Gas deal with Egypt marks turning point

With Cyprus’ energy policy entering a decisive phase, Energy Minister Michalis Damianos in an interview with the Cyprus Mail laid out a strategy that hinges on a delicate balance, pushing ahead with hydrocarbons, expanding renewables and managing the realities of an isolated grid, all while consumers continue to face high electricity prices.

A landmark agreement for Egypt to purchase all of Cyprus’ Aphrodite gas output has given new momentum to Cyprus’ hydrocarbons strategy. The deal will see Egypt buy the full production of the Aphrodite field once extraction begins, under a long-term arrangement expected to run for at least 15 years. 

For Damianos, the agreement represents more than a commercial step, “it’s a milestone,” he said, adding that “It means that we will be proceeding by January, with a final investment decision in 2027 which means first gas from Aphrodite around 2031.”

The picture is more nuanced for the Kronos field, where expectations of an announcement in Egypt did not materialise but, according to the minister, this does not amount to a delay. Damianos said the widely cited March 30 deadline was never a binding deadline, but rather a convenient moment for a potential announcement while all parties were gathered in Cairo. Instead, he pointed to ongoing legal and technical discussions with ENI and Total, which are focused on finalising documentation rather than renegotiating fundamentals.

Crucially, the overall timeline for Kronos remains unchanged. First gas is still expected between late 2027 and the first half of 2028, in line with earlier projections. “It is the same timeline. We don’t consider that it has been a delay,” Damianos said.

The field’s viability hinges on its integration with existing Egyptian infrastructure – a factor the minister described as a key advantage. “Because of the synergies, we agreed that it will go to Egypt, there is an in-principle agreement” he said, referring to the proximity to the Zohr field and liquefaction facilities.

He also dismissed suggestions that geopolitical factors i.e Turkey are holding up progress. “Turkey is definitely not the issue,” he said.

Meanwhile further offshore, the recent declaration of commerciality for the Pegasus and Glaucus fields by ExxonMobil and QatarEnergy has reinforced Cyprus’ longer-term prospects.

Together, the two fields are estimated to hold around 7 trillion cubic feet of gas. A development plan is expected within the next year, followed by a final investment decision that could take until 2029, with first gas potentially by 2033. “It shows we are moving forward – not just with Aphrodite, but with bigger reserves,” Damianos said.

Still, the timelines underline a broader reality that Cyprus’ hydrocarbons strategy is advancing, but slowly, and its benefits will not be felt for several years. That long horizon places even greater pressure on domestic infrastructure – particularly the Vasiliko LNG project, which is intended to reduce reliance on costly diesel for electricity generation.

The project, launched in 2018-2019, remains incomplete following the collapse of the original contract and ongoing arbitration with the Chinese-led consortium that was initially awarded the work.

“We don’t have everything we need to just bring in a new contractor and finish,” Damianos said.

A “gap analysis” carried out by French firm Technip has identified what remains to be done, and a new tender process is expected within the coming months. But timelines remain uncertain. “We are not looking at many years, but we are looking at years,” he said, estimating that the project will finish in less than five years.

Despite the delays, Damianos insists it is not only a priority for the government but it is also his “main priority in this ministry, to finish this as soon as possible” highlighting how essential the project is as “LNG is cheaper than diesel,” he said, reaffirming that “Vasiliko and renewables are connected, they are the two main things we need.”

If Cyprus’ gas ambitions are long-term, the pressure from renewables is already being felt, most visibly in the growing tensions around photovoltaics. Installed solar capacity has surged to around 900 megawatts, but the system it feeds into has not kept pace. At its core is an ageing grid that, as Damianos put it, “needs to be upgraded and is being upgraded”, though not fast enough to match the scale of change.

“This is not just a Cypriot issue,” he clarified, pointing to estimates that Europe’s grids require hundreds of billions in investment, “so at EU level we have a grids package, a matter that we are trying to finalise by the end of our presidency” adding the grid issue is “a pan-European issue”. 

The problem is structural as electricity systems must operate continuously, with supply and demand perfectly balanced at all times. But solar production does not follow demand, it follows sunlight. At certain times of the year, particularly in spring and autumn, Cyprus can produce far more solar energy than it actually needs. “You produce close to 900 megawatts and you may only need around 400,” Damianos said.

The result is curtailment – energy that is produced but cannot be used. Around 300 megawatts of capacity, largely from households under net metering schemes, is given priority access to the grid. These consumers, who installed systems earlier, are less affected. But newer installations and larger producers are increasingly seeing their output cut.

That imbalance has triggered frustration – and, in some cases, accusations of unfairness.

Damianos did not dismiss those concerns, but suggested they stem in part from how the system was originally presented. “I think the main issue is that people were never told how this works,” he said. “The idea was to reduce your electricity bill, not to bring it to zero.”

As more systems were installed, it became inevitable that not all production could be absorbed.

Even so, he maintained that photovoltaics remain economically viable.

“Even if part of your production is cut, you still recover your investment over time,” he said, estimating payback periods of six to eight years for systems that last up to two decades.

To address this imbalance, the government is investing in energy storage and batteries seem to be the way forward as they amplify the benefits of weather-dependent renewables, such as wind turbines, and solar panels. By storing electricity to be released when needed, batteries reduce reliance on fossil fuels when the sun is not shining – which in Cyprus is for around 60 days a year. By early 2026, around 120 megawatts of battery capacity are expected to come online, with further expansion planned by 2027. This could allow up to 300 megawatts of currently unused solar energy to be stored and used during evening hours.

“Part of the energy that is currently not used will be used in the evenings,” Damianos said. But he was clear that storage alone cannot solve the problem. “On days without sun, batteries don’t help,” he said.

Hydrogen, often cited as a future alternative, is also unlikely to play a major role in the short term with a small Hydrogen plant on the cards in the next few months. “It will be very small, maybe two to ten megawatts,” he said of the potential pilot project. “It won’t assist much in the energy mix but whatever people can do, whatever business’ can do, especially with clean energy, of course we’re supportive”

The Great Sea Interconnector – a proposed cable linking Cyprus to Greece and the wider European grid – is seen as another key piece of the puzzle. “From a security of supply perspective, it’s a must,” he said, noting that Cyprus remains the only EU member state without an electricity connection to the wider European grid.

But that strategic benefit comes with a significant cost – one that will ultimately fall on consumers. Under current estimates, Cyprus would be responsible for around 63 per cent of the total project cost, to be repaid over 35 years through electricity bills.

“If the project costs €1.9 billion, Cyprus will pay about €800 million,” Damianos said. “If it costs more, we will still be paying 63 per cent – and that means through consumers’ bills.” For that reason, he rejected the idea that the project should be seen primarily through a geopolitical lens. “In my eyes, it’s not a geopolitical project – it’s a financial project,” he said.

The key question now, he suggested, is whether the long-term benefits justify the cost and how that cost is structured. “We need to know the numbers so we can tell people whether it’s worth it,” he said. “If the repayment period was 60 years instead of 30, the outcome could be very different.”

While the government remains committed to the idea of interconnection, Damianos made clear that no final decision can be taken without a full understanding of the financial burden. “Someone is going to pay the bill,” he said. “And whoever is going to pay needs to know what that bill is going to be.”

On the ongoing conflict involving Iran, Damianos said Cyprus faces no immediate risk to fuel supply, as it sources its imports from Israel and Greece and maintains the EU-mandated 90-day reserves. “The issue is not supply, it’s prices,” he said, warning that global energy costs are likely to remain elevated for years due to disruption in production across the Middle East.

Beyond energy, Damianos pointed to pharmaceuticals as a standout sector for Cyprus’ economy. “Pharmaceuticals are about 25 per cent of our exports,” he said. “The sky is the limit.” Cypriot producers of generic medicines already export to Europe, the Middle East and parts of Asia, reaching dozens of markets. New EU trade agreements, including with India and Mercosur, are expected to open further opportunities, particularly for smaller companies.

The picture that emerges is one of a country moving forward on multiple fronts but at different speeds. For Damianos, the challenge is to balance these pressures while keeping the system stable and affordable.

“We are moving forward,” he said. “But we need to make sure what we build works – for the system and for the consumer.”