Dear Readers,
In a previous post, our reader Omiros Angelidis (of CERES LNG Services / BG LNG Services), asked me to research and write about the Gas deposits found around the South of Cyprus and the Eastern Med, about who will exploit them and how it will affect the LNG market.
Personally, I believe that the LNG market is an underrated one and that the shipping world (or rather the energy world) will veer towards it in the not too distant future. The past has shown us that finds like these tend to change markets, so it was with a keen interest that we undertook this research. But you don't want opinions, you want facts:
A little over 3 years ago, Cyprus launched an exploration procedure that uncovered gas deposits around the South of Cyprus. As this was in international waters, bordering with 6 other nations, they needed to get approval before any drilling, as well as to outline what area will belong to which nation. Following that, further exploration revealed the area known as the Levant Basin Province is estimated to hold more natural gas resources than any region explored in the United States (it is estimated to hold 122tcf - trillion cubic feet). Needless to say, the countries that want in the game are Israel, Lebanon, Syria, Cyprus, Turkey and Egypt.
Of course we do not need to remind everyone that this is a "political hot zone". Israel and Lebanon ties are tense (although they seem to agree on energy matters), Turkey does not recognise the Cypriot government, and the deaths of the Turkish crew members by the Israeli attack on the "Gaza aid flotilla" can only be an obstacle. Cyprus is being hindered by Turkey in any way possible, while at the same time they are trying to finalise an agreement with Israel. There are even talks of a pipeline from Israel to Cyprus.
So, to our question: "How does this affect shipping?"
At the moment, the largest natural gas reserves are located in the Middle East and Russia, followed by the United States and Africa. The main trading routes are from the Arabian Gulf to the Far East and the Arabian Gulf to the Northern Continent, since Russia supplies most of its natural gas by pipelines aided by the Black Sea trade routes. To top that, companies are building vessels known as Q-maxes (or Qatarmaxes), optimised to take LNG from Qatar to the Northern Continent. So now I ask you: What will happen to that route once one of the largest natural gas deposits is "open for trade" in the Eastern Med?
The Straits of Gibraltar currently have no vessel size restrictions, which means that economies of scale will be put to good use since the Suez canal restrictions will be moot. In addition, depending on the costs, it might be cheaper for the Med countries to get their natural gas from the Levant rather than the pipelines from Russia, thus indirectly affecting Russia's market as well as the Black Sea routes. Will it also be cheaper for the U.S. to import their extra gas requirements from the Levant?
To close, a lot of countries and companies are spending billions in trying to find new ways to use alternative fuels. One of the largest deposits in the world situated near Europe (considered to be fully developed) is bound to affect markets. Shipping companies are already building LNG fleets (albeit customised to certain trades for the moment), which shows that some shipowners also believe that this will be one of the possible futures of energy, and are updating their fleets accordingly. Now as to who will exploit the deposit, that's a matter that, unfortunately, is in the hands of the politicians and only time will show its outcome.
The Straits of Gibraltar currently have no vessel size restrictions, which means that economies of scale will be put to good use since the Suez canal restrictions will be moot. In addition, depending on the costs, it might be cheaper for the Med countries to get their natural gas from the Levant rather than the pipelines from Russia, thus indirectly affecting Russia's market as well as the Black Sea routes. Will it also be cheaper for the U.S. to import their extra gas requirements from the Levant?
To close, a lot of countries and companies are spending billions in trying to find new ways to use alternative fuels. One of the largest deposits in the world situated near Europe (considered to be fully developed) is bound to affect markets. Shipping companies are already building LNG fleets (albeit customised to certain trades for the moment), which shows that some shipowners also believe that this will be one of the possible futures of energy, and are updating their fleets accordingly. Now as to who will exploit the deposit, that's a matter that, unfortunately, is in the hands of the politicians and only time will show its outcome.
Best Regards,
Theo Scholiadis - S&P Broker
Main articles used (list not exhaustive):
[Site: FinancialMirror.com] [Date: 23/06/2010]
[Site: Science 2.0] [Date: 09/04/2010]
[Site: Trading Metro] [Date: 15/07/2010]
[Site: PennEnergy] [Date: 22/10/2010]
An offshore company is fully foreign-owned private entity which is also called an international business company (IBC).
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