Athens Energy Forum 2017

Regional Upstream Developments Political Regulatory and Economic Challenges

1 February 2017

Mike Efthymiou Advisor to Cyprus President on Hydrocarbons

2

Over coming 25 years gas use increases by 40% while coal remains flat [IEA

WEO-2016].

By switching from coal to gas in power generation we reduce CO2 emissions

by a factor of 2 (US example)

For many countries: Strategy of reducing CO2 emissions relies on

switching from coal to gas or from oil to gas.

Gas Use: Power generation, heating, transport, petrochemicals

Switch to more gas is supported by gas discoveries (East Med, Mozambique-

Tanzania, Australia, shale gas in US)

Some IOCs are becoming increasingly gas companies, e.g. Shell

Increasing Importance of Gas in Energy Mix

Green agenda and more gas go hand in hand

In future more gas transported as LNG than pipeline

3

40% 60% 2016 50% 50% 2010

57%

43% 57% 2006

Shell transitioning from oil to gas = OIL

= GAS

= PIPELINE

= LNG

55% 45% 40% 60% 2016 2040

Significant growth in Global LNG 2016-2040 [IEA]

4

Government Roles in Hydrocarbon exploitation:

Licensing of Blocks & management of PSCs with Contractors

Management of Government share of Hydrocarbons (Commercial arm)

Regulatory framework for HEALTH, SAFETY & ENVIRONMENT

Main challenges lie with HSE Regulator role

Implementation of EU Directive on Offshore Safety (2013/30/EU)

Operator obliged to develop and submit SAFETY CASE for every offshore

installation for Exploration & Production Operations

Environmental Impact Assessment (EIA) ~ Barcelona Convention Protocol

Emergency Response in case of accident

CHALLENGES for HSE Regulator Role :

Breadth of Technical competences required : Process Safety, Asset

Integrity Standards, QRA, Well Integrity, Demonstration of ALARP

Competent Authorities reside in different Gov bodies. Issue of Licenses,

Permits & Approvals is cumbersome and inefficient.

Regulatory Challenges (1)

5

Countries with mature O&G industry (UK, Norway, Australia), are bringing

Competent Authorities into a single body.

Advantages in standardisation, consistency, capturing learnings

More efficient for government and for Oil & Gas industry

For a country with young O& G industry it is not practicable to adopt the

Best Practice model (recognised by EU Directive) .

What is way forward ?

Identify which competences need to be developed in-house and which

will be outsourced. Work on competences

Develop efficient way of outsourcing

Develop learning environment so as to streamline permitting process

Regulatory Challenges – Learn from Best Practices (2)

Two huge objectives: (1) Safe operations – no major accident (2) Streamline permitting process

6

Challenge of low oil and gas prices~ Projects need to be economic under

these prices; sharpen the percil, otherwise gas may remain stranded

Transporting gas to Europe:

East Med Pipeline is a project of common interest to EU; it is technically

feasible but it will remain economically challenging

Need more discoveries to benefit from economies of scale

Economic Challenges