by Costis Stambolis*
The introduction of natural gas to the island’s energy system is of equal if not greater importance than the extra money that gas exports will in the long term bring to government coffers.
It is now more than three years that Cyprus discovered a significant gas deposit in offshore Block 12, better known as "Aphrodite”. At the time of its discovery, enormous expectations were raised by politicians and industry alike of the pivotal role that natural gas could play in propelling Cyprus into a brave new era of economic growth and super prosperity. Alas, the subsequent detailed appraisal of the Aphrodite gas find revealed substantially less gas volumes than had originally been anticipated, currently estimated in the region of 4.0-5.0 tcf. If that was not enough of a setback for the country’s expectations, the unprecedented economic crisis which followed the collapse of the island’s banking sector in March 2013 dashed all hopes for an economic revival based on hydrocarbon wealth.
Following the discovery of a
major new gas field offshore in Egypt in August 2015 fresh hopes have been
raised as to the east Meditrranean’s importance in becoming a net gas exporter
over the next decade. Egypt’s Zohr field, located some 180km from mainland
Egypt, and holding some 30tcf of gas, is neighbouring Cyprus’ Aphrodite. Hence,
the renewed interest by ENI-Kogas and Total, which hold offshore concessions
next to Zohr but within Cyprus’ Economic Exclusion Zone (EEZ), in accelerating
their exploration plans to search for oil and gas. Whatever the case may turn
out to be, the discovery of Zohr by ENI has given Egypt a massive boost and has
turned East Med plans and thinking upside down.
As well known energy
commentator Dr. Charles Ellinas recently noted in his presentation at
IENE/FMW’s 4th Cyprus Energy Symposium in Nicosia, last December: "Given the
favourable prices it has secured for its gas, ENI will proceed with development
of Zohr as a matter of priority and, together with BP’s North Alexandria and
Atoll and Shell’s shale gas finds, there is enough gas to supply Egypt’s
additional domestic needs, and replace LNG imports, but could also free gas to
supply the two idle LNG plants in Damietta and Idku. In any case, Egypt plans
to resume LNG exports by 2022. On the positive side, the discovery of Zohr
reconfirms that the East Med is prolific in gas and is attracting new interest
to the region. It is an opportunity for Cyprus and Israel to refocus their
attention and exploration to coincide with the start of oil price recovery”.
Zohr’s find apart, Cyprus is now pressing ahead with the development of the
Aphrodite Block 12 field which was declared commercially viable last June by
the Cyprus Hydrocarbon Company (CHC), the Republic of Cyprus state entity in
charge of coordinating and supervising oil and gas upstream activities.
According to the Field Development Plan, submitted to the Ministry of Energy,
Commerce, Tourism and Industry in June 2015, by the US Noble Corporation-led
consortium, gas supply from the Aphrodite reserve will largely exceed domestic
demand and therefore CHC and Block 12 partners are now exploring export
opportunities to the Egyptian market.
Latest information suggests that Aphrodite excess gas will be directed to feed
one of the two largely idle LNG liquefaction plants in Egypt, thus providing a
viable solution in monetising its gas volume. Such a fortuitous outcome could
be made possible in view of Zohr’s huge potential output which will be used to
satisfy Egypt’s fast growing domestic demand and given Israel’s apparent inability
at this stage to supply the Egyptian market given the legal complications that
have arisen in its trade relationship with Egypt (see ICC pending arbitration
settlement of $1.76 bln in favour of Israel Electric Corporation with the
Egyptian government).
Although a lot of noise is
being made about the export potential of Aphrodite and that from other
potential finds in the various exploration blocks (2, 3, 9 operated by ENI and
Kogas, and 10 and 11 operated by Total) not enough attention is being paid to
the very real prospects of utilising natural gas onshore in Cyprus.
In line with the present strategic planning, gas will become available in
Aphrodite following the installation and operation of an EPSO facility with two
export pipelines – one to Cyprus and one in Egypt. According to the current
development plan, gas is expected to reach mainland Cyprus in 2020, and to be
mainly used to substitute fuel for power generation, during the first phase of
gas introduction to the island’s energy system. But gas will also be utilised
to cover a much wider range of domestic and commercial applications including
space heating and cooling, cooking, small scale cogeneration, etc., not to
mention its potential use in the transport sector.
In short, the introduction of natural gas to the island’s energy system is
considered by many to be of equal if not of greater importance than the extra
money that gas exports will in the long term bring to government coffers. The
reason being that the introduction of gas will help completely transform the
island’s energy system while at the same time will contribute to job creation
and the adoption of new skills.
Today Cyprus is characterised as an energy island, truly isolated from the EU’s
energy links and networks, as it remains one of the most energy dependent
countries in the European Union relying 94% for its energy needs from refined
oil imports, with only 6% of its primary energy generated from indigenous
energy sources, i.e solar and wind energy. With the introduction of natural
gas, this dependency will be sharply curtailed from the substitution of fuel
oil with gas for power generation.
It is estimated that by 2030,
the island’s oil import dependency will be less than 40% as oil use will be
strictly limited to cover the needs of the transport sector which gradually may
also switch to gas given the right incentives.
Finally, if we were to consider the introduction of natural gas in tandem with
the growing use of power and heat generated from renewable energy sources,
mainly solar and wind, it is fair to say that by the early 2030s, Cyprus could
actually become one of the most energy independent countries in the European
Union. A far cry from its present overdependency status!
*Costis Stambolis is IENE's Executive Director
