Governments Intervene to Advance East Med LNG

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Israel and Cyprus have intervened to seek a solution to a boundary dispute, which is holding up development of East Mediterranean LNG just as Europe is urgently seeking alternative supplies to Russian piped gas.

Key East Mediterranean developer US Chevron, operator of the 22 trillion cubic foot Israeli Leviathan gas field and the Cypriot 4 Tcf Aphrodite field, its partners and a raft of Israeli explorers will all be presented with a solution to the dispute, which they will have to accept after failing to reach agreement themselves, says an Israeli diplomat.

“The agreement says the two countries will sit on a regular basis and pound things out between them ... they [Israel and Cyprus] want to send a very clear message to the companies that [they] had their time, they didn’t really do anything and could not really sit down together, so now the states [will] reach some agreement and this will be handed down to the companies,” says the diplomat.

Europe Interest in East Med

Both Cyprus and Israel agreed to find a solution at a trilateral summit in early April, which also involved Greece. As it seeks to reduce its dependency on Russian piped gas, the European Commission, in a recent draft document obtained by Energy Intelligence, specifically identified the East Mediterranean as a source of supply.

The commission has already agreed a memorandum of understanding with Egypt and Israel “on supplying Europe with LNG,” the document states. There has been a lot more interest coming from the commission on this project recently, says the diplomat.

Boundary Dispute

At issue is a long-running boundary dispute over clear delineation of the Aphrodite field and the much smaller Israeli Ishai field in the Mediterranean Sea. For years, both Israel and Cyprus have insisted the dispute would not hold up any potential joint development of the Leviathan and Aphrodite fields but agreement remains elusive.

The diplomat has insisted that even if the smaller Israeli owners of Ishai seek arbitration — the countries are inclined to back any joint development by the majors.

Chevron operates Leviathan, the 11 Tcf Israeli Tamar field and Aphrodite while partner Shell, operator of Egypt’s Idku liquefaction facility, holds 35% in Aphrodite. Israel’s NewMed Energy, part of the Delek Group is another partner. Israeli Ishai owners include Israel Opportunity, Nammax Oil & Gas, Petroleum Services Holdings and Eden Energy.

“The big question is that you are talking about global players on the Cypriot side [Chevron, Shell] compared to the small group on the Israel side. The kind of leverage that each country has is very different,” he says.

East Med LNG Delay?

Chevron was expected to take a decision on second-phase monetization of Leviathan and a potential joint development of Aphrodite early this year. Asked for a current timeline, the US supermajor declined to comment on commercial matters.

Chevron CEO Mike Wirth told Energy Intelligence in December that all monetization remains on the table. “LNG, floating LNG, gas-to-power, power that might go into regional markets, longer-haul piped [gas] into more distant markets — all of those options are very real,” he said.

In February, Israel’s Energy Minister Karine Elharrar said all companies had until early March to reach agreement. Cyprus had been hoping that gas production from Aphrodite would start by 2025, based on the assumption that Chevron would take a final investment decision in 2022-23.

However, talks on the dispute may not be resolved any time soon with the risk that East Mediterranean LNG misses its window of opportunity. The diplomat says that one option would be to turn to a mutually agreed international expert to give an assessment “some kind of arbitration [and] let’s see if we can go forward on that,” he says.

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