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Prospects, issues, and implications of gas exploration in the Eastern Mediterranean
Focus on energy developments and commercial dynamics in Cyprus
Prepared by Anastasios Giamouridis, Senior Consultant, Pöyry Management Consulting ( UK) Limited for the
“Security of Gas Supply: The Role of Developments in the Mediterranean Region”
Malta Energy Conference 2014
10-11 July 2014
2
FINANCING STRUCTURES FOR ENERGY SUPPLY PROJECTS - FOCUS ON LNG
Shareholder 1 Shareholder 2 Shareholder 3 Shareholder 4 Etc...
Equity
LNG Project
Equity Equity Equity
Loans Loans Loans Loans
Export Credit Ag. 1 Export Credit Ag. 2 Export Credit Ag. 3 Export Credit Ag. 4 Etc...
Loan guaranteesLoan guarantees Loan guarantees Loan guarantees
Loans Loans Loans Loans
Commercial bank 1 Commercial bank 2 Commercial bank 3 Commercial bank 4 Etc...
LoansLoans Loans Loans
Multilateral bank 1 Multilateral bank 2 Multilateral bank 3 Multilateral bank 4 Etc...
LoansLoans Loans Loans
Completion guaranteesCompletion guarantees Completion guarantees Completion guaranteesPro
jec
t O
wn
ers
from
20%
to
100%
Pro
jec
t F
inan
ce -
Len
der
s
from
0%
to
80%
3
FINANCING CRITERIA FOR ENERGY SUPPLY PROJECTS - FOCUS ON LNG
EXPLORATION AND GAS COMMERCIALISATION PROGRESS SO FAR IN CYPRUS
Source: Pöyry Management Consulting
License
Seismic Surveys
Exploratory Drilling
Appraisal Drilling
Declaration of Commerciality
Block 12 – Aphrodite field ( 1st Round )
Block 12 – other prospectivity ( 1st Round )
4
Blocks 1,4,5,6,7,8,13( potential 3rd round )
Blocks 2,3,9,10,11 ( 2nd Round )
STEPS TOWARDS GAS MONETISATION AFTER DECLARATION OF COMMERCIALITY *
Source: Pöyry Management Consulting
Front End Engineering and Design (FEED)
Negotiate and sign Long-Term Contracts (LTCs) with gas buyers
Screen and select Contractor for Engineering, Procurement, and Construction (EPC)
Reach positive Final Investment Decision (FID)
Construction of gas upstream and export infrastructure commences
* Reaching a positive FID presupposes
1) Projected revenues outweigh estimated CAPEX and
OPEX by a margin superior to other investment options
2) The project in question can successfully compete for
capital and can secure financing on attractive terms
5
Estimated Aphrodite resources insufficient to proceed on this basis alone - potential solutions
1. Gas discoveries by Noble Energy over and above Aphrodite in its Block 12 license
2. Gas discoveries in the new licenses awarded to Total and/or ENI-KOGAS
3. Joint monetisation of offshore natural gas resources with Israel
4. Oil discoveries ( liquids credits supporting gas economics)
POTENTIAL CYPRUS GAS RESOURCES SET IN REGIONAL AND EU CONTEXT
Aphrodite field *( discovered but not proved )
6
Source: BP Statistical Review 2013 and Pöyry Management Consulting
Cyprus EEZ Blocks( speculated )
* Actual exports from Cyprus on this basis could amount to as much as 70% of Phase 1 of the Southern Corridor
MORE OFFSHORE EXPLORATION NEEDED – POLITICAL RISK REAL BUT EXAGGERATED
7
Source: Oxford Institute for Energy studies and Pöyry Management Consulting
EXPORTS TO BE DECIDED ON COMMERCIAL MERIT OR RISK CANCELLATION
Source: Oxford Institute for Energy studies and Pöyry Management Consulting
8
RELEVANCE OF CYPRUS GAS TO THE EU AND HOW TO SUPPORT DEVELOPMENTS
9
Cyprus economy
• Hydrocarbons
production and
exports out of
Cyprus are possible
but should not be
taken for granted
• Potentially
significant impact
but challenging to
achieve gas exports
before mid-2020s
Cyprus dispute
• Making exploration
and/or export routes
conditional on
politics may delay
project or lead to
outright cancellation
• Pipeline to TR is not
necessarily the best
commercial option,
it requires normal
pre-FID scrutiny
EU companies
• Total and ENI
currently faced with
normal technical
and commercial
risks associated
with E&P process
• Politics could
undermine project if
allowed to delay
and/or interfere with
commercial logic
Supply Security
• No proved reserves
at the moment in
offshore Cyprus but
oil/gas prospectivity
needs to be
assessed in full
• Cannot replace
RUS but Aphrodite
exports alone could
reach 70% of Phase
1 of South Corridor
Support uninhibited exploration in internationally-recognised Cyprus EEZ
Facilitate decision-making on potential exports on the basis of commercial merit
Consider reasonable engagement of European multilateral banks and ECAs as appropriate
10
Anastasios Giamouridis
Email: [email protected]
Tel.: +44 1865 812 247 (office) / +44 7875 886 152 (mobile)