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Cyprus-Israel gas dispute poised for international arbitration (update 2)

Israel and Cyprus will be applying for international arbitration to decide a dispute over the distribution of natural gas in a joint offshore reservoir if the companies involved fail to come to an agreement, it emerged on Wednesday.

“We have recently agreed that we will ask the companies first to try and come to an arrangement between them … and if this is not possible … then we’ll look at the option of going to arbitration,” Energy Minister Giorgos Lakkotrypis said.

Earlier, Israeli business news portal Globes reported that the two countries disagreed on how to proceed with the development of the Aphrodite gas reservoir, lying on the border of their respective economic zones.

The Israelis estimate the quantity of gas on their side at 7-10 billion cubic metres (bcm), while the gas in the Cypriot section of the reservoir, owned by Yitzhak Tshuva-controlled Delek Group, is estimated at 100bcm.

Since the gas in the Yishai prospect on the Israeli side is part of a single geological reservoir, its production depends on agreements between the two countries.

Israel and Cyprus signed a delineation agreement in 2010 but haven’t agreed so far on how to develop gas reservoirs straddling both economic zones.

“The state did not forego the Yishai prospect, and will not give up its share, even if this part is relatively small,” Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz told Globes. “The state will not waive its share of either the gas or the revenue from the Aphrodite reservoir, and is also unable to do this in the name of the companies that hold it.”

In the absence of a distribution agreement, Israel is refusing to allow Cyprus to develop Aphrodite, because pumping gas from it will also cause gas to be pumped from the Yishai prospect.

“There are negotiations that have unfortunately been going on for years, but we recently reached an agreement with the Cypriots that seems reasonable to us. Based on the figures provided by the two sides, the international arbitrator will rule what percentages Israel and Cyprus will receive,” Steinitz said. “First of all, however, we will allow companies from both sides to hold discussions in an attempt to reach understandings. If this does not happen, there will be an arbitrator within a few months.”

Lakkotrypis said the two sides had been engaged in talks for a quite some time on joint exploitation in general and on the Aphrodite matter in particular, and whether it extended into Israeli territory.

He added that one of the serious disagreements was also the quantity potentially spilling over. The companies that drilled at Yishai had issued an announcement at the Tel-Aviv stock exchange saying the quantities found had been negligible, the minister said.

The owners of Yishai had asked Israel’s government to take steps to safeguard the country’s rights in Aphrodite after official statements that Cyprus was preparing to sell the Aphrodite gas to Egypt.

The chairman of Israel Opportunity, one of the partners in Yishai, suggested that allowing the deal to go ahead without taking their interests into account would be a dangerous precedent that could affect other reservoirs in the region.

Israeli Ambassador to Nicosia Sammy Revel said the two countries have a “very good, very transparent, very direct contact” on the issue of the Aphrodite field.

Speaking after a meeting with presidential commissioner Fotis Fotiou, the ambassador said the two countries will find a way to work together to bring the project forward and make the most of the reserve in the region.

“We have to recognise that we have very important natural gas reserves here in the Eastern Mediterranean and we have to work together to explore this huge opportunity which is very important for our economies,” he added.


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