Cyprus EEZ in the limelight

Cyprus EEZ came back into the limelight on the occasion of EGYPES, Egypt’s annual and foremost energy conference and exhibition that took place in Cairo this week. And in keeping with both states’ liking of a good show, the energy ministers of Egypt and Cyprus signed a framework agreement for the export of Cyprus’ natural gas to Egypt, but also through Egypt to international markets, in the presence of their respective presidents.

But even though useful, this does not resolve the challenges being faced in developing the Kronos and Aphrodite gas-fields. These are dominated by serious economic differences that have so far prevented Cronos from achieving FID as planned. Cyprus and Egypt planned to sign the FID at EGYPES, but at present agreement remains out of reach, with the risk that Cyprus’ benefits from such a development may be limited.

A framework agreement sets out the broad terms and conditions for potential future projects. But it does not guarantee that a project or investment will proceed. It is a non-binding statement of intent that must be followed by legally binding agreements if a project is to progress.

As such, the framework agreement provides for a talking-shop between Egypt and Cyprus, but it does not add value to the agreements already signed for the development of Kronos and Aphrodite – signed by the ex-energy minister George Papanastasiou in Egypt in February and October 2025 – which determine how the Final Investment Decision (FID) will be taken.

Kronos development

The development plan for the Kronos gas-field is based on recoverable gas estimated to be 2.5 tcf and project life at 15 years. It envisages transport by subsea pipeline to Egypt’s Zohr infrastructure for processing, followed by transport to Eni’s Damietta LNG plant for liquefaction and export.

These introduce transit, processing and liquefaction tariffs and costs that reduce net project profit. In fact – based on the Production Sharing Agreement (PSC) and the signed agreements – Cyprus profit share comes out of the sale of the gas to Damietta.  

The PSC provides that during the early years of the project a large share of sales income goes to Eni/TotalEnergies to recoup their recoverable costs and investments. It is during the later years that the profit split favours Cyprus. This introduces risks when project profitability is marginal.

As a result, Cyprus wants to limit any adverse financial impact and, following advice from its foreign advisors, it is demanding contractual protection against:

• Any significant project cost overruns
• Any liabilities if things do not go according to plan and gas delivery obligations are not met

This shifts most of the risk to Eni/TotalEnergies, that, at present, are not willing to shoulder it – and neither is Egypt.

According to the online journal MEES, this contractual dispute has led Eni to put plans to submit an FID by the end of March on hold, postponing FID agreement.

Christodouliudes’ visit to Egypt was scheduled to sign the Kronos FID during EGYPES. But with that now not possible, it was limited to signing a, more general, framework agreement.

The problem stems from assessments that show that, depending on the price of LNG in global markets, project profitability could be low.

Long-term forecasts expect the LNG price to drop to around $8-8.50/mmbtu after 2028, due to the large quantities of US and Qatar LNG entering the markets and the expectation that by then the effects of the Iran war will be overcome.

At such a price, Kronos’ profitability becomes marginal and even more so at the point of sale of the gas to Damietta. This may be acceptable to Eni because it allows recovery of its project costs and its sunk costs from the low utilisation of the Zohr infrastructure and Damietta. But, as MEES points out, it leaves Cyprus exposed to potential risks if the project does not go to plan.

Successful completion of the project and export of LNG – as much as 4-5bcm/yr – could bring kudos and political benefits.

• It will be the first gas to be exported from Cyprus’ EEZ, since the first discovery in 2011
• It strengthens links with Egypt
• It could contribute to Europe’s energy security at a time when global developments make this a high priority.

But this cannot happen “at-any-cost”. Project risks must be sensibly addressed and Cyprus not only must not end-up disadvantaged, but must make a reasonable profit from the sale of its gas.

It is unlikely that these problems would lead to abandonment of the project. The partners and Cyprus have too much invested in this and should be able to eventually come to an agreement.

Inevitably, resolution of these problems is likely to take time, putting completion of the project by 2027 out of reach, with 2028 being more likely.

Similar arguments apply to the development of the Aphrodite gas-field.

Aphrodite development

Chevron is in the process of carrying a front-end engineering design (FEED) aimed at providing the technical and financial certainty needed for an FID. 

This should produce a more accurate project cost estimation, currently put at about $4bn, and a project roadmap. It will also identify and address project risks.

Completion of FEED by December, would enable the project consortium, Chevron, Shell, and NewMed Energy, to consider FID in early 2027. 

But it would appear that there is still a long way to go before a development agreement is reached. According to MEES, an announcement by NewMed last month limits the quantities of natural gas “that can be produced through the Development Plan, and which are subject to the issuance of an FID, the signing of gas sales agreements and the commitment to development,” to 2.88tcf. As MEES points out, “it will be hard to justify spending $4bn to develop 2.88tcf.”

With these gas quantities, it is likely that the consortium is preparing the ground to demand an increase in the gas purchase price from Egypt and/or further project development and financial concessions from Cyprus through the project PSC in order to proceed with an FID.

And on top of these, agreement on the dispute with the Ishai Group is still pending, even after promising discussions earlier this year.

Similarly to Kronos, resolution of these problems is likely to take time, delaying completion of the project beyond the planned date which currently is 2031.

Evidently, developing Cyprus EEZ will take more time. The government could do better by focusing its attention to completing the Vasilikos project to import LNG. This is the single-most important project to substantially reduce the exorbitant electricity prices burdening Cypriot households and industry.