The Republic of Cyprus government announced a new gas find earlier this week. So how much gas does Cyprus have now? Find out in under 12 minutes. And keep scrolling if you want the transcript. If you like this kind of “instructive” video, please please let me know, either in the comments or privately on email, and tell me what other topics you might want a crash course on.
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TRANSCRIPT
[00:00:00] Hello, and welcome to the latest video from me, Fiona Mullen, at Sapienta Economics. Today we're going to look at natural gas reserves in Cyprus. How much have we got? How much does it compare with the region and how much does it compare with the rest of the world?
[00:00:13] And the reason I'm doing that is that on 7 July the government of Cyprus announced a new discovery from ExxonMobil, which I'll talk about more in a moment.
[00:00:21] But before we get to that, I want to explain the various stages of natural gas exploration over time, because estimates can change.
[00:00:29] And then we'll get into the results of all of the 11 fields which have been dug by companies with licences in the Republic of Cyprus Exclusive Economic Zone (EEZ): all the way from Aphrodite in 2011 to Pegasus, the latest announcement this week. And then we'll get onto how much gas does Cyprus have, how does it compare with the region and should we be excited?
[00:00:49] So what are the different stages of exploration?
[00:00:52] First of all, we have seismic. These are sound waves, sent to the bottom of the seabed, and they provide pretty rough [00:01:00] estimates. They tell you whether it's worth spending a lot more money on drilling, okay?
[00:01:04] The second stage is what's called the exploratory well. This is the first drill and what you come out with is 'estimated gas in place', okay? So if you see gas in place, it means it's an early-ish stage of exploration and exploitation.
[00:01:19] And importantly, despite all the money spent on it, they have only something like a 20% to 25% chance of success. This is why oil and gas companies have to have very, very deep pockets. It's like pharmaceuticals.
[00:01:30] Then, if the exploratory well shows a decent amount of gas in place, you'll go to an appraisal well. That's your second drill, and then you might start calling it 'estimated recoverable gas', okay? Sometimes you have a second appraisal well. But if the news is really good, you generally go to production. And at that stage, you're generally out of exploration and into exploitation.
[00:01:53] But the important point out here is that accuracy increases at each stage of the process, okay?
[00:01:59] Now, [00:02:00] seismic surveys, as I said, they use sound waves. This is an image I pinched from TGS and it's their PGS Apollo vessel, which I think is a seismic survey vessel. If it's not, let me know!
[00:02:10] And the kind of image you get is like this. It's these kind of wave forms, right? And this, this is the Republic of Cyprus EEZ. And this was sent out, I forget if it was just before or just after Noble Energy discovered some gas in Aphrodite.
[00:02:28] So seismic surveys indicate prospects. And everybody got very excited back in 2010 when the US Geological Survey published this estimate for this part of the Eastern Mediterranean, and they said there should be 122 trillion cubic feet (TCF) of recoverable gas, okay? That's about double Egypt's proven reserves today. And that was new gas, okay? So everybody got quite excited and it was the beginning of, let's say, more attention paid to this corner of [00:03:00] the world.
[00:03:00] And then they had an update in 2020, where they looked at a much bigger area. Bear in mind, Egypt has most of the gas anyway, just because of geological reasons. And they upped it to 286.2 TCF. That's still less than US proven reserves, okay?
[00:03:17] So now let's get onto drilling.
[00:03:18] As I said, you get rough estimates from your seismic. You get estimated gas in place from exploratory well, then you do your appraisal well, sometimes second, and then you get your production.
[00:03:29] The important thing here is that the number can go down or up each time. This is Saipem 10000. It's been used in this part of the world, including the Cyprus EEZ.
[00:03:39] So here are some live examples of how estimates have changed over time. So we had Aphrodite back in December 2011. The first exploratory well, drilled back in those days by Noble Energy, which was then taken over by Chevron, estimated 5 to 8 trillion cubic feet TCF. That's a reasonably good size, okay? By the time we got to the appraisal well in May [00:04:00] 2023, the word on the street, so to speak, is 3.5 trillion cubic feet.
[00:04:03] I say that because you can't find any estimate from Chevron, at least not in public documents. NewMed, which is a partner, says the equivalent of about 4.5 trillion cubic feet. It quotes it in billion cubic metres (BCM). But the Middle East Economic Survey (MEES), which is a well respected long-standing oil and gas newsletter, it always says 3.5 TCF. And anybody you talk to in the industry says 3.5 trillion cubic feet. So that's the one I go with, okay?
[00:04:28] Then the other big one was Zohr in Egypt. That's neighbouring the Cyprus EEZ. They started off with 21.5 trillion cubic feet, which is very big. Then they did an appraisal well, and they said, we've got even more, it's 30. Then they said, even more than that: 32.
[00:04:43] Then they actually started production: they had problems, water got in there, lots and lots of problems. There's no official estimate now because it's in production, but some people have said it could be as low as 5 TCF, could be 7. It seems like it's under 10 trillion cubic feet, right?
[00:04:57] And then Leviathan in Israel, they [00:05:00] had the opposite luck. They started off back in the day, and I think it was 2010, if I'm not mistaken, saying it was 16 trillion cubic feet, then it went up to 17. And these days you normally hear 22 trillion cubic feet. And that's in production and doesn't look like it's going to stop production anytime soon.
[00:05:16] So what are the latest estimates for Cyprus' 11 fields?
[00:05:20] Now what I've done, you've got the blocks here, the companies in the consortium here, the latest drill here. I haven't put the first drill because it would get really messy. The field name and the discoveries, right? So I'm going go backwards from the most recent drill.
[00:05:33] And we've had a lot of dry wells. So ENI found nothing in Onasagoras. It found nothing in Amathusa. Total and ENI found next to nothing in Onisiforos. In Block 6 Calypso: do you remember when people were saying, 'oh, it's 6 to 8 trillion cubic feet'? No company ever actually said that. And then it went really quiet, and then Middle East Economic Survey said it's probably about 1 TCF. So they had high [00:06:00] expectations at the beginning, and then something happened and they realized it wasn't that much at all.
[00:06:04] Then ExxonMobil and Qatar Energy came up dry in Delphyne. Then they had some success with the Glaucus, which is 5 to 8 TCF, so that's the biggest so far. Then ENI found Cronos: 2.5 trillion cubic feet. I'll tell you why these are green in a minute. Then Zeus 2 to 3.5.
[00:06:23] And then Aphrodite, which if you might remember, was discovered all the way back in 2011. Finally, they did the appraisal well in May 2023. And, as I say, the best estimate I have seen is 3.5 TCF.
[00:06:36] Then this year, Exxon came up dry in Electra, and then finally this week, Exxon, again with QatarEnergy, drilled Pegasus and they didn't give TCF. They gave 350 metre column. And I checked with a bunch of engineers from the energy sector, and they said, you just don't know because a column that's quite a wide column, but how deep is it, etc, etc.
[00:06:59] We won't really [00:07:00] know. And I think it's a little bit suspicious that the government ran out before this number came out to imply. ‘We've got a huge find!’ Because they normally do that when they're trying to massage the response to official announcements.
[00:07:12] Now the reason I've made this green is that even though Glaucus is the biggest find, the one that actually anybody seems to be serious about developing is Cronos. ENI did say that they wanted to fast track this. We were supposed to have a field development plan by now. It hasn't happened. They said they wanted final investment decision: FID - that's the moment of no return - by the end of this year, and it's gone a bit quiet. So I don't know what's happening.
[00:07:39] Aphrodite, at least in theory, they're now finally doing seabed surveys for the pipeline that's supposed to go to Egypt. Does that mean Aphrodite will finally be exploited? Nobody really knows. We've still got the argument with the Israeli field next door and so on and so forth.
[00:07:53] And then Pegasus: we'll see. At least the government was trying to imply that they could hook up with these guys and send gas to [00:08:00] Egypt. But you know, companies will combine with each other, but they don't normally combine across consortiums, right? Because they spent millions and millions and millions to get this data, and they don't want to share it with other people.
[00:08:11] So even if it might be a good idea, geopolitically, and for all kinds of reasons for these companies to cooperate with each other in Cyprus and Israel, by the way, will it actually happen?
[00:08:21] Right. How does Cyprus compare with its peers in the region? Based on an assumption that the very last one was 1.2 trillion cubic feet, it's got 18 trillion cubic feet, right? That's enough to supply all of the EU for a couple of years, and that's it. It's not as big as Turkey's two Black Sea finds, which are normally reported in billion cubic metres, but in trillion cubic feet, it's 27.7 TCF.
[00:08:45] It's not as big as Israel next door, which has about 38.4 with a number of fields.
[00:08:51] And it's nowhere near as big as Egypt, which is the big guy in the region. Even though it's got trouble with Zohr, it's still got most of the geology, let's say, for the gas.
[00:08:59] And [00:09:00] then how does Cyprus compare with the world? The biggest reserves in the world are Russia, Iran - these are thousand trillion cubic feet, right? - Qatar, Turkmenistan and the United States. This is based on the Statistical Review of World Energy. They're in the middle of changing the way they do proven reserves. But this is the best we've got for the moment. But for sure, Cyprus is nowhere near as big as any of these guys, okay?
[00:09:24] Does that matter? Gas markets are res, regional rather than global, unless you are really big. So if you can get a market, maybe.
[00:09:33] Should we get excited? I think this is important to note: we've had no production from Cyprus, even though Aphrodite was discovered in 2011, right? But Egypt and Israel moved much faster to produce the gas.
[00:09:47] Is that because they had bigger amounts? To some extent, yes. Is it because of the unresolved Cyprus problem? Possibly. Companies might just be a little bit scared about producing gas if they don't know [00:10:00] what Turkey's going to do once we get to FID. Because although none of these fields are in areas claimed by Turkey for its continental shelf, Turkey has made statements about the rights and interests of Turkish Cypriots, and no one has done anything about what the US called equitable sharing of resources, which it was certainly requesting a few years ago. I don't know what its position is today.
[00:10:23] And the other thing to bear in mind is any gas that Cyprus does produce is going to go to Egypt. It's not going to come to Cyprus. It won't actually benefit us.
[00:10:31] We will get some tax revenue from it. How much? Who knows? Because probably each time the government renegotiates with Chevron about Aphrodite, the government share probably goes down.
[00:10:41] So the bottom line is we've got a reasonable amount of gas, but world gas demand, certainly European demand, is declining. We've got the Cyprus problem in the way. So do beware of news reports bearing good energy news, especially if they're put out before the actual facts. It's a habit of this government [00:11:00] and it's a bit of a naughty one.
[00:11:02] So that's it from me. Why do I know about energy? Because every month it's one of my six in-depth sections that I go into: energy, fiscal, banking, macroeconomy, Cyprus problem, economy of northern Cyprus. I do a deep dive on each of these every month. It's not easy and it requires a lot of reading and a lot of research and so on. But that's why I'm confident no one can match it.
[00:11:24] But if you can't afford the full thing, you can get just the executive summary of it for just EUR 100 a year at my other Substack: CyprusPocketBrief.substack.com.
[00:11:35] Thank you for listening.
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