Cyprus and Israel: The shifting sands of East Med energy

With the energy picture in the region in flux due to the Ukraine war and the global pressure to end dependence on Russian oil and gas, Cyprus and Israel have ramped things up a notch, saying they were kick-starting intergovernmental parleys aimed at resolving the more than 11 years longstanding dispute over the Aphrodite gas fields.

The question remains whether this new push is another flash in the pan and another Israeli trick, or a serious effort to resolve the decade-old negotiations, and how it might fit into the changing terrain in the wake of realignments due to the war in Ukraine?

International relations expert Harry Tzimitras acknowledges that the timing of the Cyprus-Israel working groups are a question of happenstance, but also says that Nicosia wants to position itself amid the shifting geopolitical landscape so that it’s not left without a seat at the table.

“Everyone in the region is talking to everyone else right now, things are in flux, and Cyprus wouldn’t want to be left out of the conversation,” opines Tzimitras, director of the PRIO, Cyprus Centre research institution.

Energy analyst Charles Ellinas believes the new discussions would remove a thorn in the relations between two, otherwise, friendly countries. “With all this new-found interest in East Med gas due to the energy crisis and the war in Ukraine, it would be very helpful if the dispute is finally resolved enabling development of Aphrodite, should that become feasible,” he said.

The problem derives from the claim of the Israelis, on the Israel/Cyprus Exclusive Economic Zone (EEZ) boundary line, adjacent to Cyprus’ Block 12, claiming that the Aphrodite gas deposit extends into Israel EEZ. The two sides, together with the Cypriot and Israeli governments, have been in negotiations since 2011 but have not managed to agree to a gas unitization agreement – a formula to distribute proceeds whenever one nation’s gas field crosses into another nation’s EEZ due to the Israelis unrealistic claims.

The Sunday Mail reached out to the office of the Cypriot Energy Minister Natasa Pilides, asking about the recently launched process with Israel and whether something ‘triggered’ it.

In an emailed response, the energy minister said:

“Regarding the Aphrodite matter, both countries have dedicated negotiation teams in place, with experts who have been working on the technical and legal aspects of the process.”

The minister said that in March 2021 the two governments agreed on a well-defined process for resolving the issue. The two countries’ energy ministers drafted a joint letter and sent it to the licencees of Aphrodite and Yishai, asking the companies involved to engage in intensive negotiations on the matter, which they did through their own dedicated teams.

But given the matter has not been settled, to speed things up Pilides and Eharrar agreed that their respective teams intensify the efforts to find a mutually beneficial solution to the issue.

“To this end, a road map will be developed by professional teams from both ministries, which will meet on a monthly basis. Moreover, the ministers will also conduct periodic follow-up meetings, in order to reach a quick and optimal solution. As a first step, an expert will be appointed by the governments, whose scope of work will be defined by the professional teams.

“We are confident,” added Pilides,” that the close monitoring of the negotiation process, with the support of an expert, will eventually lead to a positive outcome.”

The position of the licencees on the Israeli side is that the quantities of Aphrodite natural gas extending into Yishai are about 7 to 10 billion cubic metres (bcm) compared to about 100 bcm in Block 12. The Israeli companies also claim they have spent $120 million on exploratory drilling, including a well they named Aphrodite-2, about 1 km from the boundary line between the two EEZs.

The well was drilled in 2013 and it was reported that significant signs of hydrocarbons were found in the lower Miocene sands. The thickness of the natural gas bearing layer was estimated to be approximately 15 meters, but it was declared as non-commercial. However, the Yishai owners are using this as evidence that Aphrodite extends into their licence.

In 2015 Israel classified the Yishai licence as a gas discovery, in an aggressive step that signaled that Israel is serious about this claim.

From any potential profits, the share to the Israeli state may be around 60 per cent. Israel’s former energy minister Yuval Steinitz was quoted as saying: “The state did not forego the Yishai prospect, and will not give up its share, even if this part is relatively small…The state will not waive its share of either the gas or the revenue from the Aphrodite reservoir, and is also unable to do this in the name of the companies that hold it.”

The owners of Cyprus’ Block 12 disagree with the Yishai claim. Their confirmed that Aphrodite does not extend into Yishai, and that even if it did, any amounts of natural gas are negligible, less than 1 per cent.

Even though Cyprus and Israel inked an EEZ delineation agreement back in 2010, they have yet to agree a unitisation deal. By contrast, Cyprus and Egypt signed a unitisation agreement in 2013.

Without a predetermined legal framework, the dispute has dragged on and the private companies have been unable to hammer out a deal – dragging the Cypriot and Israeli governments into it.

The new impetus to kick-start the search for an agreement could also telegraph Cypriot jitters about a possible Israeli-Turkish thaw in relations, following the March visit to Ankara by Israeli president Isaac Herzog and talk of re-establishing ties.

Ankara played up Herzog’s trip, hinting at the rekindling of an old idea to route Israeli gas to the European continent through Turkey.

That said, the two nations could do business via an LNG deal. Currently, Turkey imports around 24 billion bcm of natural gas from Russia.

Assuming Russian gas exports to Turkey would be replaced, Israel could provide up to 11 bcm to Turkey, but probably in the form LNG – gas from Israeli offshore fields liquefied in Egypt and then re-exported to Turkey on tankers.

But even that isn’t as straightforward as it sounds, cautions Tzimitras. The two liquefaction terminals in Egypt – Idku and Damietta – currently operate near capacity and would need to be upgraded. And the upgrade works would take approximately two years.

But whatever logistical hurdles exist, the takeaway is that on a political level Turkey and Israel are talking to one another – and Cyprus has taken note.

According to Ellinas, the working groups just announced by Pilides and her Israeli counterpart, should in theory be quite serious and results-oriented.

Ellinas explained this process forms part of a framework agreed in March last year between then Israeli Energy Minister Yuval Steinitz and Pilides to resolve the Aphrodite-Yishai dispute. The notion was to allow the companies involved to sit together over a six-month period to reach agreement, if possible. If not, the matter would be referred to international experts who would try to resolve it within another six months. Should no agreement occur after one year, Israel and Cyprus governments would take over.

“We are at this stage, even though the part about experts was not implemented,” adds Ellinas.

“I hope that this time they come to an agreement, but it is not certain by any means. How long will this new attempt take? It is difficult to say. But I am sure that should there be a serious opportunity to develop Aphrodite it will focus minds.”

Ellinas, says the incentive for Nicosia and Tel Aviv alike lies in that, in agreeing a gas unitisation deal, “that would remove a thorn in the relations between two, otherwise, friendly countries. What in the scheme of things should have been a small matter, has been clouding this relationship for far too long and it will be good to see it resolved.”

Source: Cyprus Mail