Israel, Cyprus disagree over Aphrodite gas field

Yuval Steinitz
Yuval Steinitz

Israel's claims the field extends into the Yishai license are delaying a cooperation agreement between the two countries.

A disagreement between Israel and Cyprus over development of the Aphrodite gas reservoir is delaying the signing of a unitization agreement between the countries, designed to arrange the development of oil and natural gas reservoirs shared by the two countries and other cooperative energy efforts. Israeli sources inform "Globes" that Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz, who was invited to Cyprus to discuss the promotion of joint projects for building a shared pipeline for exporting natural gas to Europe and laying an electrical cable between Israel and Cyprus, is delaying his trip until negotiations on the agreement, which have been taking place for over five years, are completed.

Actually, Israel is demanding a role in the approval of development of the Aphrodite reservoir, which it says is partly in its waters. For its part, the Cypriot government is willing to discuss the matter, but the Israeli demand is delaying the signing of an agreement.

The unitization agreement was slated for signing together with the marine areas border agreement in 2010, but the signing has been delayed by disputes over principles and various technical matters. A senior Israeli source involved in the negotiations told "Globes" that the demand for cooperation in development of the reservoir is based on international law and practice in similar drillings around the world. "We're asking for what we're entitled to, according to accepted practice," he said. Cypriot government spokesman Nikos Christodoulides told "Globes," "The Cypriot government is willing to discuss with Israel cooperation in the development of the Aphrodite reservoir, and wants to finish the talks about the unitization agreement as soon as possible."

The Cypriot reservoir, which was discovered in Bloc 12 in the Cypriot economic zone, also reaches over into the area of the Yishai license in the Israeli exclusive economic zone (EEZ). While Cypriot sources argue that only 3% of the reservoir is involved, sources close to the Yishai license holders say that the percentage is higher, and that the tests have not yet been completed. "Citing any number before the tests are completed and all the findings obtained is irresponsible," they say.

Noble Energy, which discovered the gas reservoirs in Israel, also discovered the Cypriot reservoir in a drilling conducted in late 2011. Nobel Energy's initial estimate was that the reservoir contained 5-8 trillion cubic feet (TCF). Following verification drilling, the results of which were published in October 2013, however, the quantity was revised to 3.6 TCF (for the sake of comparison, the Tamar reservoir contains 10 TCF and the Leviathan reservoir 20 TCF).

The owners of the rights in the Yishai license are companies controlled by billionaires Teddy Sagi and Benny Steinmetz and Israel Opportunity Energy Resources LP (TASE: ISOP.L). Steinmetz and Sagi financed an exploratory drilling in 2012 at a cost of $103 million in order to check whether Aphrodite extended into Israeli waters. The drilling discovered signs of gas, but these did not justify commercial drilling. Despite the failure of the exploratory efforts, the Ministry of National Infrastructure, Energy, and Water Resources approved the extension of Sagi and Steinmetz's license until February 2016, in other words, seven years after the license was received (the maximum period allowed by law). It appears that the extension of the license was designed, among other things, to support Israel's demand to be a partner in the approval of the development plans for the Cypriot reservoir.

During the negotiations, Israel argued that it was reserving the right to drill in the Israeli part of Aphrodite and take its relative share if it is not included in the development approval processes for the entire reservoir - even though it is clear that such drilling has no economic justification.

Is the failure to sign an agreement delaying the development of the reservoir? The Ministry of Foreign Affairs says it is. "Without an agreement between the countries and the companies, the investors won't agree to finance development of a reservoir at a cost of billions of shekels," the Ministry of Foreign Affairs says.

Michael Leigh, a senior advisor to the German Marshall Fund, a US entity, added, "An agreement will strengthen the ties between the two countries, and give the investors a signal that it is safe to invest." According to Leigh, who recently visited Israel and Cyprus to discuss the matter, "The attempt to reach an agreement between the parties has continued for several years, and neither side has made it a top priority." He commented that an agreement could be reached tomorrow "if each side is willing to negotiate a little with the other."

Published by Globes [online], Israel business news - - on October 13, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Yuval Steinitz
Yuval Steinitz
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