Three Suggestions for FDI (Foreign Direct Investments) in Cyprus Hydrocarbons

1. Interim solution of natural gas import to Cyprus for power generation by Israel.

2. Building a contemporary oil refinery 3. Building GTL plant

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

This study aims to demonstrate appropriate suggestions for Foreign Direct Investments (FDI) in Cyprus, by investors who wish to invest in projects related to oil and gas and poses relevant knowledge, experience and budgets.

Part One Suggestion for the interim solution of natural gas transfer from Israel to Cyprus, for electricity production.
Natural gas is a hydrocarbon consisting primarily of methane and has the qualities to be odorless, tasteless and colorless. It is considered the most environmentally friendly hydrocarbon and advanced countries use n.g to generate electricity. It is also worth mentioning that the use of natural gas in electricity generation in conjunction with renewable energy sources are the best and most environmentally friendly model for compliance with European Union Regulation 20/20/20 that provides for an increase of 20 % for energy efficiency, 20% reduction of carbon dioxide emissions and 20% renewable energy use by the year 2020. The most effective way to introduce natural gas in Cyprus, is the creation of a pipeline between Vasilico Electricity generation plants and natural gas production plots in neighboring Israel after final approval of exports from Israel Parliament. This is the most inexpensive way to introduce natural gas in Cyprus because Israel is the closest producing country and additionally companies holding plots in Israeli EEZ need a natural gas pipeline that will transfer Israeli natural gas to Cyprus liquefaction terminal when that is constructed. It seems that the creation of this project will be beneficial to both cooperating countries. For Cyprus it will produce cheap energy that will boost the local economy. It will also enhance cooperation on hydrocarbon pooling between Cyprus and Israel since through this pipeline Israeli natural gas will be transported to Cyprus for liquefaction and construction of the pipeline would cause acceleration of all projects to provide facilities and infrastructure. Israel would benefit because the country would start immediately the export of natural gas and the induced acceleration after being at a more advanced stage of the exploitation of hydrocarbons in Cyprus urgently needs a reliable and friendly destination

for liquefaction and export of massive deposits of all factors that indicate Cyprus as this destination. Oil companies would have similar benefits to Israel as possible pooling and cooperation between Israel and companies would be challenging. The licensed companies in Cyprus will benefit from this project as they will need to connect with the pipeline for transportation of natural gas from their sea plots in Cyprus EEZ to Vasilico liquefaction plant. Another benefit that would result for all parties would be the theoretical increase in the value of hydrocarbons since the value is affected by the available transportation facilities and use.

Implementation of the Project

The work could be performed in many combinations of cooperating parties once considered as a project beneficial and positive for everyone. A combination would be the co-operation of all parties who use this pipeline ( Cyprus , Israel , companies licensed in the EEZ of both states ) With this combination will benefit all with the lowest possible investment cost after sharing it . Another combination would be between Cyprus - Israel (transnational cooperation) This way of cooperation the two countries will reap rights to use the pipeline from various companies that would carry natural gas to liquefaction terminal at Vassilikos. A third combination would be cooperation between companies licensed in Cyprus and Cyprus since apart from the mentioned advantages you have in the pipeline, the need to participate in programs and projects of social interest such as roads, bridges , power stations , cultural parks, local population education and others since it is not only a positive effect on the companies in countries where they operate. It seems that this combination of companies will benefit twice as beyond their own need for the pipeline in the future , will also credited for their offer to acquire the entire Cyprus cheap electricity with all the attendant consequences. For the reasons outlined above it is considered that the creation of such a pipeline would meet the interests of all, it tightens the relations between Cyprus - Israel - as well as companies would create accelerate activities for exploitation of hydrocarbons.

How to create additional benefits of the above interim proposal

The agreement for the transportation of natural gas in Cyprus to become the solicitation gas will be granted until the Cyprus build its own gas instead be paid to the amounts 3

recorded and returned to the Republic of Cyprus in liquefied form as soon become feasible . It would be important to note that this infinitesimal quantities of natural gas in relation to the deposits . This way is the best Advance hydrocarbon us it can be considered that will now enjoy the benefits of hydrocarbons will draw in a few years.

Clarification on interim solution

This clarification is to highlight the possibility of natural gas transportation from Israel to the power station at Vasilico without incurring any problem concerning hours of production and use of natural gas. According to the practice of gas pipelines, it is possible parts of the pipeline to convert to natural gas storage. This is accomplished by increasing or decreasing the pressure within the conduit segment. This is the end of the duct to the recipient, so it is allowed to pump gas whenever needed regardless of the time of production. This method is known as 'Linepack' and offers the possibility to manage even with fluctuations in hourly demand effectively. Gas pipelines establishments make use of technologically advanced models to meet the demand of natural gas on the consumption trends as well as seasonal and environmental conditions and factors. It would be worth to mention that a portion pipeline of 50 miles length with 42 inch thick tube, can store about 200 million cubic feet of natural gas. According to the above clarification, it appears that Israel is able to supply Cyprus with natural gas by pipeline without affecting the countrys own needs time schedule (day time hours) during nighttime, natural gas can be passed to and stored in the pipeline to Cyprus with Linepack technique as mentioned above. (Source: American Gas Association (2013) How Does the Natural Gas Delivery System Work? [online] http://www.aga.org )

Part Two Oil Refinery in Cyprus

An oil refinery construction in Cyprus will help to stimulate the economy of Cyprus in many ways. The state would have revenue from taxes, the people and the business world will be enjoyed best fuel prices as well as reduce the prices of all products, will create jobs and new business opportunities. As part of efforts Cyprus becoming the energy hub in eastern Mediterranean, an oil refinery will help to produce the full range of petroleum products and Cyprus would gain the possibility to export the stock not require for local consumption. An American research on hydrocarbons in Eastern Mediterranean in 2010 supports existence of oil in marine basins Levantine and Nile where parts of Cyprus EEZ are falling and also the company Total, plots 9 + 10 will investigate oil, so it is likely the refinery serve for Cyprus oil refining. Crude oil refining is divided into all the useful substances that are byproducts. The old way of separating crude oil was a distillation column where a large boil (800 - 1000 F) were put to use different boiling components (fractionation) In technologically modern refineries using chemical treatments converted oil to other chemical products hydrocarbon chains. This allows refineries to convert fuels such as

diesel gasoline, depending on the requirements of gasoline. Refiners mix the various parts (treated and untreated) to produce the desired products. Otherwise create chains mixes of petrol with different octane value. Among the best technologies in refining is Fluid Catalytic Cracking (FCC), which allows the treatment of both light and heavy crude oil with very high performance and quality products.

A barrel of crude oil (159 liters or 42 U.S. gallons) yields: 43% petrol (72 liters) 21.5% petroleum distillate 11.5% residual oil, 6.9% fuel engine aircraft, 4.7% raw material products manufacturing generic (cleaners, plastics, textile fibers, etc.), 3.8% natural gas, 3.1% asphalt, 2.6% coke, 2.3% liquefied petroleum gas (LPG), 1.3% kerosene, 1.3%, Lubricants 0.67% other

The installation cost of a modern refinery capable of refining 100,000 barrels of crude oil per day amounts to $ 3 - $ 4 billion The gross profit per gallon treatment amounts to $ 0.30 - $ 0.60 The gross profit margin is about 15%. Annual revenue in full operation amounted to $ 650 million. Amortization of capital investment is 8 -9 years. Cyprus is an ideal place for petroleum refineries because it is near the Suez Canal (which makes it easy to supply raw materials from Arab oil-producing countries) and across three continents for export trade. As a member of the European Union produced products must meet the high standards set by the EU and strict safety regulations and environmental protection. The refinery industry in Europe is in recession because increasingly strict regulations imposed by the EU can not be met by the old and small refineries currently operating in several European countries. In Cyprus a modern and technologically advanced refinery can be a great and profitable short-term repayment investment.

Part Three

Oryx GTL plant - Qatar

Proposal to set up facilities for converting natural gas into liquid fuels (Gas to Liquids Plant or GTL plant) in Cyprus.
A GTL plant converts natural gas (rich in methane) into liquid hydrocarbons such as gasoline, diesel etc. In such installations , the conversion process is performed as follows : Initially the gas is mixed with oxygen in a reactor to generate syngas . This gas is then discharged to waste Fischer-Tropsch process for the conversion of the mixture in a waxy material which then enters the process of conversion to very high quality hydrocarbons. Products produced are: Gasoline - fuel vehicles, machinery Diesel - fuel vehicles, machinery Kerosene - jet fuel Naphtha - for high octane gasoline

Wax Motor Oils Solvents

Paraffin - for the manufacture of plastic Raw materials for manufacture of petrochemicals, etc. Existing installations are: Two GTL plants in Qatar, one in Malaysia and one in South Africa while new plants are planned in several countries . Qatar Facilities: Pearl GTL - Capacity of producing 140,000 barrels per day in 2011. Owners Qatar State + Shell. Oryx GTL- Production capacity of 34,000 barrels per day in 2007. Owners Qatar State+ Sasol Malaysia : Bintulu GTL - Capacity of producing 14,700 barrels per day in 1993. Owners Shell, Mitsubishi, Petrona Sarawak State, Malaysian government. South Africa : Mossel Boy GTL - Production capacity of 36,000 barrels per day in 1992. Owner of the PetroSA

Advantages offered by a GTL Plant in Cyprus

1. Production of high quality and environmentally friendly fuels. 2. Reducing fuel costs in Cyprus 3. Export possibilities 4. Ability to create new business activities 5. Attracting foreign investment

6. Cyprus will be among the first countries in Europe to have such facilities and may request EU subsidization because of the environmentally friendly products. Research which has been conducted by Daimler - Chrysler has shown that diesel produced at GTL facilities has 80% less carbon monoxide than conventional diesel sold in Europe. The same survey demonstrated that mixing 50-50 of conventional Europe diesel with diesel produced in GTL plants had emissions of carbon dioxide and nitrogen oxide by 40% discounted. The car producers worldwide, receive a lot of pressure to reduce emissions from the cars they build. The fuels produced in GTL plants can contribute very substantially in this direction. Already several automakers show great interest. Cost Installation Cost of a GTL plant with capacity to produce 30,000 to 35,000 barrels per day is about $ 1.5 billion (this was the cost of construction of Oryx GTL in Qatar)
The typical operating costs of such facilities is $ 3 - $ 5 per barrel (without counting the feedstock (natural gas)

Conclusions
The installation of GTL plant in Cyprus seems to combine a variety of perspectives and opportunities: 1. Allows the sale of Cyprus natural gas along with the liquefied natural gas which will come from LNG facilities, but without requiring long-term contracts and commitments with the selling price, but with direct contracts and individual loads as crude oil is sold. Sales of gas with the combination of the two ways of selling offers a more efficient way of utilizing natural gas, since both plants convert natural gas into more valuable products . 2. Forecast of very high demand of the products produced in GTL facilities because of the environmentally friendly and high quality fuels, with obvious potential profitability. 3. The fact that products produced in GTL plants are very green, will collect subsidies from the EU and other investors.

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4. It is an additional option for the optimal exploitation of Cyprus and / or neighbor countries hydrocarbons, always in conjunction with LNG. 5. It will turn Cyprus into an energy center in the Eastern Mediterranean, which offers greater potential and variety of products and facilities / infrastructure.

Sources
Part Two
North Atlantic Refinery (2013) Refining 101 [online] http://www.northatlantic.ca Calore P. C. (2013) What it costs to refine oil into gasoline Harvest Operations Corporation. Neste Oil (2013) Neste oil to invest in improving energy efficiency and operational reliability at its Porvoo refinery. US Energy Information Administration (2013) Qatar Overview [online] http://eia.mht Grace Refining Technologies [online] http://e-catalysts.com Part Three White B., (2012) Can gas-to-liquids technology get traction? Alaska Natural Gas Transportation Projects [online] http://articgas_gov.mht Kelly-Detwiler P., (2013) Gas To Liquids Plants: No Longer Exclusive to Larger Players Technip Group Communications (2011) ORYX GTL Roberts K., (2013) Modular Design of Smaller Scale GTL Plants [online] http://eptq.com

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