In this research, the potentials of natural gas found in Cyprus will be introduced. The recently discovered natural gas reserves offshore in Cyprus, appears to be getting closer into the European markets. A part of it will be used for the production of electricity and other usages in Cyprus, but the major part will be used for exportation. Possible solutions are discussed and the LNG solution and supply chain are presented. Also, the costs that will occur from this decision and the inventory management needed for the production. The solutions and problems that will occur, political and economic, related to the transportation planning are presented. Each of them has different physiognomies and futures and shows the prospects and benefits Cyprus will gain. Also, there are a lot of potentials from a possible cooperation with the neighboring Israel. More than the half of Israel's gas will be exported to foreign markets and the scenario of the gas transportation from Cyprus will be studied. Furthermore, the possible solution of moving the gas directly through subsea pipelines to south Turkey from Cyprus will be considered and what will be the possible earnings from this choice for Cyprus.
CHAPTER 1 INTRODUCTION
Background
The importance of natural gas and its exploitation will be very important for the economic future of Cyprus. As the oil consumption increases, for the production of electricity, natural gas seems to be the perfect solution. With natural gas, the need of resources like mazut and oil can be decreased. It is predicted that the electricity demand for Cyprus will be increased by 3,17% in 2013 and by 9,05% until 2015. Eurogas forecasted that until 2030 the share of natural gas is expected to reach 30% of the Primary energy Consumption. Until 2020 Europe will use natural gas for the 28,8% in 2020 of energy demand and 30,1% until 2030.
As a clean type of energy, natural gas will remain the fuel of choice and will carry on increasing its involvement to energy supply in the European Union. Natural gas can play an important role as a linking fuel to a sustainable energy future over the next decades. Natural gas consumption in European Union countries is estimated to growth from 438 mtoe (millions tons of oil equivalent) in 2005 to 625 mtoe in 2030, which is an increase of 43%. At 60% of the total demand increase, most of the growth will come from power generation.
Cyprus has recently discovered an amount of 7-8 trillion cubic feet (140-109-230-109 m3) of natural gas in Aphrodite gas field (block 12) in the country's maritime. This amount is the 40% of the annual demand in European Union. Also, it is thought that 122 tcf (trillion cubic feet) could be in the eastern Mediterranean for recoverable reserves, more than adequate to cover the demands in European Union for about seven years. The major discoveries have been made at the gas fields Leviathan and Tamar in Israel. These findings will cover Israel's gas demand for decades while a big part will be used for exportation. Due to the fact that Aphrodite block of Cyprus and Leviathan gas field of Israel are very near, the governments of the two countries agreed on joint exploration of a part of the discoveries, making development more attractive for potential investors. Until May of 2013, the second round of licensing is expected to end with 9 more blocks to be awarded to interested companies.
Purpose of the Study
The research seeks to make a contribution to knowledge about the options for the movement of natural gas from the gas blocks to Cyprus and then to other importers. To achieve this objective, the research explores the options of LNG plant in Cyprus and the transportation via tankers or through sub-sea pipelines. Natural gas has been usually transported in pipelines over shorter distances; however ships are more efficient for transportation over long distances.
Research Questions
To investigate the possible solutions that are possible for the transportation of natural gas to importers in other markets and to understand the management of LNG Supply Chain. Furthermore, to explore the political and economic effects of each solution for Cyprus.
Significance of Research
This research provides a lot of information regarding the field of natural gas in Cyprus. It is also involved with the processes that take place in an LNG Plant supply chain. This information will help to understand if the possible solutions are viable and beneficial. There is a need to investigate and expose these facts in order to compare and suggest a more circumstantial option. The research is important to the academic world and to researchers that are studying about the natural gas in Cyprus.
Definition of Key Terms
LNG: LNG is the natural gas transformed into liquid form. Precisely, it is natural gas that has been cooled to minus 260 degrees Fahrenheit, the point at which gas condenses to a liquid. In its liquid state, LNG is a clear liquid with a density about half that of water. This volume saving permits cost-effective transportation of LNG over long distances. (1)
Supply Chain: A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves. Within each organization, such as manufacture and functions like new product development, marketing, operations, distribution, finance, and customer service. (2)
Natural Gas: Natural gas, in itself, might be considered an uninteresting gas - it is colorless, shapeless, and odorless in its pure form. Quite uninteresting - except that natural gas is combustible, when burned it gives off a great deal of energy and few emissions. Unlike other fossil fuels, natural gas is clean burning and emits lower levels of potentially harmful byproducts into the air. (3)
Time Plan
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Limitations of the study
Due to the reason that qualitative research is mainly dedicated to what the person who is interviewed says, it is important to find the people who have the expertise and they are also reliable. It is very significant to interview as many experts in the subject to generate a qualified result.
CHAPTER 2 LITERATURE REVIEW
With the general growth of natural gas prospectus in Cyprus, it is not surprising that the subject has attracted considerable attention in the past 2-3 years. In an attempt to go beyond assumptions about how would be the best way for exportation of the natural gas from Cyprus, studies have focused on all the possible scenarios, such as a pipeline from Cyprus to Greece and then to Southeastern Europe, pipeline from Cyprus to Turkey, LNG plant in Cyprus in cooperation with Israel and a floating LNG.
Stambolis and Sofianos (December, 2012) examined the costs between the possible export routes. The first option would involve a pipeline from Leviathan field to Crete, then to mainland Greece and from there to Southeastern Europe and other EU markets. A distance of about 1100Khm, carrying approximately 8bcm/y (billion cubic meters per year). On the other hand, the natural gas could be delivered in Greece through tankers from a possible LNG plant and then through Greek pipelines to EU Countries and Southeastern region. The other option is to have only the LNG plant and make exports via vessels through the Mediterranean Sea or via the Suez Canal to East Asia. However, those three choices include high delivery costs for bringing relatively limited volumes to markets, where they need to compete beside other dealers with larger capacities and lesser transportation costs. This would continue to be a weakness until new offshore findings in Cyprus and Israel exceed the scale of the already confirmed reserves. They also recommend that the door for cooperation with other players must stay open, even with Turkey. In the end, finding ways to create energy projects, between all four countries (Cyprus, Greece, Israel and Turkey) could be the most beneficial option for all sides from an economic perspective. (4)
Emerson (2013) suggests that a pipeline to turkey will solve the political problems between Cyprus and Turkey and the major economic situation in Cyprus. Cypriot-Turkish relations have been more intensified by rising tensions over the choice by Cyprus to begin drilling for offshore gas at the southeast extremity of its maritime Exclusive Economic Zone (EEZ). Cyprus proposed an offer to share future gas incomes with Turkish Cypriots, and this could be a starting point. Emerson refers to the Cyprus Greece pipeline and says that it would be a very long and deep pipeline and the Cyprus part is does not support this solutions. The solution of a pipeline undersea to Turkey would be less costly compare to the Cyprus Greece one. Of course, political trust is needed by all sides which is something not relatively easy do to the overall situation between the two countries. About the LNG option, believes that it would be very costly, but it brings the opportunity to export anywhere in the world and play with a lot of markets worldwide not locking in a monopolistic pipeline situation with Turkey. The last option, Emerson mentions, is the floating LNG plant. It is a new technological development but it's not preferred from Israel and Cyprus because it is very vulnerable to external threats. Emerson also supports that environmental consideration must be brought into account and this will weigh in favor of the sub see pipelines. He also raise the question if Cyprus and Turkey are moving in a new gas peace, a gas war or just smoldering tensions and flare-ups. (5)
Pericleous (2012), investigates the natural gas dynamic that may affect the political scene. From the part of Turkey, Cyprus Is needed as a final bargain for their European Union acceptance. Furthermore, the findings linked to natural gas reserves in the Eastern Mediterranean region and their exploitation perspectives bring the Cyprus solution back into focus. The finding of natural gas and possible oil in the zone might be a blessing or a curse depending on the route that Cyprus side will decide to follow. Pericles does not mention in any negative scenarios as he believes that the scope of the situation is to promote peace in the area. These opportunities may bring the two sides together in cooperation for the general good. The two major issues are the Cyprus problem and the materialization of the Nabucco Strategy. Three possible scenarios come out and are to export the natural gas from sea via tankers (LNG Plant). This option to be viable needs the liquefaction plant and a gasification plant of transforming the liquid back to gas at the country of exportation. Insists that is would raise a major production cost and that it cannot manage huge amounts of gas. The other scenario is a pipe system from the gas field to Cyprus and then to the Rhodes Island but it can't be viable due to the depth of the sea and there is a major risk of a possible seismic activity. Also the cost is too high and there are political complications due to the fact that the pipelines will pass through Turkey's Exclusive Economic Zone (EEZ). The last option is o sub see pipe system from the gas field to the Karpas peninsula in eastern Cyprus and then to Turkey where the waters are not deep. From there the gas can be exported to Europe via the Nabucco pipeline. Pericleous, believes that this is the best scenario and if the natural gas supplies are enough the Nabucco project will justify its development. This option will help also Turkey to be a vital player in European Union and strength its presence. Of course political agreements are needed in order to establish this project and a healthy relation between Cyprus and Turkey. Also, the findings of Egypt and Israel will give the project more viability and feasibility and make the relationships between Israel and Turkey better. He also supports that Cyprus must stay independent on this major think and don't let anyone of the big forces to manipulate the situation and proposes the Norwegian model to properly treat the needs of each case. (6)
Conclusion
As we can see from the literature review, all researchers that have been referred are talking for the same options for transportation of the natural gas. In each paper, there are advantages and disadvantages for the options presented.
Firstly, Stambolis and Sofianos believe that the best option is to be signed a three-partite agreement between Cyprus, Greece and Israel. This agreement is expected to bring a more competitive energy strategy and to speed up the execution of the necessary infrastructure. On the other hand, Pericleous believes that the scenario of transferring natural gas through Greece will be costly and a huge investment needed due to the deep waters and the distance. The better scenario will be to transfer the natural gas through Turkey for several reasons. Furthermore, Emerson also supports the solution to transport the gas from Cyprus through Turkey but it is important to have in mind the benefits of an LNG plant.
By that time, the governments of Israel and Cyprus have to determine how much is the quantity of natural gas that will be open for exportation, after satisfying the domestic demands. Israel, Cyprus, and Greece are right in their approach to strengthen cooperation in the energy sector aiming at delivering actual benefits and to strengthen confidence and trust. In my opinion the major benefit from the construction of LNG plant is that Cyprus will not be into a monopolistic situation with Greece or Turkey but, Cyprus will be able to play with several importers in the market and not only importers that are located into Europe.
CHAPTER 3 RESEARCH METHOLOGY
Research Theories
Descriptive Research: This type of research is also a grouping that includes many particular research methodologies and events, like observations, surveys, tests and self-reports. The four parameters of research will help us understand how descriptive research in general is similar to, and different from, other types of study. Different from the qualitative research, descriptive research might be further analytic. (8)
Exploratory research: Exploratory research is a methodological approach that is primarily concerned with discovery and with generating or building theory. In a pure sense, all research is exploratory It is a form of research conducted for a problem that has not been clearly defined and it helps determine the best research design, data collection method and selection of subjects. It also relies on secondary data like literature review, focus groups or interviews. (7)
Causal Research is the study into a subject or topic that looks at the effect of one thing or variable on another. This kind of research may be used in a commercial situation to measure the outcome that a possible modification to its present processes will have on its future manufacture levels to contribute in the business planning process.
Primary data: It is the data that is collected directly from a firsthand experience.
Secondary data: It is the data that have been already composed by and it is accessible from other sources.
Research Design
Information needed to be found is the possible markets to supply with gas and the distance between them and Cyprus. Also, the estimated cost for an LNG plant to be build and the cost for pipelines to Turkey or to Greece. (Possible Solutions)
For this research it will be needed an exploratory research because it will allow to gain more information on the natural gas and to provide a platform upon which a formalized research project will be built. Through exploratory research will be identified key decision makers in this field mostly through interviews and secondary data sources. Also, through this kind of research the situation will be investigated in the minimum cost and time possible.
The persons that are planned to be interviewed are Mr Gregory A. Beard, Commercial Manager of LNG at Noble Energy, Mr. Solonas Kasinis Vice President at KRETYK and Mr. Elias Orphanou Drilling Cost Controller at Noble Energy. For the interviews it will be used the standardized approach. In this open-ended interview, the same open-ended questions will be asked to all interviewees so the results can be more easily analyzed and compared
