Cyprus Looks to Israel to Back East Med LNG Terminal Plan

Israel's Delek Drilling confirms a strong interest in Cyprus' plans to develop a liquefied natural gas terminal.

Cyprus and Israel`s Delek Drilling are in talks about developing a liquefied natural gas (LNG) terminal on the island to tap the East Mediterranean's vast gas discoveries and serve buyers in Europe and Asia.

Cyprus aims to begin LNG exports in 2020 and aims to process not only its own gas but also supplies from Israel and potentially Lebanon, government and energy officials told Reuters.

"Delek confirmed strong interest in our plans and that they are very interested to invest in our export facility," Charles Ellinas, chief executive of the state-owned Cyprus National Hydrocarbon Company, said.

The estimated $10 billion needed to build the LNG export terminal and infrastructure would be the largest investment in the island's history.

Ellinas said a delegation from Delek, which is developing Israel's giant Leviathan and Tamar gas fields with U.S. firm Noble Energy, had recently visited Cyprus to discuss the project.

Cyprus has found almost 200 billion cubic meters (bcm) of gas in its Aphrodite field, and has hopes of finding as much as one trillion cubic meters in its six exploration areas.

That would be worth around $400 billion at current European gas prices and give Cyprus enough gas to cover all of Europe's demand for two years.
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Cyprus, which needs to restructure its economy as a condition of a recent bailout, is looking to its new gas discoveries to cut costly fuel imports, generate revenues and boost industry.

"Developing and introducing domestic gas will be critical for our competitiveness," Minister of Energy, Commerce, Industry and Tourism Yiorgos Lakkotrypis told Reuters in a phone interview, adding that at least one company was also looking for oil.

The government is setting up a fund that would be in charge of spending hydrocarbon revenues with a focus on infrastructure, debt repayment and saving for the future, Lakkotrypis said.

Part of the East Mediterranean's gas will likely head to Europe, but its proximity to the Suez Canal also means it could reach Asian customers, such as top LNG buyers South Korea and Japan.

"We are committed to sending gas to Europe and are very keen to maintain good relations with Europe," Cyprus National's Ellinas said.

"Italy and France are interested in our gas for strategic reasons to supply Europe, he said.

"(Italian and French energy companies) ENI and Total also have assets in East Africa, where a lot of gas has also been found, but they will send those supplies to Asia and therefore Cyprus gas can be used to supply Europe."

Asian buyers currently pay $15 per million British thermal units (mmBtu) for LNG, versus $9/mmBtu in Europe.

Lakkotrypis said Cyprus planned to export its LNG largely through long-term contracts, and would offer its gas as collateral for investors.

As well as Israeli gas, an LNG export plant in Cyprus could also involve gas from Lebanon, Ellinas said.

Lebanon so far does not have significant known gas reserves, but the examples of Israel and Cyprus have prompted hopes in Beirut for similar drilling success in its waters, which it wants to start soon.

Because direct cooperation between Lebanon and Israel could prove politically difficult, officials in Cyprus stress the convenience of a terminal on the island.
"Israel and Lebanon don't need to cooperate directly, but instead, both could be accommodated in Cyprus to export their gas," Ellinas said. (Editing by Oleg Vukmanovic and Jason Neely)

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