Our View: Still a very long wait for Aphrodite gas

After the latest extension given to Chevron to submit an ‘optimal development plan’ for the offshore Aphrodite gas field, people will rightly be wondering whether Cyprus will ever exploit its gas reserves. The decision-making process in the oil and gas industry is admittedly a very slow one because of the huge investments required, which are influenced by an array of other factors. But even by these standards the exploitation of the gas field is taking very long.

The latest twist was revealed last Friday, by a filing to the Tel Aviv stock exchange by NewMed Energy which is part of the Chevron-led Aphrodite joint venture. It said Cyprus’ energy minister had authorised the operator to submit a proposal for an optimal development plan by March 31, 2024. Once this is approved by the energy minister – there is no guarantee this will happen – a new milestone will be set for Chevron to commence a Front-End Engineering Design (Feed) study.

The Feed study, which follows the feasibility study, examines the technical aspects of the project and estimates the investment costs, after which the final decision is taken.

The original milestone for the Feed study was November 7 of this year, but disagreements emerged between the government and the operator who formally sought a postponement on December 1. Probably embarrassed by the new setback, the government tried to put a positive spin on it, announcing that an understanding had been reached. Energy Minister Giorgos Papanastasiou, pushing the bounds of credibility, said at the time that “a win-win situation has been achieved.”

He explained at the House energy committee on Tuesday that the disagreement was over the floating production unit (FPU). Chevron wanted to pump the gas to a liquefaction plant in Egypt, whereas Papanastasiou insisted that a FPU was set up at the gas field as this would give Cyprus more control of how it would market the gas and ensure more efficient use of the reserves. Whether Chevron will come back in March with a development plan involving a FPU is unclear.

What has become clearer is the weak position of Cyprus in dealing with the oil giant. First, the Aphrodite gas field is relatively small. Second, the funding of the project will be undertaken by the operator who could decide the investment in the FPU – estimated to be in the region of €1 billion – is not viable and walk away from the project, regardless of the loss it will suffer.

Where would that leave Cyprus? It is doubtful there would be other oil companies lining up to take over a project deemed unprofitable by Chevron.

This is the worst-case scenario, but even the best-case one, by which the government would be given a development plan it approves of, would still involve a long wait. According to what was said at the House on Tuesday, even if there were agreement on the plan at the end of March the Feed would be ready at the end of 2025 and gas would be extracted four years later.

It is a long wait, and this is assuming that external factors do not change in the meantime.