Dispute Between Israel and Cyprus Over Mediterranean Gas Field

In 2011, the Aphrodite natural gas field, with estimated reserves of around 127 billion cubic meters of gas, was discovered in the Mediterranean Sea by Texas-based Noble Energy. The field holds tremendous potential for development but has been the center of a spat between Israel and Cyprus due to its location within the economic waters of both countries. The firms with rights to the part of the field on the Israeli side, known as the Yishai reserve, have been concerned that gas being pumped from Aphrodite could reduce the amount of gas available in their share.

On the Cypriot side, the companies involved are Noble Energy, Royal Dutch Shell, and Delek Drilling. Noble Energy and Royal Dutch Shell each have a 35% stake in the field. Delek Drilling, an Israeli company that has also partnered with Noble in the Tamar and Leviathan fields, holds a 30% stake. On the Israeli side, the companies that have rights to the field include Israel Opportunity Energy Resources LP, Nammax Oil and Gas Ltd., Eden Energy Discoveries Ltd., and Petrica—formerly AGR Petroleum Services Holdings.

Clear consensus exists over the border between the two countries' respective economic waters. An agreement as to that was signed by the governments of Cyprus and Israel in 2010. However, Aphrodite has remained the subject of a dispute between the two countries, which have not been able to reach an agreement as to the distribution of the gas in the reserve.

Enormous Potential

Should Aphrodite be successfully developed, it could potentially earn over $9 billion in under two decades of exploitation. This could put its owners on the map as international gas exporters and strengthen political ties with nearby countries, such as Egypt, which has an accessible liquefaction plant. According to Cyprus Energy Minister George Lakkotrypis, the implementation of a production contract will provide the government with an annual income of some $520 million over the field's lifespan from the start of gas production, which is estimated to take place in 2025.

Cyprus's Attempt to Move Forward Without an Agreement

In 2018, despite the lack of an agreement between Cyprus and Israel, Delek Drilling, Royal Dutch Shell, and Noble Energy signed a contract with the Cypriot government to begin developing Aphrodite, with the concession agreement spanning over 25 years. On November 7, 2019, Delek Drilling reported an agreement with the government of Cyprus to invest $2.5 million to $3.5 million in the development of Aphrodite over a period of four to six years. This would include building the infrastructure required to export the extracted gas in collaboration with the Egyptian liquefaction plant. The implication of this was that the partners on the Cypriot side decided to move forward with the development of the reserve without directly coordinating with Israel. The companies on the Israeli (Yishai) side of the field are concerned that the agreement would only directly benefit Cyprus and the companies working with it, essentially depriving the Israeli-side companies of any revenues.

The approval of the development program was a major milestone in the commercialization of the Aphrodite reserve, however. Other contracts that have been signed to move the development forward include an agreement between Cyprus and Egypt to lay an underwater pipeline from the reserve to the shores of Egypt. Negotiations between Royal Dutch Shell and the partners involved in the sale of the gas have also been steadily advancing.

Yishai Lease Stakeholders Speak Out

The companies on the Israeli side of the field, the Yishai Lease Stakeholders, have criticized the Israeli government for its lackluster role in protecting their rights. Nammax Oil & Gas, a company linked to Israeli business executive Beny Steinmetz, wrote to Israeli Energy Ministry Director-General Udi Adiri in an attempt to clear any uncertainty and break the bottleneck in negotiations between Israel and Cyprus. The Yishai Leaseholders followed the exchange between the governments with comments stating that the gas reserves contained in the Yishai deposit could be worth billions of shekel and are partially owned by Israel.

Israel Has No Intention of Letting Go of Its Share of the Field

Israeli government officials eventually protested the agreement in which only Cyprus would ostensibly benefit. In November 2019, Adiri sent a letter to the partner companies involved in the proposed development of the field. In his letter, the director-general pointed out that the Aphrodite-Yishai field is a gas reserve in a cross-border location and that a joint agreement should be reached between Cyprus and Israel before beginning development. He also suggested that direct negotiations between licensees from both countries could be initiated to expedite agreements. Cyprus Energy Minister Lakkotrypis responded to the letter saying that a special agreement was in place and that the development of Aphrodite would continue as planned. Nammax Oil & Gas and other stakeholders said that they welcome the Israeli government’s support in this matter and are hoping for further negotiations and a rational outcome.

Coronavirus Impact

The development of Aphrodite could be further impacted by the ongoing global coronavirus crisis as well as by the sharp drop in energy prices. Circumstances have greatly affected the mobility of the drilling crews and have caused postponements in development throughout the area. Appraisal drillings at other blocks in the Mediterranean area have been pushed off until 2022 and capital expenditures have been reduced due to oversupply and low demand as a consequence of the coronavirus situation.