Energy Minister Giorgos Lakkotrypis may have prematurely announced the re-negotiation of the contract for the exploitation of the Aphrodite gas finding, but Tuesday’s decision by the council of ministers suggested this was inevitable. Perhaps the minister should not have presumed the cabinet would have sanctioned the new negotiation but he has acquired enough experience, handling energy issues for more than five years, to realise there was no other choice.
If there is one thing we have learned about energy matters in the last few years it is that in the oil and gas industry nothing is straightforward and clear-cut. The huge amounts of money at stake trigger constant changes of plans and decisions, which are invariably determined by international prices and their fluctuations. Energy companies have to consider these fluctuations as well as price forecasts before investing hundreds of millions of dollars in facilities for extracting oil or gas.
The consortium of companies with the licence for the Aphrodite plot – Noble, Delek, Shell – has reportedly twice changed its demands in the last few months, seeking a bigger percentage of the revenue from the sale of gas. The pragmatic Lakkotrypris acknowledged the concerns about the viability of the investment by the consortium – one report claimed that, under the existing contract viability would be marginal – and therefore backed the re-negotiation.
The companies would not have gone ahead with the project if the terms of the contract put at risk an acceptable return on their investment. This is how investment decisions are taken and the Cyprus government has every reason to keep its partners happy. It does not have the power to force the consortium to set up a loss-making operation, even if there is a signed contract. As has been mentioned above, the oil and gas industry is very sensitive to fluctuations of world prices, which is why decisions keep changing.
Akel refused to see this reality, its mouthpiece Haravghi claiming on Monday that the government was “Setting up team for the sell-off of Block 12.” This alleged “sell-off” would cause “losses to the Republic”, it claimed. We would have thought that such simplistic views, aimed at scoring cheap political points, would have disappeared and that energy matters would have been approached with a little more responsibility and maturity by the parties. The negotiations and agreements with energy companies cannot be viewed as a zero-sum game as Akel seems to suggest.
Any agreement with the oil companies has to be win-win, something that the government at least has recognised.