‘All signatures on Cyprus gas field agreement must be honoured’ (Updated)

The managing company of the Aphrodite gas field “leaves us in uncertainty,” Energy Minister George Papanastasiou said on Friday.

Speaking ahead of a meeting with Chevron President Clay Neff, and the conclusion of the dispute resolution period regarding the field’s development plan, the minister stressed how the government insists on “all parties honouring their signatures”.

“We insist that Chevron honours its signature,” he said speaking before the House finance committee discussion of his ministry’s budget for 2024.

He was referring to the initial plan of the former operator Noble Energy, specifically for the construction of a Floating Production Unit (FPU) for natural gas production over the field. The FPU would allow for increased gas recovery, consequently maximising revenues.

However, an FPU is absent from a revised plan submitted to the Cyprus government back in May. This led to extended talks among the parties involved as the government rejected the amendments, without rejecting the proposed blueprint in its entirety.

“Our forecasts were that in the first few years [of production], there will be gas, but in the next five years, which represent the revenues for the Republic of Cyprus, there will be no gas. Chevron’s proposal leaves us in serious uncertainty; the field will develop according to Chevron’s interests in the first period, and in the second period, there will be no gas,” he explained.

The FPU, as he clarified, purifies the gas from oil derivatives, water, and particles.

Papanastasiou stressed that the initial development plan proposal submitted in 2019 “was very correct, but it must be honoured by all parties.” Gas was discovered in the field in 2011.

He further emphasised that the government understands the motives of the company, which is directing capital investments to Israel’s major fields, Tamar and Leviathan.

“But we also understand the Republic of Cyprus. Cyprus has given a lot and received nothing. That’s why we insist on all parties honouring their signatures,” he said.

He also pointed out that the Aphrodite field is a non-risk asset. “It is a developmental field, ready to go for sale. That’s why we insist on infrastructure,” he added.

In his statements after the long session of the committee, Papanastasiou reiterated that changing the plans four years after the initial agreement “does not find us agreeable as the Republic of Cyprus”.

But he added that the government is ready to listen to Chevron’s proposals.

“If there is something that can be indicated to us and which can offer some value for the Republic of Cyprus as well of course let’s hear it”.

When asked if there is a possibility of a new extension of the consultation period to resolve the dispute, Papanastasiou said he is waiting for the meeting with Chevron’s president this afternoon.

The deadline of the second extension that has been given is on Sunday.

It is understood that the main bone of contention is reportedly the cancellation of a plan included in the original 2019 development plan to build a floating production unit (FPU) to process the gas (removing water and oil derivatives) before gets piped a 480km distance to the terminal in Idku, Egypt.

Chevron’s new plan envisages transporting the gas to Shell’s West Delta Deep Marine (Wddm) existing processing and production facilities offshore Egypt, from where it would be transported to the mainland eventually for domestic consumption or for export as LNG.

At the same time, the updated plan reduces production wells from five to three, resulting in lower production. Estimates point savings of up to €1 billion for the consortium from the revised plan, as compared to an estimated €3.4 billion in costs associated with the 2019 plan.

Nicosia considers that the presence of an FPU would extend the life cycle of the field and optimising production, while its absence would mean lower recovery of quantities and consequently less revenue. Moreover, it views the absence of the FPU as detracting from the flexibility needed to utilise the gas.

However, specialists have raised concern about the potential failure to reach a deal with Chevron.

Chevron are the operators and a 35 per cent partner in the Aphrodite field, along with Shell (35 per cent) and Israeli firm NewMed Energy (20 per cent).