Cyprus is reportedly planning to renegotiate the financial terms of its contract with a Texas-based Noble Energy-led consortium that includes Israel’s Delek and Royal Dutch Shell on exploiting the Aphrodite gas field off its southern shore.
The request to renegotiate was made by Noble Energy’s consortium in the light of potential gas sales to Shell’s liquefaction plant at Idku in Egypt, Cyprus Natural Hydrocarbons Company CEO Charles Ellinas told New Europe on August 25.
Aphrodite lies in Block 12 of Cyprus’s exclusive economic zone (EEZ) and is Cyprus’ first gas finding after it was discovered in 2011.
“In their view, because of low oil and gas prices globally, the distribution of profits is not acceptable to the companies and it is not commensurate to the investments they are expected to make for the development of the project. But this is not quite the case,” Ellinas said. “When the contract for Block 12 was signed in October 2008 the price of Brent crude was $72 per barrel. Now it is $74 per barrel, which begs the question whether the demand by the companies is under the circumstances opportunistic.”
Cyprus is responding, as Ellinas explained, noting that with the approval on August 21 by Cyprus Council of Ministers, giving directions to the negotiating team on terms under which to enter and carry out such negotiations. “It is important to note that one of these directions is that the demand by the Block 12 companies is not acceptable as it stands,” according to Ellinas.
Given developments in the global energy sector, in the longer term oil prices may stay low. “Any changes to the Aphrodite contract should be mindful of this. We should not end up in a situation where Cyprus’ profits gradually diminish in comparison to those of the companies,” Ellinas said.
Timing is also an issue. US energy giant ExxonMobil is due to start drilling in Block 10 later in the year, with the results expected early next year, Ellinas said. Much hangs on this and on the more optimistic indications from the evaluation of seismic data, which have shown that Block 10 may hold significant amounts of natural gas, in formations similar to Egypt’s giant Zohr gas field nearby, he explained.
ExxonMobil is on record stating that if the drilling results allow it, it is ready to examine the construction of a liquefied natural gas (LNG) liquefaction terminal in Cyprus. In these sorts of cases, Aphrodite and Calypso gas could be liquefied at the same terminal, Ellinas said, noting that given potential gas export quantities, this type of a development would be competitive and could lead to plans to construct the EastMed gas pipeline that much more important to the European Union’s quest to diversify its gas supplies and boost energy security.
“This is worth waiting for. Block 12 renegotiations and Block 10 drilling will in effect run in parallel. It is advisable that no firm decisions are made until the drilling results become known and their potential impact is assessed,” Ellinas said.
US-Turkey tense ties and Cyprus
Asked if the deterioration of relations between the US and Turkey positive for Cyprus given that Turkey blocked Italian ENI’s ship from accessing its target for an exploratory drilling in Block 3 six months ago, Ellinas said, “It might appear to be so, but I do not think Turkey will back off because of the US. It intends to start drilling using its newly acquired drill rig, Fatih, initially in Turkish waters off Antalya, but by the end of the year it might drill in Cyprus undeclared EEZ, whether to the north or west of the island.”
According to Ellinas, this could coincide with ExxonMobil’s drilling in Block 10. “Turkey is not likely to actively intervene in this, but it probably would counteract it. However, as a result of the US-Turkey spat Turkey is getting closer to Europe and that might help the negotiations for the Cyprus problem, which hopefully will restart next month,” Ellinas said.
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