Talks began last week between the two groups holding two parts of Aphrodite’s coastal field. Most of it is in Cypriot economic waters and is owned by him Delek Drilling LP (LEVEL: DEDR.L), Chevron and Shell. A smaller part, known as the Ishai gas field, is located in Israeli economic waters and is owned by four Israeli companies – Israel Opportunity, Nammax Oil & Gas, Petroleum Services Holdings (PSH) and Eden Energy. The fact that the same field extends across the economic waters of the two countries requires economic arrangements in this regard.
Negotiations begin with Ishai partners dissatisfied with the Israeli government and the Ministry of Energy. The Ishaya partners claim that they have not gained full Israeli support for their request for joint field development, which would also bring Israeli revenues from gas profits, instead of striving for a one-time compensation payment.
Without the consent of Israeli companies, which hold a small stake in the field, Cypriots, partly to blame themselves, are unable to develop their larger stake in the field.
Israel and Cyprus signed a co-operation agreement in 2010 relating to any gas fields that could be discovered in the Mediterranean, which includes a clause on sea fields crossing the maritime border. In 2012, the Ishai gas field proved to be a continuation of the Cypriot gas field. Since then, partners in the two fields have been working to reach an agreement.
The delay in resolving the problem resulted in unilateral measures by Cypriot partners, who announced plans to develop the field in 2019, and an agreement with Egypt to set up a pipeline between Aphrodite’s field and a giant seawater liquefaction plant from Egypt, owned by Shell. In response, Udi Adir, director general of the Israeli Ministry of Energy, sent a letter to Aphrodite’s partners warning them not to start developing the field until the Israel-Cyprus talks are over. The letter created a diplomatic storm and the Israeli ambassador to Cyprus was invited to a meeting and reprimanded by the Cypriot government.
After that, the newly appointed Cypriot Minister of Energy Natasa Pilides decided to resolve the matter and remove obstacles to field development. Last month, she reached an agreement with Israeli Energy Minister Yuval Steinitz on a draft of swift negotiations to resolve the issue, in which talks would begin without delay between gas partners on both sides of the border, “to agree on how Israeli companies could be reimbursed for their share in the field. “
The significance was that Israel in practice accepted the compensation plan, not joint development. Israeli companies (Ishay partners) see this as if Israel had given up claims on national resources in advance. They have estimated in the past that this includes a loss of about 3 billion NIS tax revenues, if the price of gas is calculated as 6 dollars per thermal unit, although the price of gas has dropped significantly since then.
Yishai’s Israeli partners claim that Israel has left them alone to face major energy companies like Chevron and Shell.
Dispute resolution is a Cypriot national priority
The Israeli Ministry of Energy rejects these accusations and points out that Aphrodite’s partners have threatened to move away from field development if Israeli consent is not lacking. As for Israeli companies, the Ministry of Energy says that in practice the Yishai field does not pay to develop separately. The possibility of continuing to separate a less common field, despite the currently proposed plan, would allow Israel to state its position, even before international arbitration if necessary, while the State of Israel reserves the right to approve or disapprove any future solution.
Cyprus sees resolving the dispute with Aphrodite as a national priority, which would allow the development of the largest gas field found in its national waters. Progress in the talks can be attributed to Pilides, who is determined to resolve the dispute.
The Cypriot Ministry of Energy said, “In a very short period of time, and through a productive dialogue between senior ministry officials, we have managed to make great progress on all topics, including the Aphrodite-Ishai issue. The negotiating agreement will lead to the promotion of a solution enable the development of the field, while retaining the rights of the countries and companies involved. “
Chevron’s strength and its gas status in the region, however, raises a warning flag. By purchasing precious energy, Chevron has become a major partner in both the Tamar and Leviathan gas fields, as well as Aphrodite in Cyprus, and has major supply contracts. Israeli Electric Corporation (IEC) (TASE: ELEC.B22) and other large organizations in Israel and the region.
Chevron also plans to set up a pipeline to Egypt from Cyprus, which is likely to serve Israeli fields as well, as there would be no economic sense in setting up two parallel pipelines.
Chevron also plans to compete for dozens of more tenders for concessions in the economic waters of Israel, Lebanon and other eastern Mediterranean countries in the coming years. There are concerns that this is giving Chevron too much power in the region, especially over Israeli regulators.
The Ministry of Energy sees half a glass full. Chevron managed to completely break the remnants of the Arab boycott, which previously prevented large international energy companies from concluding contracts in Israel and became an important player on the international scene. In Israel’s first showdown with Chevron, due to the suspension of IEC gas supply due to charged prices, Chevron gave up and agreed to cut prices for future contracts.
Chevron’s interest in more moderate policies regarding the IEC and future tariffs should create a more comfortable atmosphere with the Israeli regulator, in terms of future tenders, while reaching a settlement on the pipeline to Egypt requires Israeli consent. An agreement on that will be reached only if Chevron undertakes to allow the use of the gas pipeline for rival companies from rival fields in the region, says the Ministry of Energy.
Chevron said the company is happy to have entered Israel and supported the state’s energy resource development strategy for the benefit of Israel and the entire region. “With more than 141 years of business, we know the value of partnership, creating long-term networks of relationships and mutual benefits, and we intend to do so in Israel and all the countries in which we operate in the region.”
Posted by Globes, business news in Israel – en.globes.co.il – May 2, 2021
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