Saturday, April 14, 2012

Russia's Novatek mulls bid for Cypriot gas....

Russia's Novatek mulls bid for Cypriot gas....
By Robert M Cutler

MONTREAL - Novatek, Russia's largest independent natural gas producer, is considering applying for a license to explore for gas offshore from Cyprus when Nicosia opens a second round of bidding for its exclusive economic zone (EEZ) later this year.

The announcement follows the opening of negotiations between Russia's Gazprom and an Israeli gas exploration consortium for marketing of gas from Israel's offshore Tamar field (and probably also the nearby Dalit field), estimated to contain close to 300 billion cubic meters (bcm). Gazprom is also reported to be interested in such a bidding for a Cypriot gas exploration license, as well as the American firm ExxonMobil and the French company Total.

Late last year, US-based Noble Energy announced it had discovered between 180 and 285 bcm in Block 12 of Cyprus's EEZ, now called the "Aphrodite" strike. Noble is also the lead company in a different consortium that has made a separate strike in Israel's offshore EEZ, not far from the Aphrodite deposit. This "Leviathan" deposit is estimated to hold over 450 bcm of gas, possibly with another 250 bcm at a lower depth, plus 4.2 billion barrels of oil.

Israel is reported to be considering as many as five possibilities, not necessarily mutually exclusive, for the utilization of its own gas. These include one conventional natural gas pipeline, two options involving liquefied natural gas (LNG), and two options involving electricity production.

The conventional pipeline option would involve the laying of a pipeline to Greece, presumably with the participation also of Cyprus, and then from Greece onwards to markets in the European Union by way of Italy. This option would presumably be based on the Interconnector Greece-Italy (IGI) pipeline, a still unbuilt segment of the Interconnector Turkey-Greece-Italy (ITGI) pipeline.

The ITGI project had sought to transit natural gas from the Shah Deniz Two deposit in Azerbaijan's Caspian Sea offshore to European markets but lost out to the Trans-Adriatic Pipeline (TAP) as a potential "western route" to them. The Shah Deniz Two consortium is now deliberating between two other alternatives for the "northern route" (in the Southeastern Europe), following which it will choose finally between the "western route" TAP and the "northern route" alternative.

The IGI was to have been half-owned by Greek public utility DEPA, which is however now set to go on the auction block as the Greek state sells off its holdings as a result of fiscal crisis related to the financial crisis of the eurozone.

Now, however, Gazprom will put in a bid for DEPA as part of the Russian state's long-standing strategy to gain control of energy infrastructure in other countries. In the case of Greece, it would give Gazprom access to the IGI project, which it would presumably seek to use as an onwards branch from Russia's South Stream project underneath the Black Sea.

Greece already receives two-thirds of its natural gas from Russia. The snap general election announced this week in Greece for May 6 could possibly enable such a political decision, which the present technocratic government would not take, to be made.

The IGI includes a projected undersea segment at the bottom of the Ionian Sea, which would be called the Poseidon pipeline. It would be constructed jointly by DEPA and Italian Edison. According to the Greek newspaper Kathimerini, the Greek government has now solicited expressions of interest for conducting seismic research to identify prospective undersea natural gas deposits in the Ionian Sea west of the Greek mainland.

The two LNG options that Israel has been considering are to create a floating LNG station close to the gas fields and to create LNG stations in both Cyprus and Israel in order to supply the world market. Between these two alternatives, Israel has made a preliminary choice in favor of creating a floating LNG station because of anticipated "not in my back yard" objections from residents near the place where such an onshore station might be built in Israel. The technology for a floating LNG station does not yet exist, and Israel has partnered with the South Korean firm Daewoo to explore this possibility.

The two options that Israel has been considering for electricity production are to transfer the gas to Israel for this purpose or to use all the gas for generating electricity and at the same time to create a high-voltage cable connecting Israel, Cyprus and Greece, all of which would consume the electricity (and presumably for onwards export later if there is any subsequent surplus).

An Israeli government commission appointed for the purpose has made preliminary recommendations subject to revision, according to Jerusalem Post, that Israel retain at least 400 bcm of its offshore natural gas for domestic use. This appears to be an attempt to strike a balance between the insistence by participants in the exploration and development consortia that export is necessary for economic reasons (also invoking unspecified geopolitical advantages) and the needs of the domestic economy and requirements for security of energy supply.

According to some estimates, Israel will require 540 bcm of natural gas between now and 2040. Some experts insist that Israel's energy security requires refraining from exporting any new natural gas at all. The failure of the Egyptian government to live up to the requirements of its gas export contract with Israel following the overthrow of president Hosni Mubarak is only one argument in favor of this position.

The option of constructing a high-voltage cable for exporting electricity would probably not be realizable until the end of the current decade but would still be easier than laying undersea gas pipelines. Nevertheless, according to Associated Press reports, Greek energy ministry officials have said that unspecified trilateral energy cooperation with Cyprus and Israel is close to agreement.

From a strictly geopolitical standpoint, any such trilateral cooperation would represent a nucleus for stability and for enlarging security in a region that will for the foreseeable future be extremely tumultuous....

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