* Second gas round could be before year-end, says Minister *
Cyprus can benefit from the relative decline of other gas producers in the region, but will have to work quickly to get the gas to market and secure stable markets.
This was a clear conclusion that could be drawn from the Economist Conferences Fourth Energy Summit in Nicosia on Monday.
The second licensing round for offshore hydrocarbons exploration could be issued before the end of the year, commerce minister Praxoulla Antoniadou told delegates.
Documents for parliament’s approval could be submitted “possibly within days” with a view to the licensing round being put out “before the end of the year”.
And if the high number of delegates and sponsors at the conference is anything to go by, the second licensing round will be more popular than the first in 2007, when only a small number of companies came forward.
Only one licence was issued: to Noble Energy, the company that has now become a household name that is now drilling in Block 12.
Results from Block 12 are expected sometime in December. Addressing the conference President Demetris Christofias said he “would not speculate” on how much gas might be found before the results were known.
But since Block 12 is only 50 km from the massive Leviathan field which discovered 16 trillion cubic feet on October 2010—the biggest new find for a decade—hopes are high that 8 to 10 trillion cubic feet might be found. One speaker noted that this would be enough to keep Cyprus supplied for 100 years.
Gas demand to keep on rising
Conference delegates heard that there are many reasons for the interest in gas. First, according to the Economist Intelligence Unit’s forecasts, demand for natural gas will outstrip demand for oil in the coming year.
The EIU forecasts natural gas demand growing at 3.7% per year compared with 1.5% per year for oil. One reason is the earthquake-induced accident at the Fukushima nuclear power plant in Japan, which Antoniadou said “has led to a rethink of the energy mix”.
In Europe, both Germany and Switzerland have pledged to phase out nuclear power. Since renewable energy resources are still in their developmental stage and therefore expensive, dependence on gas—a cleaner fossil fuel than coal or oil–is expected to increase.
Another reason for higher European demand is the worry about over-dependence on Russia.
This came to a peak in January 2006, when Russia switched off the taps to Ukraine, cutting off supply for many EU countries, including Greece. The EU has responded with plans to diversify supply and secure sufficient stocks to cope with one-off interruptions.
However, delegates heard that even the other big suppliers of gas cannot be relied upon forever.
Bassim Fattouh of the Oxford Institute of Energy Studies said that the prospects of an increase in gas production were not that good owing to low prices, which discourages investment in new gasfields, rapid increase in local electricity consumption in gas-producing countries, which will diminish the amount for export, and geopolitics.
Over the medium term Fattouh expects Algerian production to level off, Egyptian exports to be phased out, and Libya, Iran and Iraq to remain hampered by local and geopolitics.
That left only Qatar with sufficient quantities to produce.
Moreover, even if we did have to fall back on Russia, with its massive reserves, this is not necessarily reliable either, since Russia is not investing in upstream activities to source new supply.
Asked whether Russia would be interested in gas-related investment in Cyprus or whether it would prefer to keep out competitors so that it could retain its near monopoly status in gas supply, Simonov said that although there were plenty or reserves at home they lacked the investment and for that reason “all companies in Russia are looking for upstream capacity”.
Solon Kassinis, Director of the Energy Service, believes that synergies with Israel could make investment in Cyprus even more attractive.
He identified a liquefaction plant, gas supply pipeline, methanol production, a 1 megawatt power generation plant and an oil product storage terminal as possible areas for cooperation.
Securing markets is key
However, delegates also heard from Brean Shaffer of Haifa University that securing markets is key.
She noted that the discoveries in Shah Deniz were in 1997 and only now are transit agreements being made.
She said that for natural gas, “there is no global energy market”, only local markets.
She suggested that gas producers not look so far for their markets as there were “close robust” markets nearby, such as Jordan, Syria and Egypt.
Fiona Mullen
Director, Sapienta Economics
