Conflict between Noble Energy and Israel delays Israel-Cyprus Unitisation Agreement
Friday's expected visit of Cypriot president Nicos Anastasiades to Israel for a meeting with Israeli Prime Minister Benjamin Netanyahu might turn out to be a pivotal moment in the natural gas diplomacy between Israel and Cyprus.
Five years have passed since the two countries signed an agreement for a maritime demarcation line dividing the two countries' Exclusive Economic Zones (EEZs). However the expected unitisation agreement, which has been discussed for the last few years, has yet to be signed. That unitisation agreement is crucial for the division of proceeds from the Aphrodite gas field and for cooperation between the commercial rights holders over two natural gas assets, Leviathan and Aphrodite. Israel claims deposits from Aphrodite are intruding unto the Israeli EEZ at the Yishai license.
That could have been a problem for the two governments to settle, but conflicting commercial interests are making what seem to be fairly routine diplomatic negotiations into a commercial war. Last week the Cyprus Mail reported "that discord between the involved companies – Noble and Delek on the Cypriot end, and the Pelagic consortium on the Israeli side – concerning the distribution of the Aphrodite gas proceeds has prevented a deal from being struck." What is unique in this situation is that Noble Energy and Delek Group, the dominant members in the natural gas monopoly in the Israeli market, are opposing the stance of the Israeli government.
In 2012 Hizdamnut Israelit, one of the Israeli partners to Yishai license, part of the Pelagic consortium, reported "undiscovered prospective gas resources in Aphrodite Prospect", estimated at 6.7 trillion cubic feet (tcf) of natural gas, to the TASE (Tel Aviv Stock Exchange). The Yishai consortium is claiming that an undisclosed quantity of gas from the Aphrodite reservoir, probably up to 10%, reaches over into the Israeli EEZ from the Aphrodite field.
Theoretically that problem is up to the Cypriot and Israeli governments to solve; however the conflicting commercial interests are heavily intervening in the process. A unitisation agreement between the two countries is needed in order to facilitate a more efficient development programme for both the Leviathan and Aphrodite fields. It will also enhance the prospects of exporting the gas to Turkey, the most lucrative natural gas market in the Middle East.
The Cypriot Aphrodite field is wholly controlled by Noble Energy (70%) and Delek Group (30%), the same two groups, as mentioned above, that are dominating the natural gas monopoly in Israel. Their interest in that case is contrary to the Israeli government's as well as to the Yishai consortium's, which might demand a 10% share of the Aphrodite field. It might have been possible for Israel to reach an agreement with Cyprus, and give up on some of its demands, in order to advance the natural gas regulatory framework and the development of Leviathan, but for the commercial interests of the Yishai consortium who are determined to keep their legal rights for the natural gas proceeds. Noble/Delek are also not in a mood to give up on some 0.5 tcf of gas. The two companies claim that all reported 4.5 tcf of natural gas in Aphrodite is in the Cypriot EEZ. Additionally, the firms argue, the Yishai consortium haven't carried out any exploratory drill.
If and when Mr. Netanyahu, the Israeli PM, and Mr. Anastasiades, the Cypriot president, reach an agreement, it will be binding upon Yishai consortium as is detailed in article B4 in the license they were given, which is due to expire by the end of next February. However in Israel such commercial dispute tend to end up in court.
Ya'acov Zalel