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Our View: Pipeline deal with Egypt a first small practical step

The agreement was signed by energy minister Yiorgos Lakkotrypis and Egypt’s oil minister Tarek el-Molla

THE SIGNING of the agreement by Cyprus and Egypt for the construction of an underwater pipeline to take gas to Egypt’s LNG facility in Idku was a small, practical, first step in the exploitation of the island’s hydrocarbons. A sense of perspective is necessary, however, because there is still a very long way to go before Egypt actually takes delivery of Cyprus gas.

The foundations of a deal were laid down at the presidential palace on Tuesday, the agreement signed by energy minister Yiorgos Lakkotrypis and Egypt’s oil minister Tarek el-Molla in the presence of the representative of the European Commission’s Directorate-General for energy Ann-Charlotte Bournoville. The presence of Bournoville was a show of the Commission’s full backing for the project and an indication that it is no longer just an idea.

There is much work to be done before the construction of the pipeline, which is estimated to cost €800 million, begins. First, the government has to agree the percentage of revenue it would give Israel, which has a plot adjacent to Aphrodite and is entitled to a share. Negotiations have been going on for years without the two sides coming close to an agreement, without which no gas could be extracted and sold.

Second, the government has agreed to re-negotiate the revenue sharing agreement for the Aphrodite gas-field with the companies that have the licence (Noble, Delek, Shell) with the latter arguing that current terms made exploitation unviable for them. These will be complex negotiations, the duration of which nobody could predict. Once this is done the companies would have to negotiate a price at which the gas would be sold to the LNG plant in Egypt. This will depend on world prices that could prevent a deal if they are too low, making extraction unviable. And would an underwater pipeline be constructed before these matters are settled? Should we also mention the unpredictability of the Turkey factor?

There are still many unknowns. As we have written in the past, the gas and oil industry moves very slowly and cautiously, because of the constantly changing conditions which affect the huge amounts of money at stake. The government appears to have understood this and recognises the importance of taking a step at a time without resorting to big declarations. A practical step was taken on Wednesday, but there is still some way to go before what Lakkotrypis described as the “effective exploitation of undersea wealth in the Cypriot EEZ.”

 

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