Nicosia, Cyprus. Energy expert Dr Charles Ellinas said on Wednesday that the Cypriot government is likely offering continuous concessions to multinational energy corporations to encourage offshore natural gas drilling. He made the remarks after ExxonMobil and QatarEnergy declared the Pegasus and Glaucus fields in Block 10 of Cyprus’ exclusive economic zone marketable.
Assessment of the fields
Ellinas said the announcement followed confirmatory drilling and the companies’ disclosure that the two fields contain between six and eight million cubic feet. He said the companies had a deadline to state whether the fields were commercially viable and had done so, but added that this did not mean development would proceed.
Timeline for development
He said a final investment decision on drilling for gas is unlikely before 2029. He added that natural gas from the two fields is not expected to be exported before 2033 at the earliest.
Concerns over agreement terms
Ellinas said he was concerned about the terms agreed by Cyprus, saying the country appears to be making large concessions to the companies. He said Cyprus seems to be focusing more on the political aspect of the agreements than on the commercial aspect.
Export route and commercial margins
He said ExxonMobil has signed memorandums of understanding with Egypt to export natural gas through an Egyptian terminal, either the Segas liquefaction terminal in Damietta or a planned new terminal in Port Said. He warned that, based on expected liquefied natural gas prices at the time exports begin, margins are small.
Profit share concerns
Ellinas said Cyprus would need to make concessions for the project to become commercially viable. He added that, based on what he hears from industry sources and companies in the sector, many concessions have already been made, to the point that Cyprus’ share of profits may be low, especially if LNG prices and Brent oil prices are at the lower end of expectations at that time.
Warning on future demands
He said that if the government continues to offer concessions, the corporations will continue to demand more.
