The energy sector of Cyprus is transforming thanks to new natural gas discoveries and more drilling planned for 2019. With multinational oil and gas companies investing heavily in the Eastern Mediterranean, the country is well poised to move from exploration to production and become a key energy hub in the region.
The rapidly developing oil and gas sector of Cyprus has become one of the biggest opportunities for foreign companies following the discovery of vast natural gas reserves in both the island’s Exclusive Economic Zone (EEZ) and in its immediate neighbourhood in recent years. In addition, Cyprus’ strategic location in the Eastern Mediterranean, at the southeast tip of the European Union and close to the Suez Canal, make it ideally suited not only as an important fuel hub and headquartering location, but also as an energy interconnection node, connecting the electricity grids of the Eastern Mediterranean and North Africa to those of Europe.
The involvement of major international oil and gas companies in Cyprus’ EEZ has strengthened the island’s ambition to become an important hydrocarbons player in the Eastern Mediterranean. Cyprus has completed three successful offshore licensing rounds, awarding the majority of its offshore blocks in its formally declared EEZ to some of the world’s top international oil companies. Global energy giants such as Italian ENI, South Korean Kogas, French Total, American ExxonMobil, Qatar Petroleum, American Noble Energy, Israeli Delek Group and Royal Dutch Shell, have all secured exploration rights in Cypriot waters.
The first natural gas discovery in Cyprus’ EEZ was made in 2011 by US firm Noble Energy and Delek Group in the Aphrodite gas-field in block 12, which is estimated to have 4.54 trillion cubic feet (tcf) of gas. Following successful appraisal drilling, Aphrodite was declared commercial in 2015.
The next discovery was made in 2017 by Total and ENI at the Onesiphoros prospect in block 11 in September 2017. But it was small and non-commercial, with gas deposits of less than 0.5 tcf. This was followed in February 2018 by the discovery of the Calypso gas-field in block 6 by Italian ENI, possibly with similar quantities of gas to Aphrodite, to be confirmed following appraisal drilling expected to be carried out in 2020.
The most recent success was the discovery in March 2019 of the Glaucus gas-field in the promising block 10 by ExxonMobil and Qatar Petroleum, estimated to hold 5 to 8 tcf of gas. This was great news because Glaucus, Calypso and Onesiphoros were discovered in geological formations similar to the giant 30 tcf Zohr gas field discovered by ENI in 2015 in the Egyptian EEZ and adjacent to Cyprus’ block 11. These more recent discoveries confirm that the Zohr geologiocal model extends more widely in the Eastern Mediterranean region.
These results bode well for Cyprus and the region, adding to its reputation as an emerging gas province. Combined with other discoveries, they are stirring interest amongst major players hoping to secure a piece of the action in the Eastern Mediterranean. ExxonMobil has already extended its interests with licenses for two blocks southwest of Crete and in Egypt, where it has secured block 3 during the recent licensing rounds. It is eyeing more prospects, including opportunities in Israel.
Re-analysis of seismic survey data using the knowledge gained from these discoveries has shown good prospects for new, potential, discoveries also in Cyprus’ EEZ. As a result, ENI and Total plan to drill five more wells in their licensed blocks in 2020, including an appraisal well at Calypso. ExxonMobil is also planning to drill one more exploratory well and an appraisal well at Glafkos in block 10, likely in 2020. Any new discoveries would further strengthen potential exploitation of Cyprus’ gas resources.
The oil and gas sector is certainly set to become a key driver of economic growth, with Cyprus actively considering options to exploit its natural gas, hoping for high revenues in the future. Cyprus’ Energy Minister confirmed in March 2018 discussions with Shell to buy around 8 billion cubic metres (bcm) of gas per year, over a 10-year period, from Aphrodite for liquefaction at the Idku plant in Egypt and to export this to global markets. These discussions have since progressed, with the approval in 2019 of an inter-governmental agreement between Cyprus and Egypt to build a subsea pipeline connecting Aphrodite to Egypt’s liquefaction plants, and a production-sharing deal in June 2019 with Noble Energy and its partners over the Aphrodite gas reservoir, which is set to bring Cyprus an estimated €9.3 billion over 18 years.
The plan provides that the consortium will be responsible for the extraction platform at the site of the field. Analysts describe the deal as a redistribution of profit, increasing the share of the companies when oil prices are low, but conversely, when global oil prices rise, Cyprus’ share will increase. Based on the plan, the first gas is expected between 2024 and 2025, and according to the Energy Ministry it would be the biggest infrastructure project ever undertaken in the Republic of Cyprus.
The recent discovery of Glaucus in block 10 by ExxonMobil could also become a game-changer. The company has repeatedly stated that should more discoveries be made, its preferred option is to build a gas liquefaction plant at Vassilikos for liquefied natural gas(LNG) exports to Europe and Asia. This would require total gas discoveries to approach 12-15 tcf and global gas prices to justify commercial viability. All eyes are on the results of the next drilling round, expected in 2020. Such a development would completely transform Cyprus’ fortunes.
Currently, Cyprus is reliant on heavy fuel oil and diesel imports for its electricity needs and spends over 8% of its GDP to cover the costs. An LNG plant at Vassilikos would not only tip the gas balance of the region, but would also come with major add-on benefits for Cyprus – not just profits from the sale of LNG, but advantages such as new employment, more support industries and service companies, the development of a downstream industry using cheap gas as feedstock, and low price gas to the Electricity Authority of Cyprus (EAC) bringing electricity prices down.
In order to support the increase in offshore drilling activities resulting from the old and new licenses, a new support base has been set up in Limassol port to cater to the expanding needs of the international exploration companies. The government has also committed to establish a dedicated industrial port at the energy centre at Vassilikos, to become operational by 2023. The port will operate as a service centre for the oil and gas industry in Cyprus and the wider region, and it will cost around €250 million to set up.
The decision to build the port was taken in response to increasing demands from oil and gas companies and those providing support services to the industry, not only in Cyprus, but also in neighbouring countries. It is an essential step to support Cyprus’ drive to become a regional centre providing support services to the Eastern Mediterranean oil and gas industry.
East Med Gas Forum
Given the geopolitical challenges the region faces, respect of international law, and particularly the United Nations Convention on the Law of the Seas (UNCLOS), is crucial to the peaceful exploitation of hydrocarbons in the East Med. With this goal in mind, the energy ministers and representatives from Egypt, Cyprus, Greece, Israel, Italy, Jordan and the Palestinian Authority met in Cairo in January 2019 and set up the East Med Gas Forum (EMGF) – with European Commission and World Bank representatives attending the meeting as observers.
The Forum will be based in Cairo, with the aim to be an international organisation that respects the rights of members in regard to their natural resources in accordance with the principles of international law, and supports their efforts to benefit from their reserves and use of infrastructure. This also includes a commitment to pave the way for fruitful cooperation in the technical and economic fields, with a view to efficient exploitation of the gas potential in the region.
East Med countries who agree with the Forum's interests and objectives will have the right to join the founding members. It will be open to other countries or regional and international organisations as observers, and will work with non-members to help create dialogue, mutual understanding and mutual benefit. EMGF also underlines that the private sector has an important role to play in these efforts.
EMGF could benefit regional gas development through dialogue on natural gas policies, including environmental considerations, leading to the development of a regional integrated market in a way that maximises the utilisation of gas resources and transport infrastructure in the region, and would contribute to further cooperation in the East Med. Gas export projects could benefit from such cooperation, especially with regards to ensuring a conducive regulatory environment, putting in place the required inter-governmental arrangements and removing political risk.
Natural gas could make a crucial contribution to the future of East Med countries and any such initiatives that could promote its development can only be helpful. The large gas discoveries in the East Med could also have a major impact on energy security and economic development through the exploitation of the gas regionally. This could be in power generation, but also in downstream and petrochemical projects.
Regional Fuel Hub
Cyprus is fast developing into a regional fuel hub for Europe, Asia and Africa, thanks mainly to the successful operation of the sophisticated oil storage terminal by Netherlands-based global oil terminal company VTTI. The company’s €300 million project in Vassilikos became operational in 2014, and was one of the biggest infrastructure projects constructed in Cyprus in recent years and put the island on the global energy map.
The company uses Cyprus as a transhipment terminal, blending its raw materials and then exporting them to the rest of the world, but mainly to Lebanon and Israel. With large refineries operating and more being built in the Middle East, the international market expects more product-vessel traffic through the Suez Canal, bound for the European and Mediterranean markets. These cargoes need to be resized or blended with other products to change specification and meet regional requirements. VTTV’s strategic location makes it the first terminal of its kind in the Eastern Mediterranean offering these services and connecting Europe and the Black Sea with markets in the Middle East and Asia.The industry has tremendous growth prospects with Cyprus’ determination to establish itself as a key energy hub and a stronghold of stability in the region.
Another important regional energy project is the EuroAsia Interconnector, which will link the power grids of Cyprus with Greece and Israel via an undersea cable. The 2,000-Megawatt (MW) interconnector, is the only North-South electricity interconnection in the Central Eastern and South Eastern Europe Priority Corridor. The permitting procedure started in 2019 and is expected to be completed by December 2020 for the construction of the first power ‘corridor’ with a capacity of 1,000 MW costing €3.5 billion. The link Crete-Attica is expected to commence in September 2022, and the links Cyprus-Crete and Cyprus-Israel in December 2023.
The interconnector will end the energy isolation of Cyprus and contribute to achieving the EU Energy Union’s goals of connecting European energy networks, achieving the electricity interconnection target for 2030 of at least 15%. It will also contribute to the internal energy market integration, increase security of energy supply, and support sustainable development by integrating renewable energy sources across the EU. This has since been followed by a framework agreement to also set up an EuroAfrica Interconnector to link the power grids of Egypt, Cyprus and Greece through subsea high-voltage direct current (HVDC) cables with the capacity to transmit 2,000 MW.
With increased regional cooperation and the unfolding discoveries in the Eastern Mediterranean, Cyprus is well positioned to further strengthen its role as a stable and attractive location in which to base energy infrastructure projects and headquarters for international companies servicing the region. With its EU status and beneficial business operating environment, the island has unique advantages to establish itself as a strategic player and facilitator in the EMEA energy market. The growing potential of the developing oil and gas sector offer expanding opportunities for investors, and has allowed Cyprus to delve into its energy future with confidence.
For more information, contact Cyprus' investment promotion agency, Invest Cyprus.
All rights reserved. The material on this site may not be reproduced, distributed, transmitted, cached, or otherwise used, except with the prior written permission of CountryProfiler.