The Power of Natural Gas Exploration Rights, Cyprus

As many of you may already be aware of, the small island country of Cyprus is currently in financial ruins and seeking a bailout plan.  While there is a pending bailout offer from the EU, many citizens are outraged by the contingents of it and are seeking another plan.  Amidst the outrage, sources have reported that the Russian energy company Gazprom has extended to Cyprus a bailout offer of their own.

 

Gazprom is the largest natural gas company in the world and is responsible for nearly 10% of Russia’s GDP (New York Times).  In other words, the company has billions and billions of dollars worth of revenue, which it is looking to invest into the further expansion of their natural gas business. 

 

Meanwhile, Cyprus’ neighbor to the Southeast, Israel, just discovered one of the largest offshore gas fields in the past decade, the Leviathan natural gas field.  After this discovery, exploration for natural gas in this Mediterranean region is rampant and Cyprus is likely to withhold the mining rights to a great amount of natural gas.  Thus, a natural gas giant such as Gazprom would be eager to obtain exclusive exploration and mining rights of Cyprus’ natural gas fields, exactly what Gazprom’s bailout plan entails.

 

Gazprom’s reported proposal to Cyprus entails a bailout option in which Cyprus would concede exclusive rights of it’s natural gas fields to Gazprom.  In turn, Gazprom would single handedly bail out the country of Cyprus, who would need around 10 billion Euros to re-stabilize its economy.

 

While this may initially seem like an easy and reasonable solution to Cyprus’ troubled economic state, there are many underlying affects and motives.  Gazprom effectively has a monopoly on the natural gas market in Europe, providing it with about 40% of its imported gas.  The bailout of Cyprus’ would give the country the means to sell rights of its natural gas reserves to be mined by different gas companies.  In theory, Cyprus would have the power to create its own gas industry, which if productive enough, could become and export business to the likes of many European nations.

 

If Cyprus were to create its own gas industry and export to Europe, Gazprom would be undercut and be potentially forced to lower their prices and loosen their grasp on the European market.  This occurrence would be very detrimental to the revenues of Gazprom.

 

As it stands now, Gazprom has not made a release stating its offer to Cyprus, nor has Cyprus given any definitive evidence suggesting consideration of the proposal.  This example however, shows how powerful the rights to natural gas exploration are and to what lengths some companies will go to claim those rights.

Australia, the new frontier for natural gas?

Australia is the new frontier or exploration in the global natural gas industry.  The endless pursuit for a natural gas producing region resembling the United States has lead many of the worlds largest gas companies to the shores of Australia.  The countries combination of abundant gas, low population density, efficient transport methods, and hungry market are that factors that make any gas company go falling head over heals for a piece of land.

THE STATS

Australia has approximately 390 Trillion cubic feet of natural gas reserves, which equates to about 45% that of the United States reserves, according to Forbes.  However, while this is only 45% of the quantity of natural gas that the U.S has, it needs only to serve 7% of the population that the U.S has.  Thus, Australia will have a plethora of natural gas to export.

THE FACTS

One of the largest appeals of natural gas exploration in Australia is the geographic location of its gas reserves.  The vast majority of Australian reserves lay on vacant or sparsely populated land, meaning that there will be much less resistance from environmentalists about the fraccing method used to extract the natural gas from the deposits below.  Less resistance is very appealing to all natural gas companies because it means time saved, money saved, and public image saved by staying out of the papers.

Offshore exploration is another significant upside about natural gas in Australia.  There are many medium-large sized reserves located just off of the coast but they have long been considered useless due to the fact that drilling machinery could not reach the depths at which the reserves lay.  In addition, it would be a monumental task to install the piping needed to get the extracted natural gas to the shore.  However, with the recent discovery of super chilled natural gas and an increased capacity to drill deeper water, these open sea reserves are all of a sudden quite easily trappable.  By super chilling the extracted gas, the volume of the material is condensed to 600 times smaller than what it is in its natural state, making for easy offloads to tankers which can then deliver the gas to the global markets.

As pointed out before, Australia’s natural gas reserves far outnumber what the local market demands for consumption, thus it will have a surplus of natural gas to export and profit from.  With Australia’s relatively close proximity to energy hungry Asian markets such as China and Japan, the demand for Australia’s easily accessible natural gas will be very high.

THE BELIEVERS

Many of the world’s gas giants agree that Australia is the next big place for natural gas exploration and they are showing it through their recent investments into Australian projects.  For instance, Shell has dished out an approximate U.S $12 billion for their FLNG plant off of the northwest coast of Australia.  Exxon was quick to follow and just recently applied for permits to build a similar and slightly larger FLNG vessel also off of the western coast of Australia, Forbes.  Another gas giant, Chevron, made proactive moves in Australia by acquiring two permits to mine 810,000 acres of Australian land, costing the company an estimated U.S $349 million, Forbes.

Australia has the key components to make it the new frontier in the ever increasingly competitive of natural gas exploration and extraction market.

Shell Floating LNG Plant

The most recent big development in the area of natural gas exploration is the movement towards FLNG or floating liquefied natural gas, and Shell is leading the charge.  With the development of their Prelude project, Shell is poised to be the first company in the world to create a vessel or platform which can extract remote deposits of LNG according to Bloomberg.  The ability to tap additional reserves of LNG means not only advancement in the movement towards natural gas energy but further economic development for Australia and less environmental impacts.

The $10.8-12.6 billion project means constructing the largest vessel on Earth at a weight of 600,000 tonnes and a length nearly equal to that of the Empire State Building.  The construction of the hull began at Samsung Heavy Industries in South Korea in 2009 and the project is set to begin operation over the Prelude LNG reserve in 2015.  The vessel will be towed to the Prelude reserve after completion and moored at said location for 25 years.

Extracting LNG from remote deposits at sea has always been a sought after goal for natural gas companies but was never economical because locations were either too remote or the costs were astronomical with the amount of pipeline and energy it would take to get the LNG to coastal plants.  Thanks to groundbreaking technology however, scientists have found that by chilling the extracted LNG to -162 degrees Celsius, the volume of LNG can be shrunk by 600 times what it is in its natural state.  Thus allowing for enormous amounts of LNG to be shipped to mainland rather than pumped through pipelines.

The benefits for northwest Australia and Australia as a whole will be immense both environmentally and economically.  The permits to build LNG plants on land in Australia have become few and far between recently and with seven plants currently under construction, they will be even more rare to acquire.  In a sense, the LNG industry is capped at the moment in Australia with nowhere to expand to.  However with the arrival of FLNG plants, the gates are again open for companies to explore and tap previously inaccessible LNG reserves, meaning many more jobs for Australian workers and more money for Australia to tax.

Not only is the development of FLNG good for the Australian economy, it is also a more environmentally responsible means of natural gas extraction.  Thanks to the ability to condense the extracted LNG for transportation, pipelines are virtually eliminated in this segment of the market meaning that there is more LNG production with no more pipelines taking up land.  LNG plants are also more environmentally friendly because it again adds to LNG production while not needing land to be developed for roads, laydown areas, and accommodation facilities.

FLNG plants are becoming a significant part of LNG exploration. With their potential to provide more LNG, stimulate the Australian economy, and do so in a more environmentally responsible manor, this will likely become a much more popular form of exploration and extraction for companies around the world.

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