The amount of natural gas extracted from Cyprus’ Kronos gas field will reach a total of 500 million cubic feet per day, Italian energy company Eni’s chief operating officer of global natural resources Guido Brusco said on Monday, after his company signed $1.8 billion worth of contracts for the construction of the infrastructure to extract Cypriot natural gas.
“This gas is then delivered to Egypt … then there it will be processed and liquefied. The liquefaction … will make, give or take, 40 cargos of [liquefied natural gas] per year, and those are the cargos that will then be sold to, very likely, the European market,” he told the Cyprus Mail.
He refused to be drawn on how much money the production may raise, but disclosed that Egypt, where the gas will be liquefied, will have “a right to buy at market conditions … some volumes” of what is produced.
Nonetheless, he said that “the large majority of the volumes will be sold to Europe”.
He then explained that natural gas in Europe is bought and sold through the “title transfer facility”, a Dutch virtual trading point for natural gas which sets the continent’s benchmark LNG price.
Because of this, he said, “the selling price will be driven by the market and the conditions of 2028 when we will start the production”.
Firm buyer not ‘necessarily’ needed for natural gas
Asked whether his company is in contact with potential buyers for the Kronos gas, he said that “for this kind of project you do not necessarily need to have a firm buyer”.
“Being in Europe, you can also sell it at the hub. It’s a market. We have, as Eni, regasification capacity in Italy, and so we can basically bring it to the Italian market, and sell it ‘spot’,” he said.
Selling natural gas on the ‘spot’ market means selling it at the price at which it is being traded at any given instant to whoever is in the market at the time, rather than having a long-term contracted buyer and a deal in place.
Given this option, Brusco reiterated that “we do not necessarily need to have a firm buyer”, but added that “we are looking to place some of these volumes in a long-term contract”, which he said will be “managed … into a broader portfolio strategy”.
He said that Eni will by 2030 have a portfolio of more than 20 million tonnes of LNG per year, of which Cypriot natural gas will account for 1.4 million tonnes. The Kronos field’s total output will be 2.8 million tonnes, with Eni’s partner in Block 6 of Cyprus exclusive economic zone, French energy giant Total, having the rights to the other half.
Eni is ‘trying to build resilient and geographically diverse portfolio’
This portfolio, he said, “spans from the far east in Indonesia” and includes “interests in the Persian Gulf, in Qatar”, as well as “projects in Mozambique, projects in Angola, projects in the Congo”, and a planned LNG project in Argentina.
“We are coming through two big crises, the Russia-Ukraine [war] and the [Strait of] Hormuz. Those are bringing some challenges to energy companies like ours in terms of diversification of supply … We are trying to build … a resilient and geographically diversified portfolio to make sure that if there are bottlenecks or logistic hurdles here and there, we can always deliver energy to our customers,” he said.
Additionally, he said, “the other element we are trying to build is LNG with a very low breakeven”, thus with relatively low operating costs, “because now we are seeing a cost of the gas [which is] very high”.
“This market goes through cycles, and there will be a moment when prices will go down and there will be competition among sources, so our plans are always targeting low breakeven costs,” he said.
The LNG plant at Damietta
In the case of Cyprus, he said the available natural gas is “very competitive” because “we are leveraging on infrastructure that exists”.
“We don’t need to build a liquefaction plant, because we have it in Egypt. We don’t need to build a processing plant, because we have it. Basically, it’s a drilling and a pipe to deliver this gas to Egypt,” he said.
Cypriot project ‘ranks very highly’
Given this to be the case, he added, the Cypriot project “ranks very highly”, with another reason for this estimation being that “it’s in a geographical location which is secure”, and the fact that gas is “the lowest [emission] among fossil fuels”.
“It is also, I would say, affordable, because the breakeven is low, as long as we are using [existing] facilities and we don’t need to invest a lot of capital to realise them,” he said.
On the question of whether the government has offered Eni and other energy companies extraordinary concessions so as to maintain their interest in Cyprus, he said that “I can categorically exclude that we’ve been given large concession”.
“Of course, I cannot disclose the commercial terms, because they are confidential, but this is a very standard contract. It’s a very standard PSC, a production sharing contract,” he said.
‘You have to find the sweet spot between investors and government’
A production sharing contract is an arrangement where a host government maintains ownership of its gas while granting a private energy company the right to explore, develop, and produce. In the case of Kronos, Egypt has been designated as the host government.
Brusco stressed that “when you are able to make an investment decision on this kind of project, you have to find the sweet spot between, of course, the investors, in our case, the government, and the contractors who are executing the work, because they also need to make their own profit to make sure they can safely execute their job”.
“In this case, of course, we’ve been able to find the sweet spot, and that means that when you make a project of this nature, it’s a win-win situation for all the stakeholders,” he said.
On this front, he said that the Cypriot project is “remunerative for investors” and “valuable for the country”, because “it brings hard currency, it brings taxes, it brings local content, jobs”, and that “it’s also profitable for contractors who are doing the job”.