It is said that Aphrodite, ancient goddess of love, fertility and beauty, rose from the waters off Cyprus, a creature of the sea though it’s best not to delve deeply into how this mythical deity came to life! These days, there is a new source that is waiting to emerge from the Mediterranean waters of in the shape of natural gas that might change the fortunes of the divided island, or at least the internationally recognized part of it.

Cyprus is today a member of the East Mediterranean gas club after the discovery of the Aphrodite field, which was declared commercial in 2015 but is still awaiting development. Some of the world’s biggest energy companies have been drawn to acreage offshore Cyprus, creating opportunities for linkages with established gas producers like Israel and Egypt.

It has not been a smooth affair and the Mediterranean basin is not free of geopolitical tensions and conflicting economic interests. Now, eleven years after Aphrodite was discovered, the outlook for its development has improved as it appears that operator Chevron and partners Shell and Israel’s NewMed Energy are close to a financial deal to buy out the license holders on the Israeli side of the maritime border.

Chevron has already tabled a field development plan that would see the field, with estimated reserves of 4.5 trillion cubic feet, tied back to Shell-operated facilities offshore Egypt.

Left out of the East Mediterranean alliance is Turkey, which claims half of the island as its own since it invaded in 1974 and has tried to torpedo development of resources offshore Cyprus.

The story of Aphrodite the field is a convoluted affair and a number of factors have conspired to delay its exploitation. The field was discovered by US firm Noble Energy in 2011, with Chevron taking over as operator with its $5bn purchase of Noble in 2020. The lack of a unitization agreement between Cyprus and Israel, which Nicosia had neglected to conclude, was one complicating issue. Then there are the obscure partners on the other side of the maritime border between the two countries, which have laid claim to part of Aphrodite despite having no other upstream assets. The Ishai license consortium on the Israeli side are well-connected investors rather than developers who appear now ready to accept a settlement.

The two states have agreed to leave it to the Aphrodite and Ishai partners to reach a financial settlement which would see the Ishai partners relinquish the license and with it any claim to Aphrodite. MEES understands Israel would then also relinquish its claims to any gas.

In some ways, the delay worked in favor of the Aphrodite partners, says a regional energy investor. “The excuse of the lack of an Ishai deal has worked well for the Aphrodite partners who weren’t minded to develop Aphrodite ahead of [Israel’s substantially larger] Leviathan field. Aphrodite partners Chevron (formerly Noble) and NewMed are the key shareholders at Israel’s aptly-named 23tcf Leviathan field, a monster of a field that is already in production.

Though Aphrodite is a relatively modest field compared with Leviathan, its development would represent Israel’s first direct energy tie-up with an EU member state.

Given the strategic importance of Aphrodite to Cyprus, it represents a shocking dereliction of duty on behalf of successive governments in Nicosia that over 11 years on from Aphrodite’s discovery there is still no unitization deal to enable exploitation of cross-border resources. This is especially the case given that the two countries – who have no shortage of regional enemies – are supposedly close allies.

The reasons the ‘Ishai issue’ became an urgent matter to tackle was Europe’s sudden thirst for new sources of gas in the wake of Russia’s invasion of Ukraine in February 2022, which sent gas prices soaring to record levels. This has gone a long way to solving what was long seen as a more fundamental impediment to Aphrodite development, the lack of “financial viability.” With development now apparently seen as ‘in the money’ by Chevron, NewMed and Shell, and seemingly by prospective new entrants Adnoc of the UAE and BP.

But Eni, which has extensive East Med offshore assets in Egypt and is also involved in exploration in Lebanese waters, has dampened hopes of a pipeline linking the East Med fields to Europe, where the 2022 surge in demand may be transient. The EU Commission’s “Fit for 55” energy agenda aims to reduce gas consumption by 30% by 2030.  This would make it difficult to justify the €6bn estimated cost of the EastMed Pipeline that would link Israeli and Cypriot gas fields to Crete and then onto mainland Greece and eventually Europe. The pipeline would traverse waters that Greece claims are part of its Exclusive Economic Zone (EEZ) but that Turkey claims are part of its continental shelf and is unlikely to give its consent.

Eni CEO Claudio Descalzi said recently that while the East Med region has “a lot of untapped potential…it is a very challenging pipeline” and could go nowhere without “an agreement with Turkey,” remarks that did not go down well in Nicosia.

Nicosia’s new energy minister George Papanastasiou has been promoting other potential gas tie-ups between Israel and Cyprus – in particular the potential to tie back Israeli gas to a Cyprus-based LNG liquefaction facility, either land-based or a floating liquefied natural gas (FLNG) terminal at Vasilikos on its southern coast.

On the surface this does not seem so far removed from the apparently-favored option of Chevron and its partners at Israel’s Leviathan field of using an FLNG for phase 2 expansion. These plans clearly envisaged the FLNG in Israeli waters, although MEES understands this option is mired in both technical but also regulatory complexity. The flow of Israeli gas to Egypt revived the North African country’s status as an LNG exporter, just in time to meet European demand for alternatives to Russian pipeline gas.

FLNG has also been a mooted development option for Eni’s recent Cyprus discoveries, although the Italian company’s favored option remains piping the gas to Egypt where it already has significant acreage and infrastructure.

As output has declined in recent months at Eni’s 21.5tcf Zohr field, some 60km away from its Cypriot discoveries across the border in Egyptian waters, tie back to these facilities appears to be the easiest solution. Eni has expedited further development drilling here as it attempts to boost output back to around 2.5bn cfd, still some 700mn cfd below nameplate capacity.

In addition to its dominant position offshore Egypt, Eni in total operates five blocks off Cyprus and partners French major TotalEnergies on two more. Eni is also part of a consortium with Total as operator and Qatar Energy at two blocks off Lebanon, including Block 9 on the maritime border with Israel where highly-anticipated drilling of the Qana prospect is slated for September. Both Lebanon and Israel also have ongoing bid rounds.

All these developments might bring Cyprus closer to realizing its dream of becoming a gas producer by the end of the decade while further planned exploration in its waters could provide a boost to its reserve base. The U.S. Geological Survey estimates that the Levant Basin offshore Cyprus could contain mean recoverable reserves of 1.7 billion barrels of oil and 122 trillion TCF of natural gas. So far, it has relied on imports for all its petroleum products after it shut down its sole refinery in 2004. With Aphrodite’s help, Cyprus may just witness a rebirth as gas producer and exporter.

Source: MEES – By Kate Dourian, Contributing Editor