Israel claim in Aphrodite gas field blocking development

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Israel is blocking the $9.3 bln commercial development of Cyprus’ Aphrodite gas field in a dispute with a neighbouring reservoir over distribution claims.

Israel and Cyprus signed an agreement setting the border between their respective exclusive economic waters in 2010.

The agreement, which was designed to arrange the development of gas reservoirs straddling the territory of both countries was never signed.

In the absence of a distribution agreement, Israel is refusing to allow Cyprus to develop Aphrodite because pumping gas from it will also cause gas to be pumped from the Yishai prospect.

This issue is still unresolved despite both countries seeking arbitration to find a resolution.

According to financial newspaper Globes, Israel’s Energy Ministry director-general Udi Adiri has told Shell, Noble Energy and Delek Drilling they cannot develop Aphrodite until the border dispute with Israel’s Yishai license is settled.

Since the gas in the Yishai prospect on the Israeli side is part of a single geological reservoir, its production depends on agreements between the two countries.

Cyprus will earn $9.3 bln over 18 years from exploiting its Aphrodite gas field after Nicosia renegotiated a contract with industry giant Shell, US-based Noble and Israel’s Delek earlier this year.

Energy Minister George Lakkotrypis told reporters that a re-working of the production contract ensures the Cyprus government receives an average yearly income of $520 mln dollars over the lifespan of the gas field from 2025.

Israel is opposed to the development of Aphrodite until the dispute over the border with Israel’s Yishai gas field is settled, Adiri has made clear in a letter sent to the reservoir’s rights owners, said Globes.

Adiri wrote to Delek Drilling CEO Yossi Abu, Noble Energy SVP Keith Elliot and Shell East Med GM Chris Breeze, “I wish to advise you that the State of Israel has not relinquished its share of the Aphrodite-Yishai natural gas reservoir and has no intention of doing so.”

The letter was sent last month after Israeli businessman Beny Steinmetz, who holds a stake in the Yishai license, criticised the government for not doing enough to protect the rights of the license. Steinmetz and his partners claim that the gas in the Yishai license could be worth as much as NIS 3 bln ($864 mln).

Shell and Noble Energy each have a 35% stake in the Aphrodite field while Delek Drilling holds the remaining 30%.

Last month, Delek Drilling reported an agreement with the Cypriot government to invest $2.5-3.5 bln in developing the Aphrodite field over the next four to six years including setting up the infrastructure to export the gas via Egypt.

Adiri said in his letter, according to Globes, Israel and Cyprus have held several years of negotiations for the purpose of reaching a bilateral agreement regarding the exploitation of the Aphrodite-Yishai field.

“One of the options raised for consideration was the possibility of initiating direct negotiations between the licensees of both countries, subject to approval by the two states.”

“However, up to this point, the two states have not concluded the necessary agreement that would facilitate the fair exploitation and development of the field, for the benefit of all the involved parties.”

Adiri advised the companies that Israel opposed the development and exploitation of the Aphrodite-Yishai field before both states reached an agreement.

The Aphrodite dispute also calls into question the ambitious EastMed pipeline project which Israel and Cyprus have signed up to, along with Italy and Greece.

The 2,000-km pipeline, estimated to cost $7 bln, links Eastern Mediterranean gas reserves to the EU. It will transport natural gas from the Levantine Basin in Israel via Cyprus to Greece and Italy.