11 September 2013

Cyprus Hydrocarbons, Newsletter No. 6

The first production test of natural gas has begun on Thursday, September 5th in Block 12 of Cyprus’ Exclusive Economic Zone  (EEZ). The drill stem test will test the pressure and quality of the deposits in Block 12. Production tests are expected to last for approximately a month.

On June 26, Cyprus government and Noble Energy partners in Cyprus’ block 12, Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership signed a Memorandum of Understanding (MoU) with regard to the construction of a Liquefied Natural Gas (LNG) terminal in Cyprus.

Noble Energy began an appraisal well last June, with results expected late September. Noble Energy operates Block 12 with a 70 per cent working interest. Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership each own 15 per cent.

During the month of August Cypriot government discussed possibility of the interim gas supplies for electricity generation with Russian energy giant Itera – one of the largest independent producers and traders of natural gas operating in the CIS. The tender covers two alternative forms of supply: either compressed natural gas (CNG) or liquefied natural gas (LNG) via a Floating Storage and Regasification Unit (FSRU). The main benefit of the deal with Itera (or other alternative supplier) could be a substantial reduction in the cost of electricity production from natural gas compared to current costs using heavy fuel oil. Itera is reportedly offering to build a natural gas pipeline running from Vassilikos to the Dhekelia power plant.

The offer by Itera was officially rejected by state energy operators Natural Gas Operating Company (DEFA) and Electricity Authority of Cyprus (EAC) in early September. According to reports, a key reason of rejection is the decrease in energy needs. However, the current tender procedure will not be terminated, and DEFA will reportedly be making one last effort to get an improved offer from preferred bidder Itera. If negotiations with Itera go nowhere, DEFA might start talking to Vitol, a Swiss-based, Dutch-owned multinational energy and commodity trading company, whose offer was ranked second-best.

Cyprus and Israel signed a protocol of cooperation in early September in Nicosia. Cyprus is the only EU country that shares a maritime border with Israel and is one of top trade partners. The protocol inter alia includes chapters regarding cooperation on the hydrocarbons exploration field.


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