Energy and Environment
Gas production and exports on the horizon
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). The biggest potential 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.
The American company Noble Energy International, which is developing Israel’s giant Tamar and Leviathan gas fields in the Eastern Mediterranean Sea, announced in December 2011 that a world-class discovery of natural gas had been made nearby in Cyprus’ offshore EEZ block 12 – known locally as Aphrodite. In October 2013, Noble carried out appraisal drillings in block 12 and the results have confirmed natural gas reserves of 3.6 trillion cubic feet (tcf) to 6 tcf, with a gross mean of 5 tcf – enough to meet Cyprus’ domestic gas demand for over 100 years.
Noble Energy’s success story in block 12 caught the attention of energy companies worldwide and created huge interest in Cyprus’ second licensing round, which closed in May 2012. The Cyprus Government received 33 bids by 15 companies and consortia from various countries hoping to be selected to develop the 12 offshore blocks. Four licences for gas exploration in offshore blocks were awarded by the government at the end of October 2012 as part of the second licensing round. Blocks 2, 3, 9 and 11 are all adjacent blocks, located north and north-east of block 12, where Noble Energy has a concession to drill. Licences for blocks 2 and 3 were awarded to a consortium of Italy’s ENI and Kogas from South Korea.
The license for block 9 was awarded to a consortium of Total E&P Activities Petrolieres (operator), NOVATEC Overseas Exploration & Production GMbH and GPB Global Resources BV from Russia. Total E&P Activities Petrolieres was granted hydrocarbon exploration licenses in blocks 10 and 11, after signing two production sharing contracts with the Ministry of Energy in February 2013. The French company was also been granted a license by the Agriculture Minister for seismic exploration for oil and gas in block 10 and in parts of blocks 6, 7 and 11 of Cyprus’ EEZ. These blocks were awarded due to their potential for economies of scale, because they are contiguous and in close proximity to block 12, where the significant natural gas reserves were found.
The Cyprus Government had high hopes it would complete the necessary infrastructure of an energy centre – including the pipelines and liquefaction plant – by 2018 and begin exporting natural gas in the 2020s. However, the decision on whether Cyprus will proceed with the LNG plant construction has been delayed, due to geopolitics and with the country looking at various options on how to best exploit its reserves – including floating installations or diverting the gas to Egypt’s already existing and under-used LNG facilities for export to Europe.
A deal struck in August 2015 between Israel and Noble-Delek for the development of the giant Leviathan field could further affect Cyprus’ plans, but the impact of this development is yet to be seen. One of the most beneficial scenarios for both Cyprus and Israel could emerge from a potential solution of the Cyprus problem, which would open the possibility for joint Israeli and Cypriot gas exports via the island’s EEZ to Turkey and on to Europe – which is considered the most cost-effective way of monetising the gas. However, there continues to be scope for establishing an LNG facility and energy centre in Cyprus and a decision by 2017 would still allow for actual exports to Europe to commence by 2022.
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 the LNG project to fruition.
In the meantime, 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 target is to supply 13% of the island’s energy by 2020: around 300MW of power will be generated by wind farms, 192MW will come from photovoltaic (PV) systems, 75MW from concentrated solar thermal plants and 17MW from biomass and biogas utilisation plants. The island is in a strong position to build on its already high use of solar energy. Around 92% of households are equipped with solar water heaters and 53% of hotels have large systems of this kind. Cyprus is by far the highest user per capita of solar water heaters in Europe. Already four large PV parks have been connected to the national grid, generating 1,000,000 kWh.
The developing oil and gas sector and the great potential in renewable energy offer expanding opportunities, and Cyprus’ energy industry as a whole will need investors and partners to fulfil the island’s potential as a regional energy hub.