Cyprus and Egypt have signed an agreement for the construction of an underwater pipeline to export natural gas to Egypt. Cyprus’ Energy Minister Yiorgos Lakkotrypis and Egypt’s Oil Minister Tarek el-Molla inked the deal at the presidential palace on September 19.
The underwater pipeline directly to Egypt through the two countries’ exclusive economic zones (EEZs) would facilitate exports from Cyprus’ Aphrodite gas field and other possible discoveries offshore Cyprus.
“The pipeline, if built, can indeed facilitate export of gas from Cyprus to Egypt,”
Cyprus Natural Hydrocarbons Company CEO Charles Ellinas told New Europe on September 21.
He noted that exports from Aphrodite and the East Mediterranean could reach the European Union via the Egyptian liquefied natural gas (LNG) facilities.
Cyprus and Egypt are planning to link Aphrodite with the Egypt liquefaction plants in Idku and Damietta. “Liquefaction costs at the existing plants at Idku and Damietta are quite low and can make LNG from these plants competitive. In addition both plants already have sales contracts in place, which they had to discontinue when gas supplies in Egypt run low, and are now being resumed,” Ellinas said, noting that Idku is already exporting small quantities of LNG and Damietta should start exporting gas from Egypt’s massive Zohr offshore field soon.
“If gas from Cyprus secures sales agreements with these plants, it can be exported as LNG possibly to Europe but likely to Asia. The agreement just signed is an inter-governmental agreement. Even though needed, by itself it does not guarantee gas sales. It is a first link in the chain,” Ellinas said.
Asked if the fact that the companies with a stake in Aphrodite field have demanded a revision of the revenue-sharing agreement with the Cypriot government could delay the export of the hydrocarbons.
“This is crucial. Agreement between the companies and Cyprus must be reached first before anything happens. In effect the companies are asking for a reversal of the profit share in the existing agreement – at present, roughly, Cyprus gets 60% and the companies 40%. It is a difficult negotiation,” added Ellinas.
According to Ellinas, this must be done first and followed by agreements with Idku or even Damietta. The pipeline will then follow once these steps are completed, not before.
“These negotiations are still to start and will take some time, with no certainty that they will be completed successfully. The pressure is on the government. If it agrees to changing the production sharing agreement terms hopefully it will benefit Cyprus – it will have to explain this to Cypriots,” Ellinas said.
Also under discussion as an export option for Aphrodite gas is the proposal for the EastMed pipeline that would carry gas from Israel’s Leviathan field through Greece to Italy.
In the meanwhile, drilling by ExxonMobil should start soon. The US energy major is reportedly at the final stages of preparation for the two exploratory drills in Block 10, located southwest of the Mediterranean island. “By February we should know the result of what appear to be promising prospects for a good discovery,” Ellinas said, before concluding that then Cyprus can make decisions on how best to exploit its gas with full knowledge of all the facts and options. Given global and regional market conditions, the option to sell gas to Egypt’s liquefaction plants will still be on the table.”
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