Cyprus Oil and Gas

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By Michael J. Economides
Posted on Oct. 11, 2011

The January 2011 announced discovery of some of the largest offshore natural gas reservoirs in the world, 90 kilometers west of Haifa and not much further than that from Cyprus has created some understandable excitement among Cypriots. The potential for large hydrocarbon accumulations in the same Messinian geologic formation, underlain Cypriot economic zone waters, should now be considered as high possibility. Seismic evidence makes the Cypriot block, named Aphrodite, currently being drilled by Houston’s Noble Energy, to be at least as good and perhaps as much as 50% better than Israel’s Leviathan field. The latter has been confirmed as holding at least 17 Tcf of natural gas.

It is a dream of so many countries to find oil and gas deposits: easy riches the notion goes, a chance to even the field versus big and powerful nations. However, in spite of the occasional jubilation in some parts of the Cypriot and Greek press and thinly disguised wishful thinking by government officials and politicians a dose of reality is in order.

First, this is undeniably good news. The discovery in Israeli-controlled waters is a clear and positive sign. But what are often missed in the debate are two other important elements that turn the good news into not so good and even bad if countries are unprepared or inexperienced.

There is a big disparity between oil and gas in place in a geological structure and having those resources labeled as recoverable reserves. The latter implies technical and economic attractiveness. Hydrocarbons buried under 2,000 meters of water and then another 5,000 meter beneath the bottom of the sea are far more attractive when the price of oil approaches $150 per barrel as it was in July 2008.

Natural gas is even more cumbersome because it cannot be handled readily as oil can and, therefore, its exploitation is even more tenuous. To understand this issue one needs to realize that in the deep waters of the Gulf of Mexico and of more recently emerging offshore Brazil, while oil production has been prolific, virtually no natural gas deposits have been targeted. Gas associated with oil has been produced but in most cases it is used for re-injection to augment oil production and not for sales.

The second issue and one that is likely to prove challenging is that a pipeline from the area of discovery to e.g., Europe is highly unlikely because of the water depth and the underwater terrain. This means that the transportation of gas will have to employ conversion into liquid natural gas (LNG) and, in early time, perhaps compressed natural gas (CNG) transportation.

There is almost a sadistic irony that natural gas of the size being contemplated can be so close and yet so far if the right decisions and the right knowledge are not evident. The size of the resource would require tens of billions of euros. The cost will involve the field development with very expensive wells and facilities and, especially, if LNG will be deployed. In all cases it will take huge companies to do it. Nobody should have the fantasy that the state should or could do it.

There are also plenty of examples from afar to the neighborhood of the difficulty to match local resources with local needs. Trinidad in the Caribbean is a major source of LNG for the US but huge parts of the island have no access to gas. Egypt, a major new player in LNG is faced with increasing local discontent. Cairo and its almost 30 million inhabitants have no gas. If Cyprus wants to use natural gas for its electricity a very viable option would be to buy relatively cheap CNG from Israel.

Greece now gearing up for its own exploration program should take an intense interest in the Cypriot experience and learn from it. For Cyprus the tantalizing and difficult dilemma will emerge after all that gas is proven. The geopolitical re-alignment in Eastern Mediterranean will be a yet another issue and the subject of a forthcoming editorial

Original Article

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Posted on October 12, 2011, in Cyprus, Houston, Israel, LNG, Natural Gas, Oil & Gas - offshore, Turkey and tagged , , , , , , , , , , . Bookmark the permalink. Comments Off.

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