the International Crisis Group, Aphrodites gift: can Cypriot gas power a new dialogue, Europe Report No 216, 2 April 2012,; Energy Press, , 20 January 2012,; and Solon Kassinis, The status of hydrocarbon exploration in Cyprus, Presented at the Israel Business Conference, Tel Aviv, Israel, 12 December 2011, cy.


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Potential Partners

In practice, the question of (export-oriented) joint monetization in the Eastern Mediterranean at the moment applies only to possible cooperation between the Republic of Cyprus and Israel. Cypriot authorities have already proposed that natural gas from Israels offshore gas fields could feed through a sub-sea pipeline into a joint liquefaction plant in the Vassilikos industrial area in onshore Cyprus. This is a plausible option, as Israel has discovered substantial offshore gas resources and in June 2013 the Israeli government proposed to make 40 percent of offshore resources available for export.63 However, Israel does not have infrastructure in place that could be readily utilized for exports. The 40 percent limit on gas exports from the country may be considered too low by some international companies and discourage them from investing in export facilities in Israel. For example, in July 2013, media sources reported that Australias Woodside was assessing the impact of the governments decision on its plan to take a share in Leviathan, while it was also considering investing in LNG in Cyprus.64 Joint monetization between Israel and Cyprus would help both countries to reach a critical mass for profitable exports and improve project profitability. Egypt already has gas export infrastructure in place (two LNG plants), which it fails to utilize economically for a number of reasons. These can be summarized as: a) fast natural gas demand growth in the domestic Egyptian market; b) delays in reforming subsidized pricing in the

local market and hence promoting more efficient use; c) difficulties in production keeping up with the rising demand for gas; and d) a consequent inability to guarantee LNG export volumes.65 These difficulties are compounded by political turmoil. As long as Egypt continues to suffer from liquefaction overcapacity, there is no commercial incentive for the country to seek joint monetization with Cyprus or any other partner. Similarly, Cyprus cannot consider Lebanon a potential partner in the short term. Lebanon is far behind both Cyprus and Israel in exploration and still years away from any tangible results, despite increasing interest in its considerable potential resources. Lebanons insufficient regulatory framework, general lack of administrative capacity, difficult domestic politics, and political risk renders cooperation a potential long-term option at best.66
Other Legal and Political Risks

In any event, joint monetization by Cyprus and one of its neighbors would represent the first successful such arrangement in the world. The potential complexity of this undertaking, combined with the lack of previous experience, could present parties with a number of serious legal, political, and commercial complications to overcome. The problems between Australia and Timor-Leste over development of the Sunrise LNG project demonstrate some of these difficulties. This could in turn undermine chances at reaching a positive final investment decision quickly.

Reuters, Israeli government approves 40 pct limit on natural gas exports, 23 June 2013,

64, Woodside holds off on $750 m for Israel, 5 July 2013,; Cyprus Mail, Noble suggests quicker way of bringing in gas, 2 July 2013,; Globes, Woodside reviewing Israel plan report, 30 June 2013,; Noble Energy, Analyst conference, 6 December 2012,; Upstream Online, Woodside takes Leviathan stake, 3 December 2012, www.upstreamonline. com; and the Financial Times, Woodside snaps up Leviathan stake, 3 December 2012,

However, Egypt is now taking steps towards improving regulation and the wider investment framework in the countrys upstream sector, while at the same time increasing domestic downstream gas prices to more cost-reflective levels. See for example Ali Aissaouis note, Between a rock and a hard place: Egypts new natural gas supply policy, Arab Petroleum Investments Corporation, Volume 8, No 3, March 2013, www.apic. com. See Hakim Darbouche, Laura El-Katiri, and Bassam Fattouh, East Mediterranean gas: what kind of a game-changer, Oxford Institute for Energy Studies, December 2012, www.oxfordenergy. org.


Natural Gas in Cyprus


Joint monetization between Cyprus and Israel could also be threatened by long-running conflicts in the Middle East. The physical security of gas infrastructure could be exposed to threats or acts of terrorism. An LNG plant in Cyprus with Israeli links could become a target. This could affect insurance premia and costs, undermining the prospects for rapid development. Cooperation with Israel could discourage IOCs from investing. This could delay natural gas infrastructure development, or even undermine it altogether, if the projects

upstream/midstream economics are marginal. For Israel, joint monetization with Cyprus might stand in the way of further progress in its rapprochement with Turkey.67


More details in Michael Leigh, Cyprus bailout and Israel-Turkey dtente present new opportunities, 25 March 2013,; and also New York Times, For Cyprus a sudden need to play nice with Turkey, 28 March 2013,


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he discovery of the Aphrodite gas field and the potential for additional hydrocarbons discoveries in offshore Cyprus is very timely. It comes at a moment when the country faces multiple challenges, including recovery from the economic and financial crisis and reducing excessive dependence on banking and financial services. In this difficult environment, there has been a tendency to see hydrocarbons as a panacea for the islands problems. The challenge for Cyprus (and its partners) is to develop its hydrocarbons potential as fast as possible, while at the same time ensuring that it maximizes economic benefits. Besides commercial issues, Cyprus faces a degree of political risk stemming from Turkey. Turkey contests the right of Cyprus to develop resources within its EEZ. It also seeks to link Cypruss right to develop its offshore resources to a settlement of the problem of the division of the island. The Cypriot government rejects such pressures, which have not discouraged important international energy companies from bidding for licenses to exploit Cypruss offshore blocks. Support from the EU should primarily aim at reducing political risk, allowing commercial operations and decision-making to go ahead unimpeded by long-standing political disputes. The following conclusions challenge widely held views, which have not always been subject to sufficient scrutiny. Production and exports of Cypriot hydrocarbons in the early 2020s are possible but cannot be taken for granted. Achievement of this outcome depends on clarification of the size and quality of available hydrocarbon resources, production and export infrastructure development costs, and applicable prices affecting project economics for the Aphrodite field. Pre-selling rights to hydrocarbons

as a means of frontloading revenue is unlikely to be a financially attractive option for Cyprus. If the Aphrodite field alone does not prove potentially profitable, Cyprus will have to seek wider economies of scale to reduce unit costs and support viability. Possible sources of such economies of scale include further discoveries in Block 12, new discoveries by Total and ENIKOGAS in the five blocks recently awarded to these companies, and/or joint monetization under which Israel or others liquefy their gas in an LNG plant in Cyprus. Such complicated arrangements might well delay progress. The exploration program by ENI-KOGAS and Total in their respective license areas probably offers the best opportunity for minimization of such delays. Economies of scale in export infrastructure should be pursued to boost profitability. Contrary to frequent claims, it is not self-evident that pipeline exports to Turkey would be the most commercially viable monetization option, in the absence of political constraints. This paper shows that a number of market risks call into question the commercial viability of this hypothetical option. The choice of multiple export options involving both LNG and pipelines would undermine profitability. This might become a reasonable approach only when the planned LNG infrastructure has reached its natural saturation point and economies of scale have been achieved in full. This is unlikely to occur before the mid-2020s, at the earliest. At the current stage of exploration in Cyprus (i.e. on the basis of the 5-8 tcf discovered in Aphrodite), the combination of pipeline and LNG would not be commercially viable. Liquefaction and the export of LNG enjoy strong commercial advantages including investor interest, potentially higher netbacks from selling to premium markets (depending on LNG costs and

Natural Gas in Cyprus


contractual terms), better tools at managing longterm market risk (as LNGs flexibility can facilitate market diversification), ability to maximize benefits from economies of scale and positive impact of onshore LNG infrastructure development on the national economy. LNGs competitive advantages increase with larger volumes, though, like other options, it cannot be considered risk-free. The successful development of Cypruss gas resources has the potential to bring attractive

returns to investors and provide the country with a high degree of energy security from the early 2020s onwards. It could also contribute to the EUs energy security and the diversification of its energy supply. Indeed, providing there is sufficient commercial potential, and subject to wise political, regulatory, and commercial management, Cypruss new energy resources could offer substantial net benefits and positive multiplier economic effects to the country itself, investors, the region, and Europe as a whole.


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