By Elias Hazou
THE NICOSIA Declaration signed here this week may contain a great deal of lofty lingo, but seems to offers nothing new or tangible when it comes to energy, a leading industry expert said on Thursday.
During the talks with President Nicos Anastasiades and Egyptian leader Abdel Fatah al-Sisi, the latter reiterated Egypt’s interest in buying Cypriot natural gas.
And on Thursday, on the heels of the Nicosia three-way summit, Energy Minister Giorgos Lakkotrypis suggested a marine pipeline from the Aphrodite reservoir to the Egyptian coast was all but a done deal.
Speaking to the state broadcaster, Lakkotrypis said technical teams from both governments were in talks to strike an agreement, determining such matters as the two nations’ respective jurisdictions on the mooted pipeline and environment-related issues.
The minister said also that Cypriot companies wanted in on the coming bidding on multi-billion construction contracts in Egypt’s ambitious Suez Canal Corridor Development project.
Egypt has previously signed an agreement with Cyprus to be able to purchase gas in order to fulfill Egypt’s growing energy needs.
But MoUs, which are not legally binding statements of intent, are a dime a dozen, energy expert Charles Ellinas told the Mail.
“Inter-state agreements and dialogue are certainly positive, in that they promote cooperation and peace. But as far as Cyprus’ gas export plans go, we’re still a long way off.
“Accords between governments are one thing, but clinching a gas sales agreement is an altogether different ballgame,” Ellinas said.
At the end of the day, it is the oil and gas companies that make the call. And at the moment, several pieces of the puzzle have yet to fall in place.
For one thing, said the expert, the anticipated price of Cypriot gas cannot compete with current prices that Egypt is paying local producers.
For example, in developing a new multi-billion project in the North Alexandria gas fields, BP will be selling at anywhere between $3.5 and $4.25 per mmbtu.
By contrast, the price of Cypriot gas to the Egyptian domestic market is expected to be $8 per mmbtu – and that’s a conservative estimate.
That’s because, Ellinas explained, Noble and Delek – the partners in the Aphrodite prospect – are selling their Israeli gas in the Israeli market at $5 to $6, and will expect a similar rate for their Cypriot gas.
Add to that another $2 for factoring in the cost of a pipeline to Egypt, and the price goes up to $8.
Moreover, Egypt needs gas urgently, before 2020. Already it has signed deals with Gazprom and Shell to import liquefied natural gas (LNG), while BP’s development of the North Alexandria fields should satisfy domestic demand.
There is another angle: British Gas (BG) had initiated talks with the Cyprus Hydrocarbons Company on the Cyprus-Egypt pipeline. But as Shell has since bought BG, it is extremely unlikely that the acquisition price has factored in this pipeline project, which for the moment is a project on paper alone.
It will therefore be up to Shell to decide on the Cyprus pipeline, and Shell has already hinted that BG’s Egypt operations are not a priority for it.
Meanwhile a report by Egypt’s Daily News claims Cyprus will be able to pipe its gas to the neighbouring country by 2017 – a date Ellinas finds implausible, if not outright outlandish.
The paper quoted an upbeat Abdel Badie, chairman of the Egyptian Natural Gas Holding Company (EGAS), as saying the cost of the pipeline would be split between Cyprus’ government and Noble Energy, on the one hand, and the Egyptian government, BG, and Union Fenosa, on the other.
“It takes about three years to plan it all out, find investors and finally get the pipeline built. Mind you, that’s three years after the concerned companies – Noble in this case – take the Final Investment Decision. It’s now 2015. If Noble were to issue its FID today, we’d still be talking about 2018 – at least,” notes Ellinas.
Asked about the razzmatazz surrounding the Nicosia talks, the expert said this is what politicians typically do.
“Al-Sisi can talk all he wants about procuring gas from us, but who’s going to pay for it? Is he?”
By Elias Hazou