Eastern Mediterranean Gas Conference 2019
‘How Cyprus can fulfill its potential of developing into an Oil & Gas service center for the Eastern Mediterranean’
Conclusions of the Panel Discussion
Nicos Papakyriacou, Partner, Oil & Gas Leader, Deloitte
Alessandro Barberis, Managing Director, Eni Cyprus
Yves Grosjean, General Manager, Total E&P Cyprus
Varnavas Theodossiou, Lead Country Manager and Vice President, ExxonMobil Exploration and Production Cyprus (Offshore) Ltd
Jorgen Berg, Managing Director, Schlumberger Cyprus
Dario Vitale, Managing Director, Halliburton Mediterranean Ltd
It was clarified that the discussion was about the establishment of a ‘Service Center’ and not about an ‘Energy Hub’ or a ‘Gas Hub’.
A ‘Gas Hub’ is a location, which has very significant gas resources, an infrastructure of pipelines joining it to the resources and/or the customers and a junction of exports and imports through pipelines and LNG type facilities as well as significant storage facilities.
A ‘Service Center’ is a dedicated shore base with the necessary infrastructure and business facilities around it as well as the necessary operational, legal and regulatory environment which will support both the operators as well as the large number of supporting service companies to carry on their activities in an efficient, safe and uninterrupted manner.
Indicatively, for one drilling operation there are usually between 20 to 40 service contractors supporting the main operator. These service companies usually represent more than 80% of the total hours worked in a drilling operation and they require specialized on shore support and facilities in the form of a dedicated shore base, in order to operate efficiently.
Cyprus has most of the attributes that will help it become a successful service center. Specifically:
• Cyprus is situated at the crossroads of Europe, Middle East, Africa and Asia and in the middle of the Eastern Mediterranean basin. It is therefore ideally located both in terms of operational as well as strategic considerations.
• It is the only country in the East Med basin which is an EU and Eurozone member and has excellent diplomatic relations with all countries in the East Med with exploration activities.
• It has an advantageous tax system, both for the companies as well as their expatriates.
• It has a stable political system with a pleasant and secure living environment.
• It has a well-defined legal system and a European regulatory framework.
• The government officers invariably adopt a cooperative and practical approach leading to smooth licensing and contract negotiation processes.
• The relevant ministers have a cooperative and supportive attitude towards the industry.
• It has a highly educated and skilled labour market, an extensive pool of qualified and experienced professionals and a good educational system.
There are, of course, areas of potential improvement such as the coordination between ministries (when the issue involves two or more ministries), or the securing of shore base facilities uninterrupted by labour disputes or unrest. However, the most important missing link to complete the puzzle as a service center for the Eastern Med is a dedicated shore base with the necessary infrastructure around it and potential to expand if, in the future, the demand justifies it.
The decision of the Government, as announced by the Minister of Transport, Communications and Works Mrs. Vasiliki Anastassiadou, to proceed with the creation of an Oil & Gas port at Vassilikos that will be financed by private investors through the system of Design Build Operate and Transfer comes as a very positive development which will significantly help Cyprus achieve its potential as a service center. This project, however, is expected to take 4-5 years to be completed.
In the meantime, interim arrangements should be in place to facilitate the needs of the industry to execute its exploration programme in the timelines agreed with the government during the next 4-5 years.
The facilities and infrastructure available at the Limassol port are quite adequate when used by one operator at a time. However, with the existing infrastructure it may be very challenging to satisfy the requirements of the industry in periods of two or more parallel drillings and even more so if production and development of resources also begins.
Although it is very good news that the government is moving in the right direction, it is encouraged to do so as fast as possible, as time is of the essence if Cyprus is to succeed to capture the market as a service center for the East Med.
Other locations, like Egypt, are moving into the same direction very fast and some are already ahead of Cyprus in the establishment of a fully-fledged shore base. The government is therefore strongly encouraged to formulate a strategy that will help it expedite in an efficient and timely manner the implementation of its decision for the creation of an Oil & Gas port.
The strategy should incorporate the needs of the industry, so it is recommended that the major players operating in the region, which will be its future customers, should be invited to provide their needs and requirements in order to be taken into account by the consultant that will be appointed by the government. The panelists also expressed the view that the operators and their major support companies should have the ability to give their suggestions on the final document of the requirements to the relevant ministers for their consideration. Furthermore, it should include public consultations with the communities that will be near the infrastructure projects. Finally, it was stressed that the strategy should be driven and led by the government in coordination with the major stakeholders of the industry.
The benefits that Cyprus will have if it becomes a successful Oil & Gas service center for the East Med can be extremely significant.
The activities of a full-fledged Oil & Gas port will require and attract the operations of many international and local companies around it and through the multiplier effect will increase value creation and consequently job creation in almost all major sectors of the economy, such as construction, accommodation and food industry, professional services, financial services, to name but a few and will contribute significantly in the growth of the Cyprus GDP.
There is a general feeling between the panelists that Cyprus remains the number one choice of the operators and their support companies for a dedicated Oil & Gas shore base, because it has strong comparative advantage (as described above) over other competing locations in the region. However, if Cyprus does not move quickly enough with the implementation, it may lose a golden opportunity to become a service center for the wider East Med region, as other locations may capture the market.
In concluding, there is a consensus among all panelists that Cyprus could and should implement a strategy for the creation of this service center in an efficient and timely manner because it will be a game changer for Cyprus, both for its future economic growth as well as its geopolitical importance.