Karen Ayat* Natural Gas Europe
Natural Gas Europe was pleased to have an opportunity to interview Dr. Charles Ellinas, Chairman of the Cyprus National Hydrocarbons Company (KRETYK) and Mr. Solon Kassinis, Vice President of KRETYK at the 2nd Annual Cypriot-Greek Oil & Gas 2013 Summit organized by IRN in the southern coastal town of Limassol
How mighty is Aphrodite?
SK: Aphrodite's proven reserves are estimated at 7tcf. We are planning to have another verification well starting in June We expect to find 10 tcf at least.
CE: There is a lot of gas already proven and we are certain there is a lot more to be discovered in the 6 blocks already awarded, probably 4 to 5 times as much as Aphrodite.
How will future oil and gas production, once discoveries are confirmed, contribute in enhancing Cyprus' economy and reducing its energy bill?
SK: Within the 13 blocks in Cyprus EEZ, we do envisage to have around 60 tcf. We rely on this gas given that Cyprus economy is now in a very bad shape.
CE: We expect that Cyprus will start construction in 2016 creating thousands of jobs as a result. The services and supplies industries will benefit as well as subcontractors. A liquefied natural gas terminal in Vassilikos will be ready to deliver natural gas to the Cypriot market by the end of 2018 reducing electricity prices by at least 50% (the price for electricity is very high in Cyprus), whereas by the end of 2019 Cyprus will be in a position to export liquefied natural gas. By 2025 Cyprus and the Levantine Basin will be able to produce 25 million tones of natural gas per year and cover 50% of the EUs additional energy needs.
Will the fact that Cyprus National Hydrocarbons Co is currently operating on a tight budget affect its ability to proceed with vital preparatory work or hire consultants?
SK: Yes it would. We hope that in the next few months, the government will be able to allocate a budget and start planning for the future.
CE: If we dont sort this out, yes it would. However, I also truly believe that a budget will be allocated soon.
What will Cyprus export strategy be?
SK: Domestic needs are very low: we are a small country and we have a small economy. Most of our gas will be dedicated to export markets, unlike Israel who has to take into account its domestic consumption. We will most likely export to Europe. Exporting to Asia (for example China or Japan) where the demand and prices are high is also a possible solution with the help of companies like Kogas.
CE: Domestic needs are modest specially now that the crisis has led to a reduction of our consumption. The domestic use of the new gas will be negligible compared to the amount dedicated to export markets. An LNG plant gives us flexibility to export to the EU as well as to the Far East. Pipelines limit this.
Could the US brokered Israeli reconciliation with Turkey come at the expense of its relations with Cyprus?
SK: I dont believe that the Israelis trust Turkey. There hasn't been a consistency in their position. They seem to balance between their desire to collaborate and their urge to dominate. Turkey has to create trust by proving it is willing to solve the problem of the division of Cyprus first.
CE: Israel and Turkey's recent rapprochement was not originally motivated by energy considerations. It was triggered by the war in Syria and by their concern regarding the possible effects of the transitions in the region. The possibility of an energy partnership is still very uncertain especially since Israel has not yet formulated a clear export strategy. We are still unsure whether Israel will decide to export or not. There is a huge resistance to export in Israel. They found 3 dry holes in Israel in the last few months sending an alarm alert. They want to ensure that decades of domestic needs are secured first. I personally believe that they will ultimately decide to export but in lower volumes that originally expected. They are still considering all export options, including Cyprus.
Can Cyprus go ahead with its LNG plans without pooling costs with Israel?
SK: Of course. Cyprus plans are to start with one train based on its own reserves but we look forward to a collaboration with companies already active in Cyprus like ENI, like Total.
CE: We have enough gas in Aphrodite to justify the LNG plan. We have done the economics, it is viable. We still hope that Israeli gas will come to Cyprus; we believe that exporting gas via an LNG plant in Vasilikos is the best option for Israel as it would offer economies of scale. Exporting to Turkey would mean passing by Lebanese and Syrian waters which is not possible for obvious reasons. A pipeline to Turkey through Cyprus also needs Cyprus consent.
What is the strategic advantage of Cyprus as a regional energy hub?
SK: Cyprus benefits from a strategic location at the crossroad of energy routes and is and will stay a member of the EU. Two additional factors play an important factors in increasing Cyprus chances of achieve this role: it is services oriented and has a high calibre of human resources.
CE: Cyprus has already chosen the location of its LNG plant: Vasilikos. An LNG plant is the way forward. Pipelines offer little flexibility in comparison and too many pipelines would be needed to export the volumes of gas I mentioned earlier, which is not really practical.
Russia pays attention to any to any diversification project for Europe- how will it perceive a Cypriot initiative to diversify Europes energy portfolio?
SK: Russia wants to shift from pipeline to LNG gas. Cyprus location is an opportunity for Russia to achieve that transfer.
CE: I dont believe that Cypriot gas, modest in comparison to Russia's, will affect Russia's dominance of the European market. Europe will still depend on Russia for a significant part of their gas needs.
How will the non ratified agreement between Cyprus and Lebanon affect the two countries energy plans?
SK: There is no discrepancy between the Lebanese and Cypriots delimitation. The agreement wasn't ratified by Lebanon due to a disputed area with Israel equivalent to 874 km2. Indirect negotiations should and will lead to an agreement. The fact the israelis have already moved 500 km away from their original claims is a positive sign.
CE: I was in Israel three weeks ago, I saw the National Security Council and they told me that they are very close to finding a solution to the maritime border dispute with Lebanon. Cyprus and Lebanon have always been very close and will work together. And so will Cyprus and Israel.
*Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.