The first agreement was a memorandum of understanding signed by both Cyprus and Egypt, as well as American multinational corporation Chevron, Israeli energy company NewMed Energy, and the BG Group, which is owned by Royal Dutch Shell, and concerns the Aphrodite deposit in Block 12 of Cyprus’ Exclusive Economic Zone (EEZ). According to the Cypriot government, the agreement “establishes the framework for the effective commercialisation of the natural gas which will come from the field”.

The second was a ‘host government agreement’, signed by Cyprus, Egypt and the consortium comprising French multinational corporation Total and Italian energy company Eni over Block 6 of Cyprus’ EEZ. This agreement sets Egypt as the “host government” for Block 6 and the Kronos, Zeus and Kalypso gas fields which are present under its seabed, meaning that the gas extracted will be sent to the Segas liquefied natural gas (LNG) terminal in the Egyptian port city of Damietta for liquefaction. Given the proximity of the Kronos reservoir and Block 6 to Egypt’s ‘Zohr’ gas field, which Eni also operates, Eni will be able to use its own infrastructure to take the Cypriot natural gas to Damietta.

The two documents were signed in the presence of President Nikos Christodoulides and his Egyptian counterpart Abdel Fattah El-Sisi. The signing ceremony took place on the sidelines of the Egypes (Egypt Energy Show). Egypes is North Africa and the Mediterranean’s most important energy exhibition and conference bringing together government representatives, chief executives, and international service providers.

The Cypriot government said the agreements’ “essence is not limited only to promoting the exploitation of the deposits but also broadens the prospects for energy cooperation with Egypt, while contributing to regional stability and strengthening our country’s geopolitical position in the eastern Mediterranean”. These two agreements signal the Republic of Cyprus’ determination to promote the sustainable exploitation of its natural resources, with the participation of renowned international energy partners, to strengthen its role as an energy hub in the eastern Mediterranean and to ensure the maximum possible benefit for the Cypriot people,” it said. It added that with these agreements, it hopes to “achieve more competitive electricity prices and safeguard our country’s energy security”.

Christodoulides was also keen to stress the importance of the agreements, saying at the signing that “this is a historic day”. “The signing of the agreements is a clear indication of the strategic nature of our relations. The agreements are catalytic, changing the status quo of the wider region, and also beyond it, for Europe. “In this era full of challenges and complexity, Cyprus and Egypt are opening a new path, and in doing so are showing the way forward and proving once again that Cyprus and Egypt are reliable and predictable partners,” he said.

Sisi also spoke at the signing, expressing the Egyptian government’s “determination” for relations between the two countries to be further strengthened.

The agreements were signed after a bilateral meeting was held by Sisi and Christodoulides, with the Cypriot government saying the pair had “underlined the great importance of the agreements for the two countries’ energy cooperation”. The pair had also said that cooperation in the field of energy between the two countries “is being put on a track of substantial implementation”. The pair also discussed other issues, including cooperation over matters such as tourism, trade, investment, and the issue of Egyptians undertaking seasonal work in Cyprus.

Christodoulides also met John Ardill, American multinational corporation ExxonMobil’s vice president for global exploration, in Cairo, with Ardill informing Christodoulides about progress regarding the corporation’s activities in Block 5 of Cyprus’ EEZ, as well as its future plans for Block 10.

Christodoulides announced that Ardill would be in Cyprus in the second week of March to inform the authorities about the results of drilling that is underway in block 5 of Cyprus’ exclusive economic zone. Ardill had informed the Cypriot government in November that ExxonMobil intends to commence drilling in both Block 5, which contains a potential natural gas reservoir named ‘Electra’, and Block 10, which contains the ‘Glaucus’ natural gas deposit. Then, he had said the process of exploiting the resources will be taken step by step, saying, “the first steps are to understand what the resources are and then, once we know that, around mid-2025, we will be in a good position to consider different development options.” Christodoulides then announced that drilling work carried out by both ExxonMobil and QatarEnergy had commenced in January.

Commenting on the developments, energy analyst Charles Ellinas told the public broadcaster CyBC the agreement concerning Block 6 signed in Cairo was the more promising of the two. This was because a ‘host country agreement’ is binding, meaning that whenever Eni – the operator of Block 6 – takes the decision to invest, then it would be able to proceed immediately. In addition, Ellinas said, the advantage of Block 6 is that even though Eni has yet to make a firm announcement about exploiting the gas there, “we do know that it will be via subsea pipeline linking up to the infrastructures in the Zohr field, where the gas will be processed and then sent onto the Egyptian market.”

By contrast, the agreement regarding the Aphrodite field is a memorandum of understanding, which, while it sets out a framework of terms, is not binding. “This shows that the company [Chevron] and the countries are not entirely certain that the project will go ahead,” the analyst offered.

According to Ellinas, there is still a long way to go until commercial exploitation of the Aphrodite reservoir, and what is missing is a final investment decision by Chevron. “The key to all projects is the final investment decision. Without such a decision, there is no deal, no project, and no prospect for exports.” Ellinas argued that the Aphrodite development project would likely be too costly, given that the concession holder, Chevron, had agreed to install a floating production unit on top of the well – something he said would considerably raise costs. “Whenever the final investment decision is taken, it will be shown that the project is too costly…Egypt is already paying companies about $6 per 1,000 cubic feet, and so we won’t be able to go higher than that.”

He predicted that, at some point in the future, Chevron will let the Cypriot government know that the development plan for Aphrodite, as it now stands, is not financially beneficial. He therefore forecast that the development of the reservoir would experience even more delays.

Source: Cyprus Mail