Tuesday Jul 29, 2014 Search
Weather | Athens
31o C
23o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Cypriot gas no fix for country's funding gap

By Henning Gloystein & Kevin Allison

Cyprus' gas is worth less than $2 billion based on reserves found so far and there may be too little to develop anyway, leaving plans to mortgage them against a $13 billion bailout unlikely to fly, Reuters research has found.

So far, an estimated 200 billion cubic meters (bcm) of natural gas worth $80 billion at current prices have been discovered in the Aphrodite gas field in Cypriot waters.

The Cypriot government says that it hopes to begin exports of liquefied natural gas (LNG) from 2018, although most analysts say production is unlikely to begin before 2020 and some doubt whether the fields will be developed at all.

“If Cyprus has found only 7 trillion cubic feet (200 bcm) right now, that's not yet enough to think about doing LNG given the number of projects ahead in the queue, such as the over 100 tcf of gas already found in East Africa,” said Kim Fustier, oil and gas analyst at Credit Suisse.

Cyprus' financial system has collapsed because banks bloated with Russian cash lent heavily to Greece and were then caught out when Greek borrowings lost much of their value. Proposals submitted to the Cypriot parliament to recover from the resulting crisis include a “solidarity fund” to bundle state assets, including future gas revenues and nationalized semi-state pension funds, as the basis for an emergency bond issue.

The European Union is demanding 5.8 billion euros ($7.5 billion) of security in return for a 10 billion euro ($13 billion) bailout.

A gas price of $13 per million British thermal units (mmBtu) would justify an investment in a 5 bcm per year export facility to operate over 25 years, delivering $1.55 billion of value, only about a fifth of what Cyprus needs to plug its funding gap.

The Reuters analysis, vetted by several analysts, assumes the gas facility is built in seven years at a cost of $2 billion per billion cubic meters of annual capacity. It assumes the project makes margins of 75-80 percent on gas sales from 2020, and applies a 10 percent discount rate to future cash flows to arrive at a net present value for the project.

But analysts say gas prices could fall after 2015 when a wave of new supplies become available in the US, Australia and Africa.

And French bank Societe Generale expects European spot gas prices to be around $10-11 per mmBtu in 2020 as US exports also begin to pull down global prices.

“US LNG exports are a game changer and expensive LNG projects will no longer receive any Final Investment Decision,” the bank said in a report published this week.

In order to fill its $7.5 billion funding hole, Cyprus would have to export around 18 bcm of gas per year, but at 450 bcm spread over 25 years, it would also require more than twice the gas discovered to date. Use the calculator to adjust the values involved.

A project that big would also require at least $36 billion of upfront spending, Reuters analysis suggests, about 1.6 times Cyprus's current GDP, before gas started flowing around 2020.

“With rampant cost inflation and an increasingly price-sensitive customer base, these large-scale, expensive projects simply look cumbersome and outdated in the context of intensifying global competition,” Societe Generale said.

One way to scale its gas reserves would be for Cyprus to coordinate its production and sales with Israel, which has found bigger reserves in its waters.

Cyprus' Aphrodite gas field lies close to Israel's 480 bcm Leviathan field, and the two governments have signed cooperation agreements.

Together, these two fields could meet Europe's entire gas needs for almost two years.

Some uncertainty remains though, because Israel has yet to say whether it will allow significant gas exports. Further complicating the issue for any potential developer, Turkey, a key player in the region's energy politics, has made clear it will oppose any attempt to pre-sell Cypriot gas.

Industry sources also say that high development costs in the seismically active and deep waters of the eastern Mediterranean will mean that the project's profitability is in doubt.

“Expensive projects will be indefinitely postponed,” Societe Generale said. [Reuters]

ekathimerini.com , Saturday March 23, 2013 (10:20)  
Great margin for growth in exports
Parliament’s Budget Office says third bailout may be needed
Ryanair ‘not particularly interested’ in Cyprus Air
August 2 expected to be Greek tourism’s D-day
Ministry appeals to keep limit on prescriptions
Faced with the prospect that its attempts to rein in spending on medicines will be scuppered, the Health Ministry appealed on Monday against a Council of State ruling to temporarily suspend ...
Universities aghast at new schools opening
University officials have decried the government’s decision to open two new departments at the same time that funding for the tertiary institutions continues to be slashed. It emerged that t...
Inside News
VOLLEYBALL
Volleyball national team second in European League
Much as the national volleyball team tried to repeat in the finals of the European League the feat it had achieved in the semifinals, it failed to overturn the advantage Montenegro had got f...
SOCCER
Ranieri says he has little to change in Greek national team
The Hellenic Football Federation (EPO) presented Claudio Ranieri as the new Greece coach for the next couple of years, after the Italian manager signed his contract in Athens on Friday. “I l...
Inside Sports
COMMENTARY
Weighing all the factors
Certain people in the know continue to believe that snap elections will take place in the fall. Prime Minister Antonis Samaras is obviously aware of this trend, which is why he told Parliame...
EDITORIAL
Clear rules, for everyone
If we want to deal with the economic crisis, we need clear rules. A large number of individuals and businesses have amassed huge debts they cannot service. And some worrying symptoms have al...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Ministry appeals to keep limit on prescriptions
2. Great margin for growth in exports
3. Universities aghast at new schools opening
4. Greece to hold next talks with troika in Paris, not Athens
5. Anastasiades sees lack of progress on Cyprus talks
6. Supreme Court deputy prosecutor says ex-finance chief should be tried over ‘Lagarde list’
more news
Today
This Week
1. Defense Minister Avramopoulos to represent Greece at European Commission
2. Tree collapses in village square, killing nine-year-old boy
3. Euro inflation seen testing ECB patience as stimulus takes time
4. Minister mulls fixing food and drink prices at non-private beaches
5. Maziotis moved to Diavata Prison in Thessaloniki
6. Multi-bill containing prior actions ready for Parliament
Today
This Week
1. Climber dies in Mount Olympus fall
2. Unequal after death
3. Greek sovereign debt at 174.1 percent of GDP in first quarter
4. Hedge fund Dromeus turns Greek tragedy to triumph with 160 pct gain
5. Quadriplegic woman on life support 'dies due to unpaid power bills'
6. Front-line threats
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.