Cyprus Profile

Energy and Environment

Regional Energy and Fuel Hub

Cyprus’ energy profile has changed with the discovery of significant hydrocarbon reserves in the country’s Exclusive Economic Zone (EEZ), and with the government’s strategic decision to become a key energy player in the Eastern Mediterranean.

Energy is the new boom industry in Cyprus, attracting worldwide attention and serious international investment following the discovery of vast natural gas reserves in its Exclusive Economic Zone (EEZ) and the Eastern Mediterranean region. One of the biggest opportunities for foreign investment in Cyprus in the coming years will be the budding oil and gas sector and the island has begun developing strategies and ambitious plans to exploit its new-found hydrocarbon wealth. In 2011, US firm Noble Energy, who is developing Israel’s giant Tamar and Leviathan gas fields in the Eastern Mediterranean Sea, announced a worldclass discovery of natural gas in Cyprus’ offshore EEZ block 12 – known as Aphrodite. Two years later, Noble carried out appraisal drillings in block 12 and the results confirmed natural gas reserves of 4.54 trillion cubic feet (tcf) – enough to meet Cyprus’ domestic gas demand for over 100 years – and exploration continues with good prospects for more discoveries.

Exploration Race

Noble Energy’s success story in block 12 caught the attention of energy companies worldwide and created huge interest in Cyprus’ licensing rounds. Today, giants such as French Total and a consortium of Italy’s Eni and South Korean Kogas have secured exploration rights in Cypriot waters along with Noble. Offshore drilling in Cyprus is expected to resume in the second half of 2016 and 2017 by all three companies, and in preparation for these activities, a new drilling support base is being set up in Limassol Port with previous operations being moved over from Larnaca. The country’s energy sphere saw yet another boost in November 2015, with British oil and gas company BG Group acquiring a 35% stake in Cyprus’ offshore Block 12, following an agreement with concession holder and operator Noble Energy. The other stakeholders in Noble’s Block 12 are Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership, each with a 15% working interest. The recent world-class find of 30tcf of natural gas in Egypt by Eni has also spurred on exploration in the Eastern Mediterranean. The discovery – named Zohr – located just 6.5km from the boundary of Cyprus’ Block 11 has led to renewed hopes that the East Med and Cyprus’ EEZ could hold more hydrocarbons discoveries. In addition, BG’s entry into the Cypriot EEZ constitutes a potential alignment of interests in the natural gas production and distribution chain, with BG Group being a partner and operator in the liquefied natural gas terminal at Idku, Egypt. Cyprus’ latest and third offshore licensing round in July 2016 attracted six bids, with international oil and gas players scambling to find more Zohr-like deposits in the East Mediterranean. The licencing round saw more bids from the existing companies in Cyprus as well as new entrants including ExxonMobil, Qatar Petroleum and Statoil.

A Regional Energy and Fuel Hub

The Cyprus Government had hopes it would complete the necessary infrastructure of an energy centre at Vasilikos by 2018 and begin exporting natural gas from Aphrodite in the 2020s. However, the decision on whether Cyprus will proceed with the LNG plant construction is on hold awaiting more discoveries, and more focus has been placed on prospective regional pipelines and deeper multilateral cooperation with neighbouring countries in exploiting the reserves. A stronger momentum has been seen in developing Cyprus into a significant fuel hub in the region, with the successful operation of the sophisticated oil storage terminal in Cyprus by Netherlands-based global oil terminal company VTTI. In 2015, the company’s Cyprus subsidiary VTTV announced expansion plans to also take advantage of the regional natural gas opportunities. Currently, VTTV is evaluating a further expansion of 13 tanks with total capacity of 305Km³ for fuel oil and crude oil and accommodating a Floating Supply Regasification Unit (FSRU) at a recently completed jetty to regasify LNG. Another key activity in 2016 is the relocation of the existing Larnaca oil storage facilities to Vasilikos. Cyprus could become a regional fuel hub thanks to its strategic location, connecting Europe and the Black Sea with markets in the Middle East and Asia. Also the widening and deepening of the Suez Canal could significantly increase traffic in the region and bring more opportunities to Cyprus, which is likely to entice more oil product transhipment companies to its shores.

Boost from Cyprus Solution

One of the most beneficial scenarios for Cyprus and its hydrocarbon-rich neighbours could emerge from a solution to the Cyprus problem, the de-facto division of the island. A reunification would open the possibility for joint gas exports via Cyprus’ EEZ to Turkey and on to Europe – which could be a cost-effective way of monetising the gas and done in cooperation with Israel’s giant Leviathan gas field. The next few years and significant deposit discoveries will be key to determining Cyprus’ hydrocarbon potential – and the involvement of major international oil and gas companies could help bring Cyprus’ plans to fruition.

Rising Renewables

As Cyprus looks forward to a day when its power plants can be run on the island’s own gas, rather than expensive imported liquid fuels, it is undertaking other initiatives to achieve its national energy and climate targets. The Renewable Energy Sources (RES) target is to supply 13% of the island’s energy by 2020, and will be generated by wind farms, photovoltaic (PV) systems, concentrated solar thermal plants and from biomass and biogas utilisation plants. Cyprus is already one of the highest users per capita in the world of solar water heaters in households, with over 90% of households equipped with solar water heaters and over 50% of hotels using large systems of this kind. In regards to renewables, Cyprus has already exceeded its intermediate 2020 targets, and is at about 8.7% compared to the 7.45% threshold for 2015- 2016. The Cypriot National Renewable Energy Action Plan (NAP) targets the largest renewable electricity share from wind power by 2020, and development has been fast, going from no wind energy in 2005, to launching its first wind farm in 2011 and now boasting six farms on the island.

The island is in a strong position to build on the use of solar energy and so far four PV parks have been connected to the national grid, generating 1,000,000 kWh. Another area aimed at facilitating development of photovoltaics in Cyprus is the large-scale application of net metering, to reduce electricity prices for the households. Cyprus introduced net metering as a pilot program in 2012, and in 2015 the government opened the possibility of using net metering also for commercial buildings. However, there continues to be much ground to cover in terms of energy production from RES. International interest in developing the sector in Cyprus has remained steady and 2015 saw the launch of a solar field, which places the island nation at the frontier of solar energy research in Europe. Australian company CSIRO won the international tender to provide its technology to Cyprus for a trial, which could lead to multimillion returns and a broad solar take-up in the country and wider region. In this respect, the production of renewable energy is expected to experience considerable growth in coming years, and significant investment is required in order for Cyprus to achieve its targets – opening the field for companies with expertise in renewables.

Exciting Future Prospects

Cyprus’ energy developments have certainly placed the country centre stage with the unfolding discoveries in the Eastern Mediterranean. Offering a stable and secure base in an increasingly turbulent region, Cyprus is also a convenient location to set up operations for various auxiliary services to the oil and gas industry and for company headquarters to support activities in the EMEA region. Utilising its own resources, Cyprus could also have a unique opportunity to develop a specialised industry in petrochemicals, according to industry professionals, who have been calling for the national framework to include the formation of a comprehensive operational strategy for a petrochemical industry. Furthermore, the country’s excellent infrastructure and business environment, coupled with an advantageous tax and legal framework, establishes it as a competitive and efficient location for multinationals. The developing oil and gas sector and the still relatively untapped potential in renewable energy offer expanding opportunities, and Cyprus’ energy industry will need investors and partners to fulfil its ambition to become a regional energy hub.

August 2016