Cyprus reaches subsea pipeline agreement with Egypt

09 August 2018, Week 31, Issue 461

Cyprus and Egypt have reached an agreement on the construction of a pipeline to carry gas from the Aphrodite field, located 180 km southeast of the island, to the Nile Delta coast of Egypt.

The media said existing pipelines in Egypt’s offshore area would be used to connect Aphrodite to Egypt, where the Cypriot gas would be directed to one of two under-used LNG plants. These have been largely idle for years as a result of Egypt prioritising domestic supplies over exports. 

Few details were released about the agreement, which has been under negotiation for several years, but the media said the deal had been approved by the European Union and would be signed sometime in the autumn. Cyprus and Egypt successfully demarcated their maritime border in 2003. 

Meanwhile, the Cyprus government is considering how it might address a request by the Aphrodite partners to amend the existing production-sharing contract (PSC) covering the development of the gas field. The group has concluded that the agreement will not secure a satisfactory return on their investment. 

According to the local daily Politis, what the companies propose will result in a cut of 2.3 billion euros (US$2.66 billion) in revenue for the Cypriot government from gas sales over the long term. That would be a drop of some 20% in revenues over a 20-year period which is currently expected to produce 19 billion euros (US$21.99 billion) for the state. 

Cypriot Energy Minister Yiorgos Lakkotrypis last week briefed members of the national assembly on the situation, stating that the government’s position is to reject the proposal but to enter into further negotiations with the companies to arrange a compromise. Rejecting the proposal could result in Aphrodite gas not being developed for years to come, with the outcome that the deal to send the gas to Egypt for liquefaction would be useless. 

Should the government pull out of the PSC it could lead to years of legal arbitration. Neither option is workable for the government. On top of this, the group of companies holding Israel’s Ishai licence, which is adjacent to the Aphrodite field, have claimed that cross-border drilling entitles them to 5% of the gas resource, further complicating matters. 

It has been suggested in the Cypriot media that the government should wait until later this year, after ExxonMobil and partner Qatar Petroleum drill two wells in Block 10, before it makes any decision on the development of Aphrodite. Operator ExxonMobil is to drill two back-to-back wells during the fourth quarter of this year. A discovery of any significance could rearrange all the pieces on the East Mediterranean game board. 

Edited by

Ryan Stevenson

Managing Editor

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