continuous concessions — Cyprus is currently navigating a landscape where continuous concessions are being offered to multinational energy corporations in a bid to encourage drilling for natural gas beneath its seabed. Energy expert Dr Charles Ellinas raised concerns regarding this trend during a recent discussion, noting that the Cypriot government seems to prioritise political gains over commercial viability.
Continuous concessions: Recent Developments in Gas Exploration
Dr Ellinas’s comments came on the heels of announcements made by ExxonMobil and QatarEnergy, who jointly declared the ‘Pegasus’ and ‘Glaucus’ gas fields in Block 10 of Cyprus’ exclusive economic zone (EEZ) to be “marketable.” However, the expert cautioned that this does not guarantee immediate development. “When they did the confirmatory drilling and then announced that the two fields contain between six and eight million cubic feet, they had a deadline to announce whether the field is commercially viable, and they did so,” he explained to the Cyprus News Agency.
Anticipated Timelines for Development
Looking ahead, Dr Ellinas indicated that a final investment decision from ExxonMobil and QatarEnergy regarding drilling is not expected until at least 2029. Consequently, natural gas exports from these fields might not commence until 2033 at the earliest. “What worries me, however, are the terms to which we have agreed,” he stated, suggesting that the emphasis on political agreements might overshadow the need for favourable commercial terms.
Concerns Over Concessions
Dr Ellinas expressed particular unease over the concessions being made to multinational corporations. He pointed out that ExxonMobil has signed memorandums of understanding with Egypt for exporting natural gas, potentially through existing or planned liquefaction terminals. “Based on the liquefied natural gas prices expected at the time ExxonMobil starts exporting, the margins are small,” he warned, indicating that for the venture to be commercially viable, Cyprus would need to make significant concessions.
Profit Sharing and Commercial Viability
According to Dr Ellinas, the current agreements may leave Cyprus with a diminished share of profits. “We have made many concessions, to the point where the share of the profits for Cyprus will be low, especially if the LNG price is at the lower margins expected,” he remarked. This situation raises questions about the government’s strategy, as it appears to be more focused on achieving political milestones rather than securing beneficial commercial outcomes for the nation.
Challenges with Other Multinational Corporations
The conversation also touched upon Italian multinational Eni’s hesitation to declare a final investment decision regarding the ‘Kronos’ gas field in Block 6 of Cyprus’ EEZ. Dr Ellinas suggested that Eni may also be seeking further concessions from the Cypriot government, as unresolved commercial differences persist. “It seems that the problems are continuing, so that the company cannot announce a final investment decision,” he noted.
The Future of LNG Prices
In the broader context, Dr Ellinas predicted a potential increase in the amount of liquefied natural gas (LNG) entering the market by as much as 40% in the coming years. With such a significant influx, he anticipates a considerable decrease in LNG prices, which could further complicate Cyprus’s negotiating position with energy companies. “If we continue to offer concessions, the corporations will continue to demand even more,” he warned.
Implications for Chevron and Other Companies
American multinational Chevron, which holds rights to Block 12 of Cyprus’ EEZ, is also expected to seek additional concessions. Block 12 includes the ‘Aphrodite’ gas field, and Chevron has stated that extracting and exporting gas from this field could cost around €4 billion. Dr Ellinas mentioned that while Cyprus insisted on the installation of a platform for extraction, he anticipates that Chevron will come back asking for more concessions in the future.
ExxonMobil’s Exploration Plans
Returning to ExxonMobil, Dr Ellinas highlighted the company’s plans to expand exploration into Blocks 4 and 10A, asserting that it now controls a sizable area of the eastern Mediterranean. “It is important that they start drilling in these blocks soon as well,” he said, emphasising the potential for new discoveries that could significantly alter the energy landscape.
The Path Forward
As the situation unfolds, Dr Ellinas expressed optimism that the ‘Pegasus’ and ‘Glaucus’ fields contain sufficient gas quantities for export to Egypt. However, he cautioned that if new discoveries double the quantities available, the existing infrastructure in Egypt may not suffice, prompting ExxonMobil to seek alternative export routes. “The company is giving itself leeway on how to proceed in the future, without committing itself now,” he concluded.
