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Cyprus, Noble Energy reach deal to expedite Aphrodite development

Soon after the modified PSC is signed it will probably be followed by a gas sales agreement with Shell taking the gas by subsea pipeline to Egypt for liquefaction at the Idku LNG plant.

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Cyprus’ government has reached a deal to revise the contract with US-based company Noble Energy and its joint venture partners, Israel’s Delek Group and Royal Dutch Shell to develop the Aphrodite gas field, Cyprus media reported. Hydrocarbons Company CEO Charles Ellinas told New Europe on May 31 the deal reached between Cyprus’ government and the Aphrodite gas field stakeholders to modify the Production Sharing Contract (PSC) means that Cyprus will be able to monetise Aphrodite. He stressed that in fact this one of the requirements of the deal.

The Cypriot government expects Noble Energy and its partners to expedite development. “It is expected that soon after the modified PSC is signed it will be followed by a gas sales agreement with Shell taking the gas by subsea pipeline to Egypt for liquefaction at the Idku LNG plant,” Ellinas said, referring to the Egyptian liquefied natural gas plant on the Mediterranean coast.

“However, this deal means altering profit sharing in favour of Noble Energy and its partners, leaving Cyprus with much reduced profits. The other drawback is that this will leave insufficient gas to support development of an LNG plant on the island for now,” Ellinas said, arguing that as a result, Glafcos and Calypso will have to wait until more discoveries are made. “Additional drilling, up to 8 wells, is planned to be carried out over the next 2 years. Hopefully this will lead to new discoveries bring plans for the development of an LNG plant at Vasilikos back to the table,” he said.

In late February, US energy giant ExxonMobil announced it has made a natural gas discovery offshore Cyprus in the Eastern Mediterranean at the Glafcos-1 well, which is located in Block 10. Based on preliminary interpretation of the well data, the discovery could represent an in-place natural gas resource of approximately 142 billion to 227 billion cubic metres.

Glaucus-1 was the second of a two-well drilling programme in Block 10. The first well, Delphyne-1, did not encounter commercial quantities of hydrocarbons.

The discovery will likely prompt further work on the Calypso field to the east, discovered by Italy’s ENI and France’s Total a year ago.

Cyprus Energy Minister Giorgos Lakkotrypis will reportedly brief parties on negotiations to grant ENI and Total the joint concession to explore offshore Block 7. Ellinas said the prospects for developing Block 7 are good. “Both ENI and Total are keen on this, particularly as part of the Calypso discovery in Block 6 extends into Block 7,” he said. However, he warned that with Turkey claiming that part of this block belongs to its continental shelf, any activity in the part of Block 7 claimed by Ankara will be contested, probably through naval ship harassment, and maybe more.

Meanwhile, Bloomberg reported on May 30 that Turkey is considering deploying a Russian missile-defense system along the country’s southern coast, near where its warships are accompanying vessels exploring for energy. According to the news agency, the long-range S-400 battery, which might be delivered in weeks, would dramatically enhance Turkey’s military capabilities in the Eastern Mediterranean, where it’s embroiled in a spat with EU-member Cyprus over offshore gas exploration.

Ellinas said if this happens it could threaten drilling offshore Cyprus. “It is a threat. Even though these may not be used in anger, their presence escalates risks in the region. I do not believe that the US will take any measures as long as ExxonMobil is able to carry on its drilling and development of Block 10,” he said.

Ellinas reminded that as Turkey has not made claims on this block, he expects this to be the case.

“With Turkey fully intending to support its claims through naval action if needed, the risks to drilling in blocks claimed by Turkey will be multiplied,” he said, arguing that the deployment of drilling rig Fatih about 60 kilometres west of Paphos and the aggressive statements by various Turkish officials, provide a clear demonstration of Ankara’s intention. “It is determined to support its claims aggressively. Response and condemnation by the international community so far has not been strong enough to deter Turkey,” Ellinas said, stressing that addition of the S-400s will make the situation even more difficult.

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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