Cyprus poised to make ‘continuous concessions’ by energy giants

Energy expert Dr Charles Ellinas on Wednesday warned that the Cypriot government is likely offering “continuous concessions” to multinational energy corporations so as to persuade them to drill for natural gas under the seabed off the island’s coast. He was speaking after ExxonMobil and QatarEnergy jointly declared the ‘Pegasus’ field and the ‘Glaucus’ field, which are both located in Block 10 of Cyprus’ exclusive economic zone (EEZ), to be “marketable”, and was keen to play the development down. “When they did the confirmatory drilling and then announced that the two fields contain between six and eight million cubic feet, they had a deadline to announce whether the field is commercially viable, and they did so. This does not mean that it will proceed with development,” he told the Cyprus News Agency. He also pointed out that the two corporations’ final investment decision regarding the drilling for gas to be made will likely not be made before 2029, with natural gas from the two fields as such not expected to be exported until 2033 at the earliest. “What worries me, however, are the terms to which we have agreed, because it seems that lately we are making huge concessions to the companies. We seem to be mainly interested in the political part of the agreements, rather than the commercial part,” he said. Asked what this view is based on, he pointed out that ExxonMobil has “signed memorandums of understanding with Egypt to export natural gas through the Egyptian terminal”, which could either be the Segas liquefaction terminal in the Egyptian port city of Damietta or a planned new terminal in Port Said. “Based on the liquefied natural gas prices expected at the time ExxonMobil starts exporting, the margins are small,” he warned. “For it to become commercially viable, Cyprus must make concessions,” he added. “From what I hear through the industry, through the companies working in this sector, we have made many concessions, to the point where the share of the profits for Cyprus will be low, especially if the LNG price is at the lower margins expected, and the Brent oil price is also low by then,” he said. He added that if the government continues to offer concessions, the corporations will continue to demand even more. “We have reached the point where we do not give so much importance to the commercial benefits. We, as Cyprus, give more importance to the political ones, namely the fact that so many years after having discovered natural gas, we have done nothing, and are going for an export,” he said. He then made reference to the fact that a final investment decision is yet to be signed by Italian multinational corporation Eni regarding the ‘Kronos’ gas field, which is located in Block 6 of Cyprus’ EEZ. “It seems that the problems are continuing, so that the company cannot announce a final investment decision, since the studies have been completed. That means that there are commercial differences,” he said, suggesting that this may mean that Eni, too, is “pressing for more concessions” from the Cypriot government. Additionally, he said that the amount of LNG entering the market may increase by as much as 40 per cent in the coming years, and that with those “huge quantities” entering the market, “it is expected that LNG prices will decrease considerably”. With this in mind, he said that he expects American multinational corporation Chevron, which holds the rights to Block 12 of Cyprus’ EEZ alongside Israeli energy company NewMed Energy, and the BG Group, which is owned by Royal Dutch Shell, to also ask for more concessions. Block 12 contains the ‘Aphrodite’ gas field, and Ellinas said that Chevron had suggested that it would cost €4 billion to extract and export the gas in the field, even without the installation of a floating processing unit above the field in the sea. However, he said, “we forced them to install a platform and they did, but I believe they will come and start asking us for more concessions”. “I hope they do not, but I am worried about it,” he added. Returning to the matter of ExxonMobil and its plans to expand its exploration into Blocks 4 and 10A, he said that the company now has control over a “huge area of the eastern Mediterranean”, allowing it “good prospects for new discoveries”. To this end, he said that it is “important that they start drilling in these blocks soon as well”. He said that the ‘Pegasus’ field and the ‘Glaucus’ field already contains “sufficient” quantities of natural gas to be transported to Egypt, but that “if new discoveries are made and the quantities double”, the infrastructure available in Egypt will no longer be sufficient, “and [ExxonMobil] will look for other ways to export”. As such, he said, the company is “giving itself leeway on how to proceed in the future, without committing itself now”.