Aphrodite development might be best left on hold, warns analyst

Cyprus may be left with negligible profits from future gas sales from the Aphrodite reservoir if it agrees to Chevron’s latest demands, an energy analyst warned on Monday. Charles Ellinas was referring to Chevron – operator of the Aphrodite field – recently asking Cyprus to pay a tariff of $3 per mmbtu (million British Thermal Units) for use of part of the planned pipeline running from the reservoir in Cypriot waters to the coast of Egypt. The tariff concerns use of the section of the pipeline inside Egyptian waters, which is owned by Chevron and its partners as well as by E-Gas, the Egyptian state-owned corporation. It’s understood that previously Chevron had asked Cyprus to pay $1 per mmbtu for use of the pipeline. However, according to a recent article published by MEES (Middle East Economic Survey), the oil giant has now upped the ask to $3. Cyprus does not participate in the planned pipeline itself. Ellinas, who initially aired his concerns with the Cyprus News Agency, told the Cyprus Mail that if the government accedes to Chevron’s demands, it would minimise the profits the island stands to make from the Aphrodite gas. “To the point that it would hardly be worth it for Cyprus,” he said. The expert said that, to his knowledge, the government has asked Chevron to reconsider. But the problem, he added, is that Chevron has all the leverage. Chevron in no hurry to develop Aphrodite “They can afford to wait, they’re in no hurry to develop Aphrodite,” Ellinas told us. Chevron is currently prioritising other major investment projects, including in Guyana and Venezuela. In addition, the company is investing in doubling export capacity from Israel’s Leviathan field. By comparison, the Aphrodite gas field is a small project for them. Meanwhile there’s another complicating issue: the talks between Cyprus and Israel on the part of the Aphrodite reservoir stretching into Israel’s maritime zone. Talks between the two sides – regarding the share of compensation to the Israeli side – have been ongoing for years. The latest negotiations, which took place last week, reportedly failed to come to an agreement. Chevron has said it will not proceed with a final investment decision (FID) on Aphrodite until and unless Cyprus and Israel settle their dispute. In the meantime, the American multinational is scheduled to complete its front-end design for Aphrodite by the end of this year. The study’s results will determine Chevron’s commercial decision, which in turn factors in the tariff charged for the use of the planned pipeline to Egypt. “So all the pressure is on the Cypriot side,” Ellinas said. Gas to head to Egyptian market All of the Aphrodite gas would go to the domestic Egyptian market. In a further sign that the Aphrodite partners are in no rush, the Israeli company NewMed recently said on its website that the FID would be taken in 2028; previously the FID had been scheduled for early 2027. Given all this, suggested Ellinas, perhaps Cyprus should consider a different track – namely waiting to see whether Aphrodite could be folded into ExxonMobil’s plans to export Cypriot gas to Egypt. Exxon plans more drilling in Cypriot waters – specifically in offshore blocks 5 and 10. The company has signed a preliminary, non-binding agreement to pipe to Egypt its gas finds in the reservoirs dubbed Glafcos and Pegagus, both located in block 10. LNG plant still not viable The combined recoverable gas from these two reservoirs is estimated at 8 trillion cubic feet. This is not enough to warrant building an LNG export plant in Cyprus. However, should future gas finds occur in Cyprus’ exclusive economic zone, it might make an LNG plant worthwhile. It would take approximately 15 tcf of gas to make an LNG plant viable. In this scenario, additional finds in Cypriot waters, together with Aphrodite, might raise the number to the required 15 tcf. Aphrodite holds an estimated 3.5 tfc of recoverable natural gas. “It therefore might make sense to hold off on Aphrodite now, and divert its gas to a potential future LNG plant in Cyprus,” Ellinas said.