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Cyprus’s Oil and Gas Reserves: Fostering Bilateral Ties and Economic Growth

Wednesday 09 September 2015 by

Ever since the massive hydrocarbon discovery in 2011, there has been no looking back for Cyprus. The small Mediterranean country has witnessed continuous growth in the oil and gas sector and attracted its fair share of international attention.

Cyprus’s enviable position as a financial and business hub was shaken when its economy received a severe setback during a series of banking crisis. However, the unexpected discovery of natural gas deposits within Cyprus’s Exclusive Economic Zone (EEZ) provided a major impetus for economic revival.

Earlier, Cyprus had relied heavily on imported oil from neighbours to meet its energy requirements. But this unique discovery by a leading American company Nobel Energy has given a sense of optimism about the future and even offered Cyprus the opportunity to contemplate on exports.

Overview

Currently, Cyprus’s 15,000- square kilometre EEZ has 13 exploration blocks located to the south of the island. The rights of six of these blocks have been already awarded, which are believed to contain up to 40 trillion cubic feet of gas.

The licence of block 12 was given to Nobel Energy in 2008, whose exploratory drilling later led to the discovery of a natural gas field in 2011. In 2012, Nobel Energy announced the estimated resource range of block 12 to be between 5 to 8 Tcf, later revised to a range of 3.6 to 6 Tcf in 2013. Recently in November 2014, it was further revised upwards by 12%. In February 2013, 30% of Noble Energy's exploration stake in block 12 was transferred to Israeli drilling partners Delek and Avner Oil.

Italian and South Korean consortium ENI-KOGAS holds the licences for blocks 2, 3 and 9, while French energy giant Total E&P has for blocks 10 and 11.

In September 2014, the Sapiem 10000 drillship started exploratory drilling on behalf of Eni and KOGAS at the offshore Onasagoras field, which comes under block 9. It has not yet been successful in locating “any concentration of exploitable hydrocarbons”, and plans to move on to the Amathusa field also in block 9. The consortium has also asked for more time from the government to carry out exploratory works in block two and three.   

In January, following geological tests, Total announced that it had failed to locate any targets in the licensed blocks for test drilling. However, later in March, Total signed an agreement with the Cyprus government for further exploration works in block 11.

Of these, Nobel Energy has had the most success in locating tangible reserves in block 12, which is fittingly named Aphrodite. Government officials believe that there might be 30 to 40 Tcf of natural gas yet to be discovered in this block. 

Cyprus government plans to announce the 3rd and 4th Offshore Licensing Round for the remaining blocks that are 5, 6, 7, 8, and 13.

Economic benefits

The oil and gas industry has diversified the existing sources of revenue for Cyprus and holds the economic future of the country.

The recent declaration of Aphrodite gas field as “commercially viable” by Nobel, Derek and Avner has added a new milestone to Cyprus’s exploration and exploitation of natural reserves. It has opened up avenues for monetization through exports and supplies to Cyprus for domestic electricity generation. As Cyprus’s domestic energy consumption is meagre, export is likely to generate a significant portion of the revenue.

Over the years, there has been an influx of foreign companies who have come to explore the region or establish ties with the oil and gas industry in Cyprus. For better operational performance, other professional sectors also play a crucial role in strengthening the oil and gas industry; thus they contribute to the further economic growth of the country.

Cyprus’s EEZ has been a boon for the country, drawing in revenue from different corners. Cyprus has received 23 million Euros for seismic surveys, 150 million as contractual bonus from ENI-KOGAS and 24 million Euros from Total.

In addition, Cyprus’s strategic geographical location at the crossroads of Europe, Asia and Africa makes it ideally placed to serve as the primary energy supplier to the entire Eastern Mediterranean region.

Cyprus has many other things to its favour such as a stable government, robust regulatory framework and friendly ties with neighbours; thus, it attracts energy companies by providing a stable and secure base for their operations.

It might be the early stages of Cyprus’s Oil and Gas industry, but this holds immense opportunities for young Cypriots. Besides generating revenue from the export of hydrocarbon, jobs and infrastructure projects linked with this sector enhance economic growth.

“Currently the global energy firms bring senior engineers and professionals from abroad putting local hires on the backburner, and as per the latest updates of this summer, it might take some time before the local market opens,” said Elena Boudourakis, Recruitment Consultant, AP GlobalEnergy.

“We are continuously monitoring for any developments and are in touch with the big players who are actively working in Oil & Gas in Cyprus. By registering on AP GlobalEnergy website you will be the first to know once a local recruitment campaign has kicked-off.”

With more and more foreign companies making a beeline to capitalize on this newly found treasure, Cyprus prepares for an exciting chapter in its economic history.

Ties with neighbours 

The hydrocarbon reserves have another potential benefit. The financial reward is going to benefit the whole of Cyprus, both the Greek and Turkish side. In an interview to CNN, the Republic of Cyprus' president Nicos Anastasiades, expressed his belief that “this rich supply of energy could help unite the island”.

"The benefit out of the exploitation of the wealth of energy is going to the interest of all the people of Cyprus whether they are Greek or Turkish Cypriots," Anastasiades told CNN.

Thanks to the hydrocarbon reserves, bilateral ties with other neighbouring countries also seem promising.

Israel and Cyprus share a warm relationship with strong collaboration on the cultural, military and political fronts. But it is the joint exploitation of the natural gas reserves that has cemented a stronger bond between the two countries.

In a recent tête-à-tête meeting, the leaders of the two countries discussed natural reserves, among other key topics.  

Later, in a press conference Israel president Netanyahu said that by “cooperating with each other” they can exploit the natural reserves more easily and can “market it better”. He also stressed that this would benefit the people of both the countries.

Two giant Israeli energy firms Delek and Avner already possess a 30 percent stake in the Aphrodite venture. Delek Group is also seeking to collaborate with Cyprus on the exploration of natural gas near the Leviathan gas field, which is off the coast of Israel.

Besides, Cyprus, Israel and Greece have come together to form what is being called as the Energy Triangle.  It refers to the joint exploitation of natural gas reserves.  Under the Cairo Declaration treaty signed in November 2014, pipeline links are proposed to be established from the Aphrodite gas field and the Leviathan gas field to a LPG plant in the Vasilikos Power Station by 2019. This will facilitate transportation of gas between these three countries, and later may be extended to Europe.

In February 2015, Cyprus government signed a MOU with Egypt for exploring the possibility of transferring gas from the Aphrodite field to Egypt via underwater pipelines.

The Future

The discovery of hydrocarbon reserves may have been unexpected, but it has opened up a treasure chest for Cyprus to relish for years to come.

According to reports, there is a possibility that Cyprus could be sitting on 60 trillion cubic feet of gas. Its value for a small country like Cyprus can be estimated from the fact that the entire Europe consumes 18 Tcf of gas a year. It is most likely that a significant portion of energy will be exported, drawing revenue and fostering growth.

Growth in the oil and gas industry has a potential to create a diverse range of career options in Cyprus, including opportunities in pipeline, drilling, petrochemical, LNG, subsea, offshore, onshore, geotechnical, transportation & storage and refinery, shipping, environmental and renewable energy sectors. This will reduce unemployment and give a significant boost to the economy.

Cyprus government continues to invest in energy infrastructure projects, along with forging business ties with neighbouring countries to capitalize on exploration and exploitation of the natural reserves.

With strategic approach, planned infrastructure and robust regulatory measures, Cyprus has the potential to emerge as the energy hub of the eastern European region.