By Peter Stevenson*
Cyprus finally looks like it will join the club of gas producing countries. European majors ENI and TotalEnergies are hoping to announce they have taken a final investment decision (FID) on their Cronos gas discovery, made in 2022, at Egypt’s showcase event, the Egypt Energy Show (EGYPES) at the end of March (though that is currently a highly ambitious target). But even if FID is not taken at EGYPES it is considered a formality, though the longer it takes to reach the longer it will take to develop Cronos.
A final investment decision should pave the way for gas to begin flowing from the reservoir through a 90km subsea pipeline to the facilities of another ENI-operated field, the giant Zohr in Egyptian waters, by the first half of 2028.
Cyprus’ first gas discovery, Aphrodite, made in 2011 is also due to begin producing by the start of next decade. The plan for Aphrodite is also to head to Egypt. US supermajor ExxonMobil is also touting the island’s most recent discovery, Pegasus (along with Glaucus which was discovered in 2019 in the same block) for Egypt.
A 17 February parliamentary committee rightly asked the energy minister and bureaucrats from the ministry’s hydrocarbons service whether a proper risk assessment had been carried out before deciding to send all of our gas to Egypt. The answers were unconvincing.
One would think obtaining energy independence through its own resources and means would be a no brainer for an island if those resources were available. And yet here we are. The interconnection with Greece appears to be going nowhere. Renewables are not growing at a rate that will help the government displace the burning of costly imported petroleum products and the gas Cyprus has discovered to-date is all heading to Egypt.
More than a decade ago, with just Aphrodite under its belt, Cyprus was looking at building an onshore LNG terminal that would export gas, while also keeping some for the domestic market. The argument at the time was that Aphrodite alone with just 3.5tcf of recoverable reserves could not justify the investment needed to build a multi-billion-dollar facility of that nature.
With more gas discovered since, why hasn’t Cyprus pivoted back to a project that could bring in billions of dollars’ worth of investment to the island alongside cheap gas for power and even potentially for a budding petrochemicals industry?
Cyprus is “blessed” with the presence of European and US supermajors but that isn’t always a good thing. While their presence does act as somewhat of a deterrent to harassment from Turkey, companies of that size are often after large discoveries, north of 8-9tcf, in order to meet their return on investment (ROI) criteria.
If they are able to find a cost-effective development, taking advantage of under-utilized nearby infrastructure as is the case with ENI and Cronos then there is hope for development. Ullage at Egyptian facilities comes as a result of high decline rates at producing fields and Cairo is more than happy to take Cypriot gas, whether that is to keep its own LNG export facilities running or feed its domestic market.
Could any of those companies be convinced to combine their discoveries and bring them back to Cyprus for the much-vaunted LNG plant? Right now that’s highly unlikely.
So what’s the solution? Cyprus has decided to put its eggs in the major and supermajor basket and those companies are happy to send the gas to Egypt, despite the continued risk of tardy payments and rising instability in the region.
Change of direction
Changing any of that would require Cyprus to develop a national gas/energy strategy. The question is, why hasn’t one been developed yet? You’d need to ask the politicians who have led this country for the last 20-30 years why such a strategy has never been discussed and agreed upon.
Developing your own resources can be very chicken and egg. If you look at neighboring Israel, the country formed a strategy that committed any companies discovering gas to connect their fields to Israel.
Knowing that gas would be supplied to the domestic market the country switched its power stations to mainly run on gas with excess volumes exported to Egypt and Jordan.
The big risk in the government’s eyes is based more on politics rather than self-sufficiency or energy independence. Announcing that all gas discovered offshore Cyprus would need to be tied-back to the country would likely spook the majors and could very likely result in them exiting their blocks.
Would their exits open the floodgates for Turkish harassment and provocations of any new entrants that didn’t have the muscle and the standing of a government linked major energy company? Maybe not the floodgates but Ankara would likely feel emboldened having recently signed an MoU itself with Chevron for offshore exploration.
The majors’ exits from Cyprus would potentially open the door for other firms to have a crack at developing offshore gas reserves for the benefit of the local population. There are plenty of midcap independents who would jump at the chance to develop the resources Cyprus has. Greek firm Energean has openly stated that it would have developed Aphrodite by now given the chance and supplied gas back to Cyprus.
Where the midcaps might be lacking is the political backing and diplomatic connections to prevent a flare-up of tensions. This may be what continues to keep Cyprus prisoner to the majors.
Gulf games
Gulf national oil companies (NOCs) may also have a role to play. Qatar state giant QatarEnergy is already partnered with ExxonMobil at Blocks 5 and 10 but with Doha’s close ties to Ankara questions will persist over Qatar’s motives for being offshore Cyprus. After all Qatar is hardly short on gas.
Abu Dhabi state firm ADNOC was close to entering Cyprus in 2023 and could try again if it believes the opportunity is there. The presence of the UAE’s state champion would certainly make Turkey think twice.
The bottom line is, if Cyprus continues to let energy companies dictate its strategy over prioritizing its own independence, then the public will likely continue to be held hostage by expensive electricity prices.
Politicians with a vision and the conviction to take on energy behemoths are not easy to come by, not least in Cyprus. To his credit, former energy minister George Papanastasiou did his best to push back against the majors but was undermined on several occasions by his own president.
Ultimately it is easier to defer decisions to others, whether that’s energy majors or foreign governments, rather than making tough choices ourselves. The upcoming parliamentary elections should provide a glimpse into the electorate’s psyche and whether they are growing weary of the same old tired excuses that continue to hold Cyprus back.
*Peter Stevenson is the East Mediterranean Editor at MEES (Middle East Economic Survey). He is widely regarded as one of the leading analysts in the region.