A lot has been written recently on the planned drilling by Noble Energy Inc. in Block 12 in Cyprus Exclusive Economic Zone (EEZ). However, not much seems to have been written about possible obstacles and technical expertise questions that go beyond the regional ownership and rights issues and other political misalignments.
The need for cooperation between the Turkish and Greek Cypriots should be broadened from the political level to technical matters. The region would do well to draw on the Norwegians' experience, and their ability to strategically exploit their North Sea reserves and their early understanding of the need to confront national administrations and import technically formidable expertise. Norway has become one of the world’s leaders in offshore oil and gas technology and exploitation.
It is this importation of expertise that appears to have been overlooked thus far, and I have only read a small number of articles that have addressed the problem. Although the ownership and drilling rights issues are hugely important, the practical matter of what will happen if the planned drilling confirms the size of the estimated subterranean reserves seems to have been forgotten. High level governmental agreements are vitally important for the transfer of specialised know-how.
Since time is of the essence, the sooner such agreements are formalised the better. Estimates of reserves in the two primary fields in the Levant Basin are believed to be in the region of 24.5 trillion cubic feet (Leviathan 16tcf and Tamar 8.5tcf). To put this volume in perspective, this amount of gas is 694 cubic kilometres, or the same volume as nearly 10 billion 40’ shipping containers.
For any sensible exploitation to take place, Israel and Lebanon would need to cooperate, and the Greek and Turkish Cypriots would need to put aside, for a while, their past differences. All of the parties need to jointly recognise that the entire region could benefit from the discovery. Consider also that the amount of gas estimated so far is equal to half the known reserves of the United States, which has a population of almost 310 million, and then consider that the total population of the territories claiming ownership rights to the two main fields in the Levant Basin is only around 13 million people.
If there were any sense to any of this then the parties would be considering their options now, and would start considering the most beneficial method of exploiting this huge amount of gas. Some recent articles have mentioned the possibility of exporting the gas via pipeline to the EEC mainland. If this pipeline needs to be routed through Turkey, because of the depth of the Mediterranean between Cyprus and mainland Greece, then an amicable relationship between Turkey and Greek Cyprus must be formed.
Another option would be to build a liquefaction plant to produce Liquefied Natural Gas (LNG), but the costs of building a plant big enough to handle the volumes of gas involved are immense. In today's money, an estimate of costs for a plant capable of producing in excess of 10 million tons of LNG per annum, and coming on stream in eight to ten years time, would be in excess of $10 billion. To put this sum in perspective, the 2010 GDP for Cyprus was $25 billion.
The parties involved should already be carrying out feasibility and concept studies to look at their options for potential site locations. It may be that because of the size involved that a land reclamation site may be needed, or even an offshore facility.
The author worked on the feasibility study of the Browse LNG plant in NW Australia in 2006 and 2007, where the 20 trillion cubic feet of exploitable gas required a 15 million ton per annum liquefaction plant, designed to operate for 25 years. A natural gas liquefaction plant of the size needed to commercially exploit the deposits in the Levant basin would need a power generation plant capable of producing in excess of 400MW to operate. 400MW was about half of Cyprus’s power generation capability before the catastrophic destruction of the Naval base and Vasilikos Power Station.
As the head of the design engineering team on the feasibility study being carried out for Browse in 2006, the author is aware that the originally desired LNG production date for Browse was 2015. The website referenced above now states that anticipated first LNG production from the Browse basin will be sometime in 2017. That is eleven years after the first concept studies began.
It is these long time frames on projects of this scale which dictate that the governments involved should form an international committee of experts to begin considering the options. Planning for a project of this scale needs to start right now, as a plant big enough to handle the volumes of gas involved can take up to ten years and sometimes longer, to complete. There are also the issues of funding and investment, and the need to seek customers, that can take time, but can also have a major influence on the size, scale and type of plant that would be needed to process the gas.
The respective governments also need to consider new legislation for natural gas imports and exploitation that attract investment and don't frighten it away. Big oil and gas financial interests will only arrive in the region if there are financial incentives to encourage investing here, and any agreements with companies involved in the exploitation should have provisions in their contracts to train government and private sector employees.
The governments involved should encourage local skills and experience in the field of oil and gas exploitation and processing, and assess the region's skills base. The author is a permanent resident in the region and a consultant to all of the global oil majors, and sees huge future potential for the region if professional working relationships can be formed between all of the parties. If the Norwegians' example were followed, the region could build up a high skills base in the energy technology sector and start developing what would amount to a highly exportable skills pool of professional people in the energy sector.
The proximity of the region to the oil producing countries of the Middle East makes it the perfect hub for global oil and gas consulting and trade. A large number of similarly experienced oil and gas experts have come to the same conclusion as the author. Hopefully, some of the people in positions of power who can see the bigger picture, and can do something about it, will draw similar conclusions.
Peter Wallace MEng. is an energy consultant with more than 30 years of experience in the oil and gas, petrochemical, and power generation sectors.
Published by Globes [online], Israel business news - www.globes-online.com - on September 8, 2011
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