A little over a year since first announcing an energy partnership with Cairo, Cyprus moved to clarify the two countries’ new collaboration with talks last week. However, while a new agreement is expected to spur technology sharing, sales and joint exploration, both sides of the effort face obstacles ahead.
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According to Egyptian press reports, the talks yielded an agreement to share information about any offshore discoveries within 10km of the two countries’ maritime borders. The agreement builds on earlier efforts to establish technology sharing and the possibility of establishing a downstream role in Egypt for Cypriot reserves, including refining and Liquified Natural Gas options.
Cyprus has explored their own LNG options with proposals for a domestic facility that would deal with both their own reserves and possibly those from Israel, though the project’s high cost remains an obstacle for the cash-strapped country. As reported last year, Egypt may view this partnership as potential path into a regional energy boom they’ve been locked out of until now. The Eastern Mediterranean’s substantial offshore promise has brought about promises for exploration and production action over the last few years, but only Cyprus and Israel have made real progress towards exploiting the reserves and a lucrative export market. Efforts by Lebanon to launch their own exploration and production efforts have been delayed again and again due to a lack of political consensus on licensing.
While the new talks offer a point of entry for Egypt into the broader regional energy scene, they do not appear to include an option for Cairo to import Israeli gas by way of Cyprus. Despite earlier reports suggesting that Cyprus could play a role in establishing a trade route between Israel – who recently decided to reserve 40 percent of their gas for exports – and Egypt, the country’s leadership does not appear to be interested.
Instead, Cairo has insisted that purchases will come only from Cyprus. This approach is complicated by the fact that Cyprus does not expect to see its first gas for several years, while Israel’s offshore extraction has already begun. While Egypt has not yet ruled out direct purchases from Israel, the two countries have had recent difficulties when it comes to energy trade.
Once the provider of a third of Israel’s natural gas, Egyptian eastbound exports were halted following the collapse of the Mubarak government due to a rash of pipeline attacks and allegations of corruption surrounding long term sales. Now facing a daunting $6 billion energy sector debt, as well as substantial domestic shortages, Egypt has been forced to explore new import options, with neighboring Israel being the most obvious choice. However, it is still unclear whether such a deal would be politically feasible.