By Michalis Michael
What Cypriot media are broadcasting on the issue
The state’s net revenues from the sale of natural gas from the “Aphrodite” deposit at the liquefaction terminal in Itkou, Egypt, are estimated at USD 9.5 billion, based on the final agreement of the Ministry of Energy with the Noble-Shell-Delek joint venture.
The calculations, according to the Cypriot newspaper “Fileleftheros”, which reported on the matter, relate to an average international price for brent oil – which is the main factor in the formation of gas sales prices – of $70 a barrel, and sales that will last for 18 years – that is approximately from 2024 to 2042.
The higher the international oil prices, the higher the state revenues, whilst the lower the international oil price, the revenues will also decrease slightly.
The state will receive an average of about USD 525 million every year, for the 18 years that the gas sales from the Aphrodite deposit will last. In practice – with an average oil price of $ 70 per barrel- in the early years and until the coverage of the investments for infrastructure, the state will receive about USD 200 million to USD 250 million a year, while the lion’s share will be taken by the companies until the investments are paid off. Over the next years, the lion’s share will go to the benefit of the state, and government revenue will reach USD 750 million a year.
Negotiations have been concluded with the licensees of the Aphrodite deposit, said today the Minister of Energy, Commerce and Industry Mr. Georgios Lakkotrypis, adding that this is a good agreement under the circumstances, which will allow the Republic of Cyprus to earn commercial revenues, which are calculated to above USD 9 billion.
Lakkotrypis: We are talking about the biggest project that has been realised in the Republic of Cyprus, with a value of about 7.9 billion in infrastructure
In statements to reporters at the Presidential Palace, after the Council of Ministers meeting, Mr. Lakkotrypis said that “as I informed the parliamentary parties yesterday in a meeting at the Ministry of Energy, we have concluded negotiations with the licensees of the Aphrodite deposit”.
Essentially, these negotiations at this stage concerned the change of some terms in the proportional allocation contract, while we are currently in the process of discussing the development and production plan. Once these two documents have been completed and presented to the Council of Ministers, a license will be issued to enable the Aphrodite deposit to proceed to the point of exploitation.
“We believe, the Minister said, that it is a good agreement – under the circumstances – with the companies, an agreement which will allow the Republic of Cyprus to gain significant commercial revenues, which are estimated at over 9 billion dollars in the 18 years of the deposit’s life-span, and I always speak with the average price of $ 70 in oil. We had examined three scenarios, 60, 70 and 80 dollars. Very serious revenues. Cyprus will advance to become a natural gas producer and will have the revised contract with very strict clauses regarding the implementation of what has been agreed. Also, specific milestones have been added that the companies must respect otherwise they could have very serious consequences on the contract. Our endeavour was to extract, if not all, the majority of Aphrodite, in order to make it sustainable and to exploit it, that is to use it and develop infrastructures. The quantities needed by Cyprus are too small to be able to develop a deposit with so much expense only for the quantities that Cyprus wants. It can not be ruled out that in the future, once the deposit has produced and the Republic of Cyprus has the right to ask for a part of that natural gas, it will be provided in kind possibly via a pipeline coming to Cyprus. The first priority, at this time, is to definitively close an export contract in order for the deposit to start developing. Based on the development and production plan we are discussing now, we calculate the first gas in 2020-2024, 2020-2025.”
When asked if with the scenario of 70 dollars a barrel, the revenues will be fluctuating, or if the average is locked at 70 dollars a barrel, the Minister said “they will be fluctuating and will depend on the international oil price. Just because no one can predict what this value will be, some scenarios need to be analysed. We have looked at a low-case scenario of $ 60, a mid-scenario, the most prevalent, of $ 70, and a high-scenario of $ 80. The numbers I’m referring to are the middle-case scenario, possibly the most dominating. From then on, as far as partitioning is concerned, whichever theoretical losses do arise, which are also limited- and I say theoretical because without going into this agreement there will be no project- during the 18 years they will be exceeded, we believe from the economic activity that will result from the expenses. We are talking about the biggest project that has been realised in the Republic of Cyprus, worth about USD 7.9 billion in infrastructure. Part of this economic activity will go to the local economy. Thus, the deal will have multiple benefits, both commercially, direct benefits from revenue, indirect benefits from economic activity, and geopolitical benefits because we are cementing our relationship with Egypt as well.”
When asked if there is a number in terms of the amount of the Calypso deposit, he said that “we may not have a clear picture until we proceed to licensing and drilling in block 7. We have been in this debate for some time for the licensing of block 7 because the Calypso deposit appears to extend into that block. And in order to have a more complete picture, it may be necessary to drill in block 7 as-well.”
At a journalist’s observation that the criticism he receives regarding the Aphrodite agreement, is that we have made a readjustment of the agreement and this may become a precedent for other agreements we have done so far, the Minister said that “that cannot happen because we have moved within the framework of the decision of the Council of Ministers which, inter alia, says that any agreement should be within the framework of the contracts signed in the second and third round. So no-one can claim that we have escaped this framework. It is a framework that the companies have also respected. Their demands were much more than those we have finally come to, and we ensure that no bad precedent will be created in what you refer to, precisely because we have moved in compliance to the contracts signed between the second and third rounds.”
When asked if the Calypso deposit is marketable as it is, the Minister said that “whether it is marketable, Exxon’s CEO has also answered this in the announcements made for Glaucus. This will depend on the development and on the markets that will be available. So no one can say whether it is marketable or not, until there is a development plan that will of course include the market. I have to tell you that it’s a breakthrough. Beyond that, we will see the rest once the company presents a comprehensive picture of how it intends to move on to its commercial exploitation.”/ibna