November 11, 2019

Hydrocarbon Exploitation Licence

On 7 November 2019 Cyprus granted the first hydrocarbon exploitation licence for the Aphrodite field to the consortium of Noble Energy, Shell and Delek for 25 years. It is envisaged to transfer gas to a liquefaction facility in Egypt and, subsequently, export it to Europe as LNG. The licence is based on a revised Production Sharing Contract and Concession Agreement between Cyprus and the said consortium.

Energy Minister Giorgos Lakkotrypis commented at the signing ceremony that this development is yet another milestone in Cyprus’s energy programme, demonstrating that, despite all the difficulties, the Cyprus programme is proceeding as planned. Moreover, Mr Lakkotrypis commented that Cyprus is poised to become a natural gas producer and an alternative source of energy supply to the EU, and to create a Mediterranean natural gas corridor to Europe.

It is further expected that production from the Aphrodite field which holds approximately 4.1tln cubic feet of gas will start in 2025, however, a second appraisal well must first be drilled at the gas reserve in order to carry out a Frond-End Engineering Design and be able to make a final investment decision.  Upon production, Cyprus estimates approximately EUR8.4bln revenues during an 18 year period.

Importantly, however, in accordance with the UN Convention on the Law of the Sea, Israel and Cyprus signed a delineation agreement in 2010 without an understanding on the development of straddling gas stocks in their respective Exclusive Economic Zones.

Once again Cyprus is at the heart of a region experiencing an exciting growth story for producers of natural gas, following such gas discoveries in its EEZ. New exploration and exploitation in Cyprus as well as the wider region can have tremendous strategic benefits – including for climate, energy security and industrial competitiveness – both in the Eastern Mediterranean and the European Union.

Cyprus must therefore sustainably exploit the hydrocarbon reserves to maximise its revenues in the long-term, whilst ensuring adequate environmental protection, in the best interest of its current and future generations.