Export Options Coalesce for East Med Gas Projects

A looming gas crunch in Egypt is giving the impetus for Israel and Cyprus to advance projects and encourage upstream investments in the Eastern Mediterranean.

Cyprus is afraid of being left behind as its 4.5 trillion cubic foot Aphrodite gas field remains undeveloped over a decade after it was discovered. Meanwhile, nearby Israel is waiting for US major Chevron’s decision on how it will move ahead with the second phase of the 22 Tcf Leviathan field. As a result, the new government of President Nikos Christodoulides in Cyprus is reaching out to international oil companies to press on with development and monetization plans for gas discoveries in Cypriot waters.

Chevron is the operator of both Leviathan and Aphrodite, which has opened the possibility of linking up both Cypriot and Israeli fields, as new Cypriot Energy Minister George Papanastasiou has favored in recent media appearances. The major is due to announce its decision on an export option for Leviathan this month, with its partners preferring a floating LNG plant. Chevron holds a 39.66% stake in Leviathan, with NewMed holding 45.34% and Ratio Oil 15%.

Nicosia is currently evaluating Chevron’s latest proposal for Aphrodite submitted in May, which a senior regional official tells Energy Intelligence is not based on an LNG facility but rather on a piped export route to Egypt. “But it does not mean that is the development option that will be followed,” the official says. Chevron holds a 35% stake in Aphrodite, with Shell owning 35% and NewMed holding 30%. “At the moment, I think Shell would like to develop the field and would like to remain aligned with Chevron if possible…which is export to Egypt — at least we have not heard anything else,” the official notes.

Chevron’s plan, however, does not involve joint development with Leviathan. “The card…being played by Chevron…is that the capital expenditure is lower and therefore it would be easier to get the funding, and I think that is where things are heading,” the official says.

Gas-hungry Egypt, meanwhile, would welcome increased Israeli and Cypriot volumes as its domestic supply struggles to keep pace with rampant demand. Egypt exported no LNG cargoes in June, which while not unusual during the peak demand summer months, could be the first signs that a supply crunch anticipated for July 2024 could be occurring earlier than expected. Leviathan's partners on Jul. 2 took a final investment decision to spend $568 million to lay a third subsea pipe from the field to a platform offshore Israel, increasing capacity from 1.2 billion cubic feet per day to 1.4 Bcf/d by mid-2025.

Sights on Exports to Europe

The revised plan kills off the 2,000 kilometer (1,242 mile) East Med gas pipeline project which intended to connect the fields via Crete to mainland Europe. New Cypriot Energy Minister George Papanastasiou confirmed in early June that Nicosia would no longer actively pursue the scheme. Instead, Papanastasiou suggested building a shorter 300 km pipeline linking Israeli and Cypriot fields, providing Cyprus with domestic supply and offering Israel another export outlet.

Cyprus has also asked other oil majors to come up with export proposals for other offshore discoveries in recent years, including ExxonMobil’s Glaucus find in Block 10 and Eni’s Calypso, Cronos and Zeus discoveries in Block 6. Eni CEO Claudio Descalzi said recently the Italian major planned to drill another well in Block 6 by year-end while the regional official says Exxon was also set to drill a well in the Glaucus-adjacent Block 5 by the end of the year.

“Cyprus would like to see a development at Aphrodite, but they would also like to see an LNG solution because you know an LNG solution also means more gas to Europe,” the official says. Cyprus’s position as an EU member state means it could more easily unlock European lending for any FLNG option in its waters.

However, another Aphrodite issue that needs to be resolved is the boundary dispute with the smaller Ishai field which straddles it. Officials and diplomats insist that development of Aphrodite will not be sacrificed. Companies involved failed to find a solution, leaving Cyprus and Israel to resolve the issue. An arbitrator has still to be appointed.

Israel’s Concerns

Israel is waiting to see which export option Chevron will choose for its East Med developments. Israeli diplomats welcomed the Cypriot proposal over the Egypt piped route but are wary of the plans, since interest waned on a 2012-13 proposal which considered a joint onshore LNG development in Cyprus for Leviathan. Sovereign control over both gas flows and revenues was a concern at the time for the country.

At the same time, Israel has restarted a debate over its gas exports quota, with its finance and energy ministries clashing over how to avoid stranded gas assets while maintaining domestic energy security. It is unclear what a revised quota will ultimately look like. A proposal in 2021 recommended 60% of gas volumes made available for export with 40% directed to the local market. Currently producers are required to allocate 60% of volumes domestically with 40% exported. Yet a decision looks unlikely to be made before bids are submitted on Jul. 16 for Israel’s fourth offshore auction.