Comments on Cyprus Natural Gas Presales and Forecast of Future Demand and Prices

Frixos Thalassetis MBA Oil & Gas Management M.A. Management e-mail: frixosthalassetis@hotmail.co.uk Tel: +357 99488165

With the assistance and support of Mr Harry Theocharous (CEO) Crudex (Cy) Enterprises Ltd (Mentor to Frixos Thalassetis in his MBA dissertation Cluster Logistics in Oil and Gas Midstream Sector: Planning Cyprus Supply Chain

Reply to the statements by ardent devotees of immediate Cyprus natural gas reserves presales.
According to some statements natural gas presale appears as an advantageous option of natural gas utilization because as they claim, due competition natural gas prices may decline globally, and therefore presale is not selling out national wealth. In response to the above statements I wish to mention the following: A) Presales of verified deposits in the manner proposed, and at this stage will have the following consequences: Cyprus government would create the impression that is no willing to exploit its natural gas deposits. That Cyprus does not have the means to create the necessary infrastructure utilization That Cyprus is not a reliable partner for the companies licensed in Cyprus EEZ since there is already a preliminary agreement to create liquefaction terminal with Noble Energy Inc., and while there is strong interest from ENI and TOTAL for participation in the liquefaction terminal. Cyprus would lose the ability to become an energy hub in the Eastern Mediterranean since presale of confirmed deposits would delay or even thwart any plans to create partnerships with third countries or establishing facilities for pooling deposits. Cyprus would lose indirect benefits which would be generated by natural gas facilities establishments since there would be no employment of Cypriots and interested companies related to the industry will not invest in Cyprus while at the same time generally Cyprus would have lost any momentum that hopefully would occur in respect with the use of hydrocarbons.

It would become very difficult to Cyprus to find interested oil companies for licensing the remaining 7 sea plots of its EEZ without the prospects for recovery facilities with additional risk creating projects harmful to the Republic of Cyprus as creating pipeline to Turkey. A dramatic reduction in profits from Cyprus hydrocarbons and their derivatives would occur.

B) In the event of presales of unconfirmed deposits consequences are all the above and much more in lost profits as this constitutes unbridled sell-off of state resources in the worst possible time. Advance sales can be made only after taking into consideration too many factors and having considered that they not adversely affect the prospects of Cyprus.

The future of natural gas prices in international markets

Some people predict that natural gas prices in international markets will decline in the future. They attribute their forecasts for price reduction to three main reasons. 1. Increase of natural gas production and liquefaction as well as distribution. 2. Discovery of new deposits in various countries worldwide . 3. The discovery of new mining technologies.

On the other hand there is the opposite view which considers that gas prices in international markets will increase and that assessment is justified with the following: 1. Natural gas as a clean and environmentally friendly fuel compared to oil for electricity generation, is most preferred by more and more countries as fuel for power generation. 2. The price of natural gas is more advantageous over that of oil. 3. Technological advances with units such as [LNG] liquefaction plants, [GTL] Facilities for the conversion of natural gas to liquid fuels , [GTC] NG Conversion Facilities for the conversion of natural gas to chemicals which are the raw material in the production of various products, has now made it possible to produce various products out of natural gas which are much more environmentally friendly if compared to those made up of oil.

List of natural gas products Gasoline - fuel vehicles, machinery Diesel - fuel vehicles, machinery Kerosene - jet fuel Naphtha - for high octane gasoline Waxes Motor Oils Solvents Paraffin - for the manufacture of plastic methanol synthetic oil hydrogen ammonia urea butanol fertilizers Fuel additives etc. 4. Worldwide there are pressures to reduce environmental pollution and ever stricter laws and restrictions are posed. 20:20 Treaty makes it imperative to reduce pollution and carbon emissions in European countries . Moreover, the fact that given the increased incidence of cancer in environmental pollution, requires the maximum possible reduction in the use of polluting fuels. 5. The two superpowers, America and Russia want to keep the prices of natural gas at high levels because while Russia is already a big producer, America as a future megaproducer is wishing to have large profits from natural gas soon. The two superpowers in the past and now have been trying to keep world oil prices at high levels either by peaceful means or by belligerents.

United States of America have discovered huge deposits of shale natural gas. After extraction, those deposits are scheduled to be exported in the form of liquefied natural gas by tankers to various destinations.

Conclusions It seems that the natural gas and the many products derived from it will have increasing demand and price as: Both, the European Union and internationally society, are constantly evolving laws and pressures to reduce environmental pollution. It is worth mentioning that liquid fuels derived from natural gas are emitting 80% fewer pollutants The present price of natural gas with technologys facilitation, make the conversion of natural gas to products similar to those of petroleum, with great profit. Also pushes ahead the massive use of natural gas in the form of liquid fuels (GTL plant) which connects directly oil prices with natural gas prices. In the past reductions of the price of oil and gas where experienced for purposes such as discovery of new reserves, renewable energy sources, reducing demand etc. In reality, however, prices are kept high regardless of these factors after the interests of the superpowers America and Russia acting sedative to efforts towards reduces of oil and gas price. Sources Fleisch T., (2012) Gas Monetization Via Emerging Mini -GTL Options Global Methane Initiative Whit B., (2012) Can Gas-to-liquids Technology Get Traction? Alaska Natural Gas Transportation Project