-
Eastern Macedonia and Thrace Institute of Technology Dept. of
Petroleum and Natural Gas Engineering
MSc in Oil & Gas Technology
Oil Trading
Cyprus: An update on gas exploration and reserves
Antoniadis Stelios Eleftheriadis Leonidas
Pitatzis Thanos Trevezas Simon
Supervisor: N. Kontinakis
January 2014
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
2
Table of Contents
1. Introduction
.................................................................................................................
3
2. Cyprus Natural Gas Reserves
......................................................................................
4
2.1 Levant basin energy potential amid political instability
............................................ 4
2.2 Aphrodite gas field
......................................................................................................
6
2.3 Update estimation
........................................................................................................
7
3. Cyprus 2nd Offshore Licensing Round
.......................................................................
8
3.1 Block 9 timeline
..........................................................................................................
8
3.2 Blocks 11, 12 timeline
.................................................................................................
9
3.3 The remaining blocks
..................................................................................................
9
3.4 Levant basin potential sources of natural gas until 202020
....................................... 10
4. Cyprus Development Options
...................................................................................
10
4.1 Strategic location supports multiple development scenarios21
.................................. 10
5. Conclusion
.................................................................................................................
12
References
........................................................................................................................
14
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
3
1. Introduction Cyprus is the third largest island country and a
member of the European Union1. It is located in the Eastern
Mediterranean in a geostrategic position because it is Europes last
frontier and a crossroad between Europe, Asia and Africa. Since
1974 Turkeys invasion, the island is divided into Republic of
Cyprus and the Turkish Kibris Cumhuriyeti2. Despite the fact of
this unique situation, Cyprus government has managed to overcome
the political problems and to develop a strong economy with an
average annual growth rate of 0,3%3. The latest financial
achievement was the adoption of Euro as a national currency in
2008. Unfortunately, in 2012, the island was affected by the Euro
zone financial and banking crisis and forced to proceed in
immediate structural changes.
According to recent information Cyprus has been a tax heaven
country for lot of businesses but beside that, tourism and shipping
industry has been a valuable economic factor for the overall
economy4. Nowadays, the government puts effort in gaining revenues
on development of their promising fossil fuel resources. In 1982,
Cyprus signed the UN Convention on the Law of the Sea which gave
them the right of establishing and determining an Economic
Exclusive Zone. Generally, this zone gives the opportunity to every
state to expand to a distance of 200 nautical miles out of its
coastal baseline, thus to legally explore the continental shelf5.
Cyprus through the EEZ, has managed to change the local situation
and has turned the wider landscape to its advantage by exploiting
its mineral wealth in a geostrategic manner. This is sufficient
enough to promote the Greek EEZ to follow their example6.
Specifically, significant quantities of natural gas have been
discovered on the islands territorial sea. Research for hydrocarbon
resources began in 1938, during British occupation, by Iraq
Petroleum Company Ltd and continued also by other companies such as
Oil Prospectors Ltd (1947), Forest Oil Corporation (1957), Delta
Exploration (1970), Sefel Geophysical Ltd (1975) and Soviet Science
Academy (1985). The main purpose was to evaluate and analyze the
seabed view and produce seismographic and geological research. The
outcome was impressive mostly on the north side and promising on
the south. Moreover, the historical information concerning the
geological research has
revealed that Cyprus is placed among two areas (basins) which
have produced already tremendous amounts of oil and gas for Egypt
and Israel7.
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
4
Source:
http://www.hitandrun.gr/steit-ntipartment-ipa-anagnorizoun-dikeoma-tis-kiprou-gia-tin-aoz/
2. Cyprus Natural Gas Reserves
2.1 Levant basin energy potential amid political instability
In 2010, the US Geological Survey (USGS) estimated that the
Levant Basin, one of the eight basins at the Eastern Mediterranean
region, may contain natural gas resources exceeding 3455 billion
cubic meters (bcm), comparable to the reserves of Iraq8. While
recent discoveries of large hydrocarbon resources have redefined
the energy landscape in the Middle East and have entailed a natural
gas increase of 27 % of the regions energy mix from 1990 to 2009,
the Israeli gas fields Tamar and Leviathan, discovered in 2009 and
2010 respectively, transformed the Levant Basin into a potential
exporter region. Even though the total proved reserves of natural
gas in the Levant Basin (515 bcm) are insignificant relative to
global levels, recent discoveries in offshore waters of Cyprus and
Israel in the Levant Basin have pushed the estimated recoverable
natural gas resources in
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
5
the area to over 1076 bcm. Future explorations may raise the gas
reserves in the short term9.
Source: Own elaboration based on calculations from EIA data
(2014)
According to the International Energy Agency (IEA), prospects
for increasing production continue to be hampered by political
instability. Long-standing historical grievances across the Eastern
Mediterranean, such as the Israeli-Arab conflict, cast a long
shadow over the project. Regional political rivalries are made more
acute by political disputes regarding the validity of maritime
Exclusive Economic Zones (EEZ) boundaries10.
Past and present rivalries in the Middle East are hindering the
exploration and production of gas in the East Mediterranean,
causing divisions within the countries and meanwhile, the Levant
Basin gas potential under the Mediterranean remains unexploited.
Israel, Cyprus and Turkey have recently shown that economic
considerations are beginning to prevail over security and political
concerns in the reshaping of global and regional alliances. In
addition in this dispute, timing is a key element. Starting in
2018-20, Australia, Mozambique, the United States, Canada and
Russia are all planning to export gas to Asia. If exploration is
delayed by the ongoing disputes, Israel and Cyprus the
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
6
most advanced countries when it comes to gas exploration will be
forced to sell their gas at a lower price9.
2.2 Aphrodite gas field
Aphrodite gas field is an offshore gas field off the southern
coast of Cyprus, located at the exploratory drilling block 12 in
the country's maritime Exclusive Economic Zone. Located 34
kilometers (21 mi) west of Israel's Leviathan gas field, block 12
is believed to hold 3.6 to 6 trillion cubic feet (100109 to 170109
m3) of natural gas11.
Noble Energy received the concession to explore block 12 in
October 2008. In August 2011, Noble entered into a
production-sharing agreement with the Cypriot government regarding
the block's commercial development. Sources in Cyprus indicated in
mid-September that Noble had commenced exploratory drilling of the
block.
Cyprus demarcated its maritime border with Egypt in 2003 and
with Lebanon in 2007. Cyprus and Israel demarcated their maritime
border in 2010. Turkey, which does not recognize the border
agreements of Cyprus with its neighbors, threatened to mobilize its
naval forces if Cyprus proceeds with plans to begin drilling at
Block 12. Cyprus's drilling efforts have the support of the United
States, European Union, Russia and United Nations, and on September
19, 2011 drilling in Block 12 began without any incidents being
reported. The development of oil and gas resources in the Cypriot
Exclusive Economic Zone (EEZ) abide to the UN Convention of the Law
of the Seas (UNCLOS) which the Republic of Cyprus ratified in
1988.The United Kingdom also has a claim on the area resulting from
its sovereignty over two base areas in Cyprus. The treaty
establishing the Republic of Cyprus, specifically excluded any
Cypriot claim to the two areas adjacent to the bases. For the
Cyprus population the Aphrodite gas field can boost the local
economy to counter rising unemployment. According to Noble Energy,
a total gross deep oil potential is 3.7 billion barrels (590106
m3). The field has a gross mean average of 7 trillion cubic feet
(200 billion cubic meters) of natural gas with an estimated gross
resource range of 58 trillion cubic feet (140109230109
m3)12,13.
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
7
2.3 Update estimation
Delek Group and Avner Oil and Gas, subsidiaries of Delek
Drilling, reported a raise in their estimate for the amount of
natural gas in the Aphrodite field located in Block 12 of Cyprus
Exclusive Economic Zone to 4.54 Tcf14. The field, discovered by
Noble Energy in 2011, was previously estimated to hold between 3.6
to 6 Tcf of gas, with a mean of 5 Tcf15.
Source:
http://www.isn.ethz.ch/Digital-Library/Articles/Detail/?id=165423
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
8
Cyprus Offshore Hydrocarbon Exploration Blocks (Block 12 is in
Yellow)
Source: Cyprus Gas News (2013c).
3. Cyprus 2nd Offshore Licensing Round
Eni was awarded the three blocks whilst leading a consortium
formed by Eni (80%, as operator) and the Korean company Kogas (20%)
in an international competitive tender (Cyprus 2nd Offshore
Licensing Round) which was completed in May 201216. Total was
awarded with two blocks, the blocks 11 and 12 and is the operator
with 100% share17.
3.1 Block 9 timeline
In September 2014, the Saipem 10000 drillship has started
drilling operations to Onasagoras Field. The Cypriot Energy
Ministry has reported that commercially exploitable natural gas
reserves were not found by the ENI-KOGAS partnership at the first
exploratory drill at the offshore Onasagoras field, located in
Block 9 of the Cyprus exclusive economic zone which brought
disappointment in Cyprus. According to an official announcement,
the joint venture will complete drilling within the next few days
and move on to the Amathusa field, also located in block 9.
Drillship Sapiem 10000 will continue as normal, the exploration
program that started last September, the ministry said18.
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
9
January 2015, The Saipem 10000 drillship will start drilling
operations to Amathusa Field.
3.2 Blocks 11, 12 timeline
French Total expects to start drilling in Cyprus EZZ in
mid-2015. The French company is associated with the block 11. The
recent trading regards also block 10, which abuts to the block 11.
If combine the data of plot 12 where explores an American company,
the picture is as follows 10-11 are in touch with 12 which also
touches to block 9 complex, the 9-2-3, so there is a sequence
10-11-12-9-2-3 which osculates on all EEZ in which Cyprus has
signed agreements, i.e. EEZs of Egypt, Israel and Lebanon, which is
a bidirectional amplification in 2-gang level. Now the plot 12 is
not anymore remoted from Cyprus but is united with, through the
blocks 9 and 2. From energys side is not accidental that the plots
9 and 11 touch 12 where the existence of gas is a fact.
French company Total expects to start drilling in Cyprus
Exclusive Economic Zone (EEZ) in mid-2015, Managing Director of
Total E & P Cyprus Jean-Luc Porcheron has said. Jean-Luc
Porcheron was speaking during a presentation organized by the
Cyprus-French Business Association entitled Total in Cyprus: A long
term perspective.
He said that this is just the beginning of exploration in
Cyprus, noting that we have a lot of work to do before drilling
which means that we will probably not be able to drill before
mid-201519.
3.3 The remaining blocks
The other blocks in Cyprus EEZ do not have for now operators,
the Cyprus government plans to declare a 3nd and a 4nd Offshore
Licensing Round for the remaining blocks (another 5 plots the
5,6,7,8, and 13).
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
10
3.4 Levant basin potential sources of natural gas until
202020
Source: Analysis, I., The prospect of Eastern Mediterranean gas
production: An alternative energy supplier for the EU ? , (April
2014).
4. Cyprus Development Options
4.1 Strategic location supports multiple development
scenarios21
Onshore LNG Facility at Vasilikos with Domestic Supply
Component
Floating LNG
Pipeline to Egypt Onshore LNG Facilities
East Med Pipeline
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
11
Source:
http://www.defencegreece.com/index.php/2012/04/southeastern-mediterranean-hydrocarbons-a-new-energy-corridor-for-the-eu/
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
12
5. Conclusion
Cyprus enacted the EEZ since 2004 and has achieved three
agreements with Egypt, Lebanon & Israel. There is still a
missing agreement with Greece. Cyprus with the 2 nd lending round
managed to attract 15 companies-ventures and these are candidates
for nine of the 12 blocks. The block 12 with the famous Aphrodite
deposit is at the limit of the EEZ of Cyprus and the EEZ of
Israel9. The company NOBLE has signed different contracts with
Cyprus and Israel for this deposit.
Cyprus managed to reinforce substantially by gathering foreign
countries in its EEZ. The Italian ENI and the Korean KOGAS came for
blocks 2 & 3, the French-Russian consortium TOTAL & E&P
Activities, also the two Russian NOVATEC & GP (Global
Resources) for the block 9 and the French TOTAL company for the
block 11. NOBLE company with the Aphrodite deposit will turn Cyprus
into exporting country for gas, that is why accomplished new
drilling process in 2013. They also consider Cyprus and Israel for
Onshore LNG- FLNG in Tamar & Leviathan deposits22. Based on the
above mentioned, the block 10 and 11 are in touch with 12 which
also touches the block 9 complex (the blocks 9-2-3), so there is a
sequence 10-11-12-9-2-3 which osculates on all EEZ in which Cyprus
has signed agreements17.
Because of the EEZ, Cyprus already has won 23 million Euros for
seismic surveys, 150 million Euros for the bonus signature on
blocks 2, 3, & 9 from the consortium of Italy and Korea and now
12 million Euros for each block by the French company, meaning 24
million for blocks 10 & 11. In addition, there is a written
report for the 700m drilling that TOTAL is going to do, so the
research is not just about the natural gas but for oil too, which
makes it even easier for Cyprus to succeed an economic recovery.
Also, the percentage of Cyprus in earnings after the recoverable
expenses would be closed up to 70%. Moreover, due to the contract
the companies should pay signature bonus, which means that Cyprus
will have immediate revenue with just a signature. Finally, Cyprus
through the EEZ & its hydrocarbons has managed to change the
local situation and has turned the wider landscape to its advantage
by exploiting its mineral wealth in a geostrategic manner23. Cyprus
has resisted the Annan plan that would have removed every right to
establish EEZ and joined the EU. Thanks to their political
vigour,
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
13
they established EEZ and isolated Turkish threats. This
political advantage in comparison with the international companys
ability to influence the political issues, Cyprus has a great
opportunity to resolve their dispute with Turkish Cypriot side.
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
14
References
1. BBC News - Cyprus country profile. Available at:
http://news.bbc.co.uk/2/hi/europe/country_profiles/1016541.stm.
Accessed December 29, 2014.
2. BBC News - Cyprus profile - Timeline. Available at:
http://www.bbc.com/news/world-europe-17219505. Accessed December
29, 2014.
3. Cyprus GDP Growth Rate | 2001-2014 | Data | Chart | Calendar
| Forecast. Available at:
http://www.tradingeconomics.com/cyprus/gdp-growth. Accessed
December 29, 2014.
4. Cyprus one year on: Injured island | The Economist. Available
at:
http://www.economist.com/news/finance-and-economics/21598649-bail-out-working-bail-isnt-injured-island.
Accessed December 29, 2014.
5. e-typos.http://www.e-typos.com/files/1/2014/11/21/ELTK
02-11-14.pdf. Accessed December 18, 2014.
6. pi - . . Available at:
http://www.lygeros.org/articles?n=7977&l=gr. Accessed December
22, 2014.
7. pi: pi
- Hit&Run. Available at:
http://www.hitandrun.gr/steit-ntipartment-ipa-anagnorizoun-dikeoma-tis-kiprou-gia-tin-aoz/.
Accessed December 30, 2014.
8. Petroleum W, Project R, Sub-salt L, Margin L. Assessment of
Undiscovered Oil and Gas Resources of the Levant Basin Province ,
Eastern Mediterranean.
9. Analysis I. The prospect of Eastern Mediterranean gas
production: An alternative energy supplier for the EU? (April
2014).
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
15
10. Report I, Options PD. Interim Report for the Study Natural
Gas Monetization Pathways for Cyprus Economics of Project
Development Options.; 2013.
11. Report E. APHRODITE S GIFT: CAN CYPRIOT GAS POWER A NEW
DIALOGUE? TABLE OF CONTENTS EXECUTIVE SUMMARY
......................................................................................................
i. 2012;(April).
12. Offshore Cyprus. Available at:
http://www.mcit.gov.cy/mcit/mcit.nsf/All/F35CAD9F4226E424C225771B00546F25/$file/presentation_OTC
2011.pdf. Accessed December 30, 2014.
13. Noble Energy Announces Significant Natural Gas Discovery
Offshore Republic of Cyprus -- HOUSTON, Dec. 28, 2011 /PRNewswire/
--. Available at:
http://www.prnewswire.com/news-releases/noble-energy-announces-significant-natural-gas-discovery-offshore-republic-of-cyprus-136305648.html.
Accessed December 30, 2014.
14. Henderson S. MEDITERRANEAN PAPER SERIES 2013 NATURAL GAS
EXPORT OPTIONS FOR ISRAEL AND CYPRUS. 2013.
15. Israeli partners increase Aphrodites natural gas estimates.
Available at:
http://www.naturalgaseurope.com/estimates-aphrodite-increased-cyprus.
Accessed December 30, 2014.
16. Scaroni P. Eni 2014 - 2017 Strategic Plan Growing cash
generation underpins shareholder returns. 2014:2014-2016.
17. Directive EC, Gazette O, Journal O, Union E. YPRUS; Drilling
for natural gas
reserves. 2009:1-4.
18. Dissapointment from the latest drilling in the East
Mediterreanean. Available at:
http://www.naturalgaseurope.com/onasagoras-eni-kogas-cyprus-block-9.
Accessed December 30, 2014.
-
Eastern Macedonia and Thrace Institute of Technology MSc in Oil
& Gas Technology Oil Trading
16
19. Cyprus Expat | Blog: French Oil Company Total Expects To
Start Drilling In Cyprus EEZ In 2015. Available at:
http://www.cyprusexpat.co.uk/blog/read/id:4563/french-oil-company-total-expects-to-start-drilling-in-cyprus-eez-in-2015.
Accessed December 30, 2014.
20. Report MT. Modelling the demand and supply of natural gas
from Cyprus and Israel. 2012.
21. hydrocarbon. 2011;(November).
22. Basin L. Overview of oil and natural gas in the Eastern
Mediterranean region Geology. 2013;2013.
23. Faustmann H, Reichberg GM. Hydrocarbons: Regional Politics
and.; 2012.