Filenews 27 August 2023 - by Chrysanthos Manoli
Those who thought that the Republic of Cyprus could not say "no" to an energy giant the size of Chevron were wrong. Probably for the first time.
The Republic of Cyprus, through a letter from Energy Minister George Papanastasiou last Friday, informed the American Chevron that its counter-proposal for the exploitation of the Aphrodite field, managed by the consortium of Chevron, Shell and NewMed Energy (formerly Delek), is not accepted.
As "F" wrote on Friday, the Minister of Energy in a letter to Chevron informed that the Republic of Cyprus rejects the company's proposal to revise the development plan signed in 2019. At the same time, however, Mr. Papanastasiou invited Chevron to an intensive 30-day negotiation in order to thoroughly discuss the possibility of reaching an agreement for the development of the deposit, but in a way that protects the interests of the state, reducing the risk that the Ministry of Energy considers to lurk through the revised proposal of the consortium that manages the deposit.
There is a problem
However, "F" reports that the room for understanding between the two sides is not much, in case the US company insists on its current position, which is far from the agreement that the consortium concluded with the state in 2019. As "F" wrote on Friday, Chevron's new proposal, to differentiate at the expense of the state of the 2019 agreement, foresees three production drillings instead of the five provided for in the 2019 agreement.
Also, instead of installing an FPU (Floating Production Unit) on the deposit (for full recovery of the reserve), Chevron proposed connecting Venus directly to the WDDM facility (owned by Shell, one of the members of the consortium to exploit Venus) in Egypt. The proposal entails significantly lower pumping and processing costs (reportedly by about €1 billion, against a total cost of about €3.5 billion), but energy ministry technocrats insist that this will reduce at the expense of the RoC the gas reserves to be pumped and the money that Cyprus expects as revenues from gas trading. Hence the proposal was rejected and another compromise option will be sought within 30 days.
FPU necessary
"F" reports that for the Republic of Cyprus (following intensive consultations between the President of the Republic, the Minister of Energy and competent scientists of the Ministry – including at Friday's Troodos meeting) it is of extreme importance – and there can be no withdrawal – to install an FPU (Floating Production Unit) on the Aphrodite deposit, so that the natural gas that will be pumped and processed (cleaned) will be sent with technical pressure to the a pipeline connecting infrastructure to reception facilities in Egypt to ensure the greatest possible extraction of gas from the field for the entire duration of the 2019 agreement and not only for the agreement period that financially benefits the consortium of companies.
We want gas not water from the Aphrodite field
What literally scares the Republic of Cyprus in relation to Chevron's rejected proposal is the risk that the natural gas reserves extracted from the field will be significantly limited during the period when the Republic of Cyprus will be entitled, under the 2019 agreement, to reap the majority of the revenues from the trading of natural gas.
The reserves to be pumped are likely, according to state officials, to be drastically reduced to the detriment of the Republic if Chevron's proposal not to install a platform for the extraction and processing of the deposit is accepted, but to simply connect the field to Egyptian facilities (Shell), in such a way that, first, the extraction of gas depends on the natural pressure of the deposit. with the risk that a significant part of the reserve will remain on the seabed, and, secondly, the control of the gas extraction and trading process will be held by companies in Egypt and not by the Republic of Cyprus, which owns the deposit.
The question arises as to whether it is possible to find a consensual solution in the context of the intensive negotiations requested – on the basis of the existing contract – by the State from the consortium.
F's information indicates that an agreement is neither likely nor unlikely. Information from the Presidential Council points out that the 2019 agreement (reached after an amendment of the proportional allocation contract, in favor of the companies and at the expense of the state) provides for the installation of an FPU (platform for pumping gas and channeling it with pressure to the pipeline to the buyer) and this provision will be insisted on until the end by the state, regardless of the consequences, as we have been told. Otherwise, the state side argues, Checron's proposal significantly increases the rate of return on capital for the consortium (over 20%), due to the reduction by one billion euros in the cost of gas pumping infrastructure, but at the same time drastically reduces the percentage of gas that will be pumped (through the procedure proposed by the consortium) from the deposit and the revenues of the Republic.
As we have been told by technocrats, it is possible that Cyprus will pump water and impurities when the time comes to receive the majority of the revenues from gas trading, while the consortium will have pumped gas with its own benefit of the majority of the revenues.
Under the above circumstances, the negotiation of the state with Chevron to avoid the shipwreck is expected to be very difficult, as the margins of withdrawal on the part of the state are minimal, as we are informed by a senior source.
