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Cyprus’ ever-changing gas policy

Energy Minister Giorgos Lakkotrypis (third right ) after signing the LNG plant MoU with Noble, Delek and Avner in 2013

When the Anastasiades government took office on March 1, 2013, one of the first things Energy Minister Giorgos Lakkotrypis did was announce a roadmap for the development of Cyprus’ natural gas reserves.

The development plan placed the signing of “long-term” contracts for the sale of liquefied natural gas in the second half of 2014, preliminary indications of quantities in reserves other than ‘Aphrodite’ (or ‘plot 12’) in 2014, and a “final investment decision” on the construction of a natural gas liquefaction terminal in Cyprus by the third quarter of 2015.

More than three years on, not one of the above boxes has been ticked.

Those early days saw unequivocal assurances regarding ambitious plans to build a natural-gas liquefaction terminal in the Vassilikos area, a coastal patch of land mid-way between Larnaca and Limassol, both by Lakkotrypis and President Nicos Anastasiades.

“The president reiterated today Cyprus’ commitment to pressing ahead as soon as possible with the designing and construction of a natural gas liquefaction terminal,” Lakkotrypis said in June 2013, after a meeting with Anastasiades and a delegation of Israeli energy giant Delek.

An LNG plant would cost an estimated €10 billion – or upwards of 60 per cent of the country’s annual GDP- so skeptical journalists pressed the point. Lakkotrypis was forced to definitively put any doubts to rest.

“The decision is final,” he said.

“The terminal will be built. The timeframes are tight, but we have not missed them.”

Existing oil storage facility at Vassiliko where the government also hoped to locate an LNG terminal
Existing oil storage facility at Vassiliko where the government also hoped to locate an LNG terminal

Four months later, the Vassilikos Master Plan was unveiled. It was a detailed study with recommendations of how to set up the envisioned energy hub, and what necessary infrastructure the government needs to set up. It also laid out the logistics of building the liquefaction terminal, which, if sufficient gas quantities were found in the Cypriot offshore reservoirs, might have required the relocation of the residents of Mari, a village inside the area that gained notoriety by the 2011 explosion at the naval base that left 13 dead.

But even lesser scenarios had area residents worried, as the plan called for the ill-advised concentration of the island’s entire energy industry, infrastructure, and even strategic oil reserves, in a relatively small area surrounded by tiny villages.

It turned out, they needn’t have. By November 2014, and despite having signed a memorandum of understanding with US-based Noble Energy and Delek for the LNG plant in mid-2013, plans to build a terminal had been abandoned as the quantities of gas found made it commercially unviable.

“Given results thus far regarding quantities of natural gas found in the Cypriot exclusive economic zone, constructing a liquefaction terminal in Cyprus is not feasible at this time,” government spokesman Nicos Christodoulides told the public broadcaster at the time.

“In this context, all options toward regional cooperation are being explored.”

It was this unfortunate development that forced a refocus of the government’s energy policy to cooperating with neighbouring countries, which could serve both as future customers for Cyprus’ hydrocarbons reserves, and as partners in future trade.

Alexis Tsipras, Nicos Anastasiades and Benjamin Netanyahu in Nicosia in January 2015
Alexis Tsipras, Nicos Anastasiades and Benjamin Netanyahu in Nicosia in January 2015

Wasting no time, the government kicked off the first of what would be a string of ‘tripartites’, invariably featuring Cyprus and Greece, later that same month.

Although certain meetings between Lakkotrypis and his counterparts from some of Cyprus’ neighbours, such as Lebanon, Palestine and Egypt, did take place before the no-terminal milestone, these were invariably low-key and produced little by way of concrete results. It was only after November 2014 that these contacts escalated to heads-of-state affairs and garnered huge media coverage, locally and internationally.

“We recognise that the discovery of important hydrocarbon reserves in the Eastern Mediterranean can serve as a catalyst for regional cooperation,” read the text of the Cairo Declaration of November 8, 2014, signed by Anastasiades, Egyptian President Abdel-Fattah al-Sissi, and Greek Premier Antonis Samaras. The three countries agreed to “adhere to well-established principles of international law”, in order to “proceed expeditiously with negotiations on the delimitation of maritime zones, where this is not yet done”.

This was reaffirmed in subsequent trilateral summits between Cyprus, Greece, and Egypt, in April and December 2015.

A tripartite summit, this time with Israel, was also held last January in Nicosia, in which the three countries pledged to promote joint projects in the energy field.

“The three countries view the energy sector, and in particular, natural gas and renewable energy, as a solid foundation for cooperation in the Eastern Mediterranean basin,” the Nicosia Declaration read.

“The three leaders have decided the establishment of a Permanent Ministerial Committee on Energy in order to consider strategic and practical aspects of joint action in the field of energy cooperation.”

Another tripartite agreement followed in April, this time between Cyprus, Greece, and Jordan, although conducted at the level of permanent undersecretary of foreign ministry level, and yet another in May, with Lebanon.

A gas test flare at Aphrodite in September 2013
A gas test flare at Aphrodite in September 2013

The results of the regional-cooperation strategy have thus far been underwhelming in real terms. No hard agreements have been reached regarding the sale of natural gas, and timeframes for unearthing Aphrodite’s confirmed reserve are likely to be pushed back from 2020 by one or two years.

Meanwhile, Egypt, originally perhaps the hottest prospect to buy Cypriot natural gas discovered its own massive reserves, and a unitisation deal between Cyprus and Israel over the Aphrodite reservoir, a small part of which extends into the Israeli exclusive economic zone, has been allowed to fester for years – even though without the deal, Cyprus cannot sell its Aphrodite gas.

Due to the extremely sensitive and complex nature of the matter, it is safe to assume that more is being done than said. But, judging from the results thus far, it may also be safe to assume that the strategy isn’t playing out as well as the government would have hoped.

Barring a dramatic game-changing event soon, those grand statements of the early days may come back to haunt Lakkotrypis – and Anastasiades – for years to come.


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