Israel-Cyprus gas dispute goes to int'l arbitration

Lebanon gas exploration, photo: Reuters

Negotiations between the parties on the division of the Aphrodite reservoir have been going on for seven years.

After seven years of negotiations between Israel and Cyprus, substantial progress has been made towards signing an agreement settling the development of the Aphrodite natural gas reservoir, which lies in the territory of both countries. In the coming months, Israel and Cyprus will apply for international arbitration to decide the dispute concerning the distribution of the gas in the joint reservoir, sources inform "Globes."

A meeting will take place next week between Israel, Greece, and Cyprus and will be attended by the energy ministers of all three countries. The parties will discuss a unitization agreement, in addition to construction of an undersea gas pipeline connecting Israel and Europe.

The Aphrodite reservoir is located on the border between the economic waters of Israel and Cyprus, with most of the reservoir lying on the Cypriot side. The Israel Ministry of National Infrastructure, Energy, and Water Resources estimates the quantity of gas in the Israeli section at 7-10 BCM, while the gas in the Cypriot section of the reservoir, owned by Yitzhak Tshuva-controlled Delek Group Ltd. (TASE: DLEKG), is estimated at 100 BCM. Since the gas in the Yishai prospect on the Israeli side is part of a single geological reservoir, its production depends on agreements between the two countries.

Israel and Cyprus signed an agreement setting the borderline between their respective exclusive economic waters in 2010. The agreement, which was designed to arrange development of gas reservoirs lying within the territory of both countries, was to have been signed a few months later, but this did not happen.

"The state did not forego the Ishai prospect, and will not give up its share, even if this part is relatively small," Minister of National Infrastructure, Energy, and Water Resources Dr. Yuval Steinitz told "Globes" today. "The state will not waive its share of either the gas or the revenue from the Aphrodite reservoir, and is also unable to do this in the name of the companies that hold it."

In the absence of a distribution agreement, Israel is refusing to allow Cyprus to develop Aphrodite, because pumping gas from it will also cause gas to be pumped from the Ishai prospect.

"There are negotiations that have unfortunately been going on for years, but we recently reached an agreement with the Cypriots that seems reasonable to us. Based on the figures provided by the two sides, the international arbitrator will rule what percentages Israel and Cyprus will receive," Steinitz said, adding that the agreement would be subject to approve by the Israeli and Cypriot governments. "First of all, however, we will allow companies from both sides to hold discussions in an attempt to reach understandings. If this does not happen, there will be an arbitrator within a few months."

There is a good reason for the recent pressure to complete the unitization agreement. According to Cypriot media reports, a number of agreements for exporting gas from Aphrodite have reached the final stages before signing. The Reuters news agency two days ago quoted Egyptian Minister of Petroleum Tarek El-Molla as saying that Egypt planned to sign an agreement with Cyprus for exporting gas from Aphrodite to Egypt.

Following the reports, the holders of rights in the Yishai prospect, Israel Opportunity Energy Resources LP, Nammax Oil and Gas Ltd., Eden Energy Discoveries Ltd. (TASE: EDN), and AGR Petroleum Services Holdings AS, wrote to Petroleum Commissioner Yosi Wurzburger asking for an answer to the obvious question: how Israel plans to safeguard their rights.

The signing of an agreement with Cyprus is an economic interest of both the state and the partners. The loss to Israel in tax revenue and royalties is likely to amount to billions of shekels, were the Cypriots to begin developing and exporting gas from Aphrodite without a signed agreement.

Aphrodite discovered in 2011

The dispute between Israel and Cyprus over the borders of the Aphrodite reservoir has had a negative impact on the relations between the two countries and is to a large extent responsible for the high price of electricity in Cyprus and the loss of billions of dollars in revenue for the Greek-speaking residents of the island.

The Aphrodite reservoir was discovered in Cypriot waters on December 28, 2011. Tests conducted following the discovery showed that the reservoir contained 3.5 trillion cubic feet (TCF) of natural gas, about the same amount as in the Karish and Tanin reservoirs and a third of the amount in the Tamar reservoir.

The gas in Aphrodite can supply Cyprus's needs for many years but remains below the sea. Without gas, Cypriots are forced to generate electricity using diesel fuel and oil, which are polluting and expensive. The electricity rate in Cyprus is NIS 0.90 per kilowatt-hour, almost double the Israeli rate.

Agreement on international arbitration is likely to help solve the dispute. "For us, such an agreement is an essential condition for developing Aphrodite, and paves the way for its development," Steinitz sums up. "Israel has an interest in this, because it brings closer the construction of a pipeline to Europe and exports to Egypt, if a pipeline to that country is built later. This means money for the state - that is not something we take lightly."

As far as the border between Israel's economic waters and those of Lebanon is concerned, there has been a dispute since Israel withdrew from Lebanon in 2000 that is also affecting areas of oil and gas exploration. In confirmation of this, Steinitz said, "The contacts are continuing," with the involvement of US Acting Assistant Secretary, Bureau of Near Eastern Affairs David Satterfield. "There are new ideas on the table being considered. There is also a strong and urgent Lebanese interest in solving the issue, and I hope that we are on the way to solve it, although it will take a little more time."

Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Lebanon gas exploration, photo: Reuters
Lebanon gas exploration, photo: Reuters
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