After years of high expectations about the gas finds in the Cyprus EEZ, everyone is starting to understand that no decision taken by the oil industry is straightforward. It was always like this, but the politicians and other opinion-makers, either through ignorance or design, created the impression that the cash would roll in and before long we would see our standard of living soar.
It has not happened, despite the marketing agreements the Anastasiades government had signed and the much-trumpeted trilateral agreements with neighbouring countries that would supposedly ensure the exploitation of the Aphrodite gas field. The natural gas discovery in Block 12 was made 15 years ago, in 2011, and there have been more discoveries since then, but we are still nowhere near selling any gas.
Last week the publication that covers the oil industry, MEES (Middle East Economic Survey) reported that Chevron would be asking Cyprus to pay $3 per mmbtu (million British thermal units) for use of the pipeline that would take gas from the Aphrodite gas field to the gas terminal in Egypt. The original price which, would have made the sale of gas profitable, was $1 per mmbtu, but the new price changed everything.
Cyprus Mail columnist and energy expert Charles Ellinas expressed the view that the higher price would eat away at the expected profits for Cyprus, to such an extent that “it would hardly be worth it for Cyprus.” The fact is that Chevron is calling the shots and given the small quantities of gas in the Aphrodite field its exploitation is not a priority in any way. Apart from much bigger projects in other parts of the world, it is reported that Chevron is also investing in doubling the output from Israel’s Leviathan field.
There is also another complication regarding Aphrodite. Despite years of negotiations Cyprus and Israel have failed to reach an agreement on the percentage of the revenue that would go to Israel for the part of the Aphrodite field that stretches into its EEZ. Without an agreement there could be no extraction of gas and Chevron made it clear that its final investment decision (FDI) was conditional on a resolution of the dispute.
Cyprus does not have any alternative but to accept what Chevron decides. In an industry in which investments worth hundreds of millions of dollars are made by oil firms, national governments have no say. Chevron has made this clear with the new price it is has quoted for the use of its pipelines – a price that could leave Cyprus a very small profit, if any. To cut a long story short, Cyprus is at the mercy of the oil companies. This has always been the case, but only now are realising how things work in the oil industry.