Aiming to link the development of the Cypriot natural gas field Aphrodite to existing Egyptian infrastructure, ministers from the two countries signed a non-binding memorandum of understanding on Monday to facilitate cooperation in the sector.
Cypriot Energy, Commerce, Industry, and Tourism Minister Yiorgos Lakkotrypis and Egyptian Petroleum and Mineral Resources Minister Sherif Ismail signed the memorandum in Nicosia in the presence of Egyptian Prime Minister Ibrahim Mahlab, according to a joint statement.
Emphasizing the importance of optimizing the use of Egyptian gas infrastructure and creating added value for both Cyprus and Egypt, the ministers said they hope a fullfledged agreement will materialize within six-months.
“This memorandum of understanding is a significant step toward strengthening cooperation between Egypt and Cyprus in the field of oil and gas, which will further deepen the friendly relations between the two countries,” the statement added.
While the budding agreement may be a positive step for Egypt and Cyprus, Israeli energy industry sources expressed fears that such an agreement may come at Israel’s expense.
Just two weeks ago, the Cypriot Natural Gas Public Company (DEFA) elected not to extend a proposal regarding the purchase of gas from Israel’s Leviathan reservoir, due to uncertainty surrounding the basin’s development.
At the same time, representatives of Noble Energy and the Delek Group – the main partners of both Cyprus’s Aphrodite reservoir and Israel’s Tamar and Leviathan basins – flew to Egypt to discuss gas export agreements.
Houston-based Noble Energy holds 70 percent of Cyprus’s 100-billion cubic meter Aphrodite reservoir, while the Delek Group, owned by Israeli businessman Yitzhak Tshuva, has a 30% share.
At Israel’s 621-billion cubic meter Leviathan reservoir, about 130 km. west of Haifa, Houston-based Noble Energy owns a 39.66% stake, while Delek Group subsidiaries Delek Drilling and Avner Oil Exploration each hold 22.67% of the reservoir. Ratio Oil Exploration, meanwhile, has a 15% share.
The partners had originally planned to develop the Aphrodite and Leviathan reservoirs simultaneously, with Leviathan initially expected to be online already by early 2018. Because the Cypriot domestic market demands only about 1 b.cu.m. of natural gas per year, developing the Aphrodite reservoir for the local market would not have been feasible, yet the reservoir is too small to develop alone for export purposes.
However, after Antitrust Authority Commissioner David Gilo declared in December that he would be reevaluating the status of the Delek Group and Noble Energy in the Leviathan reservoir – and reconsidering their exemption from “restraint of trade” or cartel status – development of the Leviathan basin was frozen.
During their visit to Egypt earlier this month, Delek Group and Noble Energy executives met with representatives of the British Gas Group, with which the Leviathan partners had signed a letter of intent in June.
The letter of intent outlined a potential plan in which Israel’s Leviathan could provide a 15-year supply of 105 b.cu.m. of gas to the empty British Gas liquefied natural gas (LNG) production plant in Idku.
The partners of Israel’s Tamar reservoir signed a similar letter of intent with the Spanish firm Union Fenosa in May, also regarding a 15-year contract for gas supply to this company’s liquefaction plant in Damietta, Egypt.
While Delek Group and Noble Energy executives were visiting Egypt two weeks ago, industry sources warned that, because the companies are also the main shareholders in the Cypriot Aphrodite reservoir, they would be providing the British Gas consortium with a Plan B if necessary. The plan stipulated that if Leviathan is not developed on schedule as expected, Aphrodite would be able to supply the Idku LNG production plant.
Such an agreement would also enable the commercial development of Aphrodite, due to the external customer supplementing the domestic market’s needs.
“The companies Delek and Noble, who hold Aphrodite, are making the necessary adjustments for the option that Leviathan won’t be developed on time because of the Israeli regulatory environment and uncertainty,” sources in the Israeli energy industry told The Jerusalem Post on Monday. “They will move on with Aphrodite, which will probably take one of the LNG contracts with Egypt.”
“It will be a shame for Israel,” the sources added, noting that the country could benefit both economically and geopolitically by strengthening ties with Egypt.
Prof. Brenda Shaffer, an expert on energy policy in the University of Haifa’s School of Political Science and a visiting researcher at Georgetown, stressed that the memorandum of understanding between Cyprus and Egypt still remains insignificant due to its non-binding nature.
“It does indicate a political will on both sides for their oil and gas companies to cooperate and examine a solution for supply from Egypt to Cyprus,” she told the Post on Monday.
Nonetheless, Shaffer explained, the amounts of gas discovered offshore Cyprus to date “do not commercially justify an international export project, even to Egypt.”
“They would need additional discoveries or to join forces with export volumes from Israel or another future source in the region,” she added.