articles | 07 June 2013

Appraisal drilling begins today

Appraisal drilling in Cyprus’ Block 12 begins today, the outcome of which will a have significant influence on the development of the hydrocarbons industry in the country.

Speaking to reporters, Commerce Minister Giorgos Lakkotrypis said Noble Energy would begin appraisal work on the Aphrodite field in Block 12 of Cyprus’ exclusive economic zone (EEZ) today, which is expected to last three to four months. The Ensco 5006 rig was moved into position south-east of Cyprus on Saturday, at a spot where the sea depth is 1,731m. Drilling is expected to reach 5,607m. A third party will then be tasked with certifying the reserves determined by the appraisal drilling. The aim of the ‘A-2’ appraisal drilling is to ascertain the size and quality of the Aphrodite gas field, estimated to contain 5-8 trillion cubic feet (tcf) of gas. It would also go some way to proving the commerciality of the reserves in Block 12, allowing Cyprus to seek long-term contracts for gas sales, which would then be used as collateral against borrowing money for the multi-billion euro liquefied natural gas (LNG) plant.

Should the well yield less than 6 tcf of gas– the ‘threshold’ for making the LNG plant commercially viable – this shortfall could be made up through discoveries in a second, smaller field within Block 12, hinted Lakkotrypis. According to the minister, Noble’s appraisal process will conclude in the third quarter of 2014. The energy minister also said negotiations on a Memorandum of Understanding (MOU) will provide the framework for a Project Agreement to be signed with Noble Energy in the fourth quarter of 2013 that will delineate the commercial, financial and legal structure of the LNG terminal. He expressed hope that Heads of Agreement (long-term contracts for the sale of LNG) should be concluded in the third and fourth quarter of 2014.

Also next year, Cyprus is expected to get the first indications of the resource potential of other blocks in its EEZ. Apart from Noble, Cyprus signed contracts with the ENI/KOGAS consortium for hydrocarbons exploration in blocks 2, 3 and 9 and with French TOTAL for blocks 10 and 11. If all goes according to plan a final investment decision for an LNG plant should come in the third quarter of 2015, taking into account a combination of financing options, such as loans, private investors, and creditors. EU financing will also be sought. Lakkotrypis noted that with an LNG plant, Cyprus, which sits at the crossroads of Asian and European markets, would have greater flexibility in selling natural gas where prices are highest. He added that Asian markets are currently offering significantly higher prices than those in Europe.

According to the minister’s energy road map, the first gas to come from Cyprus’ Block 12 for domestic use is expected in the third quarter of 2018, potentially ushering in significantly reduced electricity prices. Perhaps somewhat optimistically, the minister said the LNG plant will be up and running by the end of the decade, allowing for the first export of LNG from Block 12 by the end of 2019 or early 2020. The minister noted that a study was underway by Norwegian consultants that would define the institutional framework (structures and competences) of the energy sector. Other priorities include implementation of the framework through amending existing legislation or preparing new bills; strengthening the Energy Service and training staff; getting legal consultants to prepare and negotiate the MOU and Project Agreement with Noble Energy; using economic consultants for the financing of the project; and technical consultants to prepare a master plan for the Vassilikos area which is intended to host a range of energy-related projects, not just the LNG plant.

Lakkotrypis also stressed the need for a comprehensive training programme in the hydrocarbons sector, aiming for the optimal utilisation of Cyprus’ human resources, adding that the hydrocarbons sector must be integrated into the wider education system in Cyprus. Regarding an interim solution on importing natural gas to Cyprus until it can use its own resources, the minister said the natural gas public company DEFA will undertake a technical evaluation of the bids today. He argued that if the prices of imported natural gas are such that there will be no significant reduction in electricity prices, then there would be no point signing any such agreement.

Source: Cyprus Mail

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