Study: Uncertainty rules smaller nations’ rush to gas

Smaller nations’ plans to invest in natural gas should proceed with caution, according to interim results of a study by MIT Energy Initiative in collaboration with the Cyprus Institute.

Funded entirely by the Cyprus Research Promotion Foundation, the study is part of a larger report that will further take into account the changing dynamics of the regional and global gas markets and give a comprehensive view of the implications for long-term development of natural gas in Cyprus and other similar nations.

Using Cyprus as an example, the study takes an independent look at the economics of developing gas. The researchers expect to finish the report in August 2014.

“While natural gas is often cheaper than oil and gives off fewer emissions, developing the resource comes with risks, especially for smaller nations,” says Sergey Paltsev, an author of the study and a principal research scientist at MIT Energy Initiative.

Because the “cost for these smaller nations makes up a larger portion of their economies,” they need to have “proper expectations…before spending the money.” Researchers found it will take the country about 5 years to put Cyprus’s gas resource to use and the required investments will comprise up to a quarter of the country’s gross domestic product.

“That’s a substantial amount of a country’s economy dependent on a resource that has proven to be unpredictable in the past,” says Paltsev. “Natural gas development is so new to such regions,” he says, and the global gas market is “changing so rapidly, that there’s a large amount of uncertainty.”

Cyprus

Paltsev believes what’s happening in Cyprus is a good model for other countries like it that are exploring gas. The nation has been slowly recovering from a near collapse of its banking industry and searching for revenue. A major gas discovery off its coast 2 years ago has been viewed as an opportunity.

The latest estimate of the resource is about 5 tcf (OGJ Online, Oct. 4, 2013), a small fraction of the global natural gas resource. Francis O’Sullivan, director of research for MIT Energy Initiative, says it is unlikely Cyprus will ever be a major player in the global gas markets, “but that doesn’t mean natural gas can’t benefit the country’s economy if developed properly.”

The study notes that, with the country’s population at about 1 million, Cyprus “has enough natural gas to power the country for nearly a century–while significantly reducing its use of foreign oil.”

LNG vs. pipeline

With estimated reserves ample for domestic use, the Cyprus government has planned to build gas liquefaction to export gas to such places as Europe and Israel. LNG has been the preferred option over pipeline because of political tensions in the area due to the island being divided since the mid-1970s. Turkey occupies the northern half.

While a clear political maneuver, the study notes, building an LNG plant would also create jobs and raise revenue. Depending on the tax scheme, it may raise $1.5 billion in taxes.

At the same time, building the plant would cost about $6 billion for a country whose GDP is about $25 billion. The cost of building an LNG plant, however, is far more than the cost of building a pipeline, though LNG offers greater flexibility to adjust production to changing natural gas prices and market supplies.

O’Sullivan and Paltsev warn that even projects that start out having clear economic gains can become less profitable because of poor technical planning and execution or bureaucratic and regulatory delays.

“Prices change, projects get delayed, overrun costs pile up. These are all unforeseen risks that can come up and must be properly mitigated,” Paltsev says.

Related Articles

Statoil reduces capital budget by $2 billion following 4Q losses

02/06/2015 Statoil ASA has reduced its organic capital expenditure to $18 billion in 2015 from $20 billion in 2014. The move comes on the heels of a fourth qu...

Chinese regulators approve Sinopec’s plan for grassroots refinery

02/06/2015 China’s National Development and Reform Commission (NDRC) has approved Sinopec Beijing Yanshan Petrochemical Co. Ltd., a subsidiary of China Nation...

BOEM schedules public meetings about draft proposed 5-year OCS plan

02/06/2015 The US Bureau of Ocean Energy Management will hold the first of 20 public meetings in Washington on Feb. 9 to receive public comments on potential ...

Union strike ongoing at US refineries as negotiations continue

02/06/2015 A strike by union workers at nine US refining and petrochemical production plants remains under way as the United Steelworkers Union (USW) continue...

NCOC lets $1.8-billion pipeline contract for Kashagan field

02/06/2015 North Caspian Operating Co. (NCOC) has let a $1.8-billion engineering and construction contract to ERSAI Caspian Contractor LLC, a subsidiary of Sa...

AOPL releases 2015 safety performance and strategic planning report

02/06/2015 The Association of Oil Pipe Lines is committed to further improvements despite a 99.99% safe petroleum liquids delivery rate, AOPL Pres. and Chief ...

MARKET WATCH: NYMEX oil price bounces back up somewhat

02/06/2015 Crude oil prices on the New York market bounced up $2/bbl to settle slightly above $50/bbl Feb. 5. The positive momentum continued during early Jan...

Congressional Republicans renew bid to halt sue-and-settle maneuvers

02/05/2015 Calling it an affront to regulatory accountability that results in unchecked compliance burdens, US Sen. Charles E. Grassley (R-Iowa) and US Rep. D...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...
White Papers

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected