Our View: Difficult to see how we can win Chevron gas dispute

Nothing is straightforward when it comes to the development of natural gas reserves. Twelve years have passed since gas reserves were found in the Aphrodite field of block 12 of the Cypriot EEZ, but we still do not know if the gas will be extracted and marketed.

The latest reports are that negotiations between the government and the oil giant Chevron are heading for deadlock, because of fundamental disagreement over how the Aphrodite field would be developed. Government spokesman Constantinos Letymbiotis said the government was ‘optimistic’ about reaching an agreement, but time is running out with the deadline for a deal less than two weeks away, on November 5.

The disagreement is over the construction of a Floating Production Unit (FPU) at Aphrodite, which the Cyprus energy minister insists on, but Chevron has ruled out because of the cost, which is estimated to be in the region of €1 billion. A more affordable alternative for Chevron, included in the development plan submitted in May, would be to transport the gas by pipeline to Shell’s West Delta Deep Marine (Wddm) processing and production facilities, from where it would be transported to Egypt’s liquefaction plant in Edku and be exported as LNG.

For the energy ministry, this means Cyprus would have little control over the Aphrodite field. Energy minister Giorgos Papanastasiou explained in an interview earlier this month that removal of the FPU from the plan meant that control of the gas field would not be in Cyprus, but in Egypt which has its own gas to market. According to the authoritative oil industry publication, Middle East Economic Survey, the plan for a pipeline from the Aphrodite field to Edku was not supported by the Egyptian government which did not want Cypriot gas to take up a sizable portion of its LNG export capacity.

Papanastasiou wants the FPU because apart from keeping control of the gas field in Cyprus, it would maximise the quantity of gas that is extracted and also allow for the construction of a pipeline from the field to Cyprus.

He was very clear about what was at stake. “We need infrastructures. As long as we have (natural gas) quantities in the sea without infrastructures, it is as if we have nothing,” he said recently, in reference to the FPU. The problem is that the infrastructure costs a huge amount of money, which Chevron and its partners appear unwilling to invest.

The government has the option of terminating the contract with Chevron, Shell and NewMed Energy, if an engineering study does not commence on November 17. How such a study could be undertaken when there is no agreement on the way Aphrodite would be developed is open to question. Terminating the contract does not seem to be the answer either. What oil firm would be willing to bid for a contract that oil giants like Chevron and Shell considered not to be worth pursuing?

The government is not in a very strong position and it is difficult to see how it could win this dispute with Chevron.