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14 June, 2024
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Why the constant delay in the Cyprus-Chevron gas deal?

Crucial decisions loom as negotiations navigate time and turbulence in Eastern Mediterranean energy sector

Yiannis Ioannou

Yiannis Ioannou

Negotiations between the Republic of Cyprus and Chevron, representing the Aphrodite consortium in block "12" in the Cypriot EEZ, are currently stuck, primarily due to differences in the time frame. The negotiations, which essentially commenced last August with inherent differences in the Feasibility Development Plan (FDP) for the block, have been detailed and analyzed by "K". Both sides are seeking a win-win formula, with information converging on a mutual interest in time extension and finding a compromise on the main point of contention—the Floating Production Unit (FPU) on the block. This was initially proposed by the consortium in 2019, amended by Chevron in May, and accepted by Nicosia as a "red line." Last week, following an exchange of letters between the Ministry of Commerce and Chevron, a new extension was granted for technical details and the start of FEED. Barring any contingency, the deadlock seems likely to be lifted, and next Friday (1 December) is considered a significant milestone for announcements. The international conference "EMC (Eastern Mediterranean Energy Conference & Exhibition)," which started on Monday the 27th of November in Limassol, is expected to finalize the deadlock between Chevron and the RoC.

The Main Scenarios

Chevron is expected to respond to Nicosia by December 1 regarding its two letters, possibly buying time due to the "Thanksgiving" celebrations in the US. Barring any unforeseen circumstances, prevailing scenarios include finding a compromise formula for the FPU to avoid a deadlock, with Nicosia extending the deadline, reportedly until early February, for the US giant to return with the preliminary development (FEED). Beyond that, all scenarios remain open:

- Proceeding with the development of 'Aphrodite,' considering the pending agreement between the RoC and Israel on the bordering 'Ishai' field—a scenario seen as 'good.'
- If disagreements on the start times of FEED or FID or techno-economic differences resurface, negotiations may resume or result in a deadlock. This leaves all possibilities open, with the dominant one being a legal dispute between the RoC and Chevron, judged as "bad."

The Big Picture

The challenging negotiation between the RoC and Chevron occurs at a critical juncture in the Eastern Mediterranean, where the Israel-Hamas war is testing the resilience of the gas and oil industry in the region from a security perspective. It also affects the overall positioning of the actors (state and corporate) involved in the region. For Israel, facing challenges such as limiting export capacity in natural gas for security reasons and seeking markets, the negotiation dynamics are rooted in specific axes. Chevron's presence in Israel's two large fields, "Tamar" and "Leviathan," is a key priority, overshadowing "Aphrodite," which has not been developed but could serve as an alternative source. However, Cyprus could potentially be an export point for Israel's natural gas, especially with uncertainties in Turkey and ongoing tensions in the region. Despite the objective difficulties, the negotiations highlight that Cyprus is not a key priority for regional developments, but securing the development of the "Aphrodite" block remains a strategic priority for Nicosia.

Cyprus  |  energy  |  gasoil

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