The Republic of Cyprus, a European Union
member country, is proceeding with development of
the Aphrodite offshore field. This is the first of
12 offshore gas and oil blocs that Cyprus plans to
tender out to international companies. Bidding for
the other 11 blocs was announced in February 2012,
with a deadline for submitting applications by May
11.
Aphrodite is the southernmost field in
Cyprus's exclusive economic zone, contiguous to
Israel's zone and the Leviathan deposit within the
Israeli zone. Cyprus and Israel last year
delineated their respective exploration rights and
exclusive economic zones in the Mediterranean Sea.
The offshore Tamar and Tanin deposits, along with
a few smaller ones are located closer to northern
Israel's coast.
These deposits form parts
of the wider, under-explored Levant
Basin in the Eastern
Mediterranean. Gas reserves at the four main
deposits are tentatively estimated at 200 billion
cubic meters (bcm) for Aphrodite, 500 bcm for
Leviathan, 300 bcm for Tamar, and 400 bcm for
Tanin. Further discoveries are deemed probable. In
Israel, according to Energy Minister Uzi Landau,
produced gas would initially be used to meet
Israel's domestic demand, with the surplus to be
offered for export.
The Texas-based Noble
Energy discovered these deposits during 2010-2011.
Noble Energy is the lead shareholder in Aphrodite,
Leviathan, Tamar and Tanin, alongside Israeli
minority partners in each project. The Delek Group
of Israeli tycoon Yitzhak Tshuva is the main
partner to Noble Energy in these four projects.
The Tamar project is optimistically expected to
start commercial production in 2013, and
Leviathan, in 2016.
The geological
complexities and value of investments remain to be
determined (or announced) for each project. The
existing shareholders are expected to invite
larger companies into these projects for field
development, and certainly for transportation.
Several West-European and other international
companies are known to be interested.
For
their part, Russia's Gazprom and Novatek seek to
enter the Cyprus projects; and Gazprom, the
Israeli projects. Turkey alone opposes exploration
off Cyprus before a political settlement to
reunify the divided island.
Israel and
Cyprus hope to become significant gas exporters on
the strength of these projects. In Israel's case,
however, the security of its own supply ranks
first in the order of priorities. Egyptian gas
deliveries to Israel became politically and
physically insecure as a result (unforeseen in the
West) of the "Arab Spring". With Libyan
arms-smuggling and fighters infesting Egypt's
Sinai peninsula after August 2011, and Cairo
disabled from policing it, the Egyptian gas
pipeline to Israel has repeatedly been sabotaged
with bomb blasts.
Concurrently, Egypt's
election-winning parties pressured the government
to end the gas deliveries to Israel. Last month,
Egypt's state-owned company suspended the gas
supply agreement with Israel, citing a dispute
over payments. The case is now in arbitration.
The Egyptian supply gap raises the
Mediterranean offshore projects' economic
significance to Israel and the political stakes
involved. Israel expects offshore gas production
from the confirmed reserves substantially to
exceed the lost Egyptian supplies, generating
export surpluses even without taking possible new
discoveries into account.
Export routes
and transportation modes currently under
consideration seem, however, exorbitantly costly
in relation to the likely volumes. One option
would involve a pipeline on the Mediterranean
seabed, from Israel's Leviathan project to Cyprus,
onward on the seabed (possibly via Crete) to
mainland Greece, and by overland pipeline(s) into
European Union territory.
Another option
would entail liquefying the gas in Israel and/or
Cyprus (both countries are vying to host this
operation), shipping the liquefied product by
tankers to mainland Greece for re-gasification,
and delivering the product through Greek pipelines
to EU countries. Under both of those scenarios,
Cyprus has ambitions to host a strategic gas
storage site.
A third option would consist
of exporting liquefied natural gas (LNG) from
these fields directly to consumer countries in the
Mediterranean, or through the Suez Canal to East
Asia.
Those three options involve high
shipment costs for bringing relatively limited
volumes to markets, there to compete against
suppliers with larger volumes or lower
transportation costs. This would remain a
disadvantage unless new offshore discoveries in
Israel and Cyprus exceed the scale of the already
confirmed reserves.
Even in that case,
high costs of trans-Mediterranean pipeline
construction or gas liquefaction would necessitate
aggregating Israeli and Cypriot gas volumes, so as
to generate price-competitive exports. On
currently declared reserves, however, the
commercial viability of international exports from
these projects might be difficult to substantiate.
Vladimir Socor is a Senior
Fellow of the Washington-based Jamestown
Foundation and its flagship publication, Eurasia
Daily Monitor, and is an internationally
recognized expert on the former Soviet-ruled
countries in Eastern Europe, the South Caucasus
and Central Asia. Socor is a regular guest
lecturer at the NATO Defense College and at
Harvard University's National Security Program's
Black Sea Program. He is a Romanian-born citizen
of the United States based in Munich, Germany.
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