ALTHOUGH gas prospects in the eastern Mediterranean could act as a catalyst for collaboration and for a political settlement, in reality the two sides in Cyprus appear to be behaving counter intuitively by going it alone, nudging the peace process ever closer toward deadlock.
“An overall settlement to the Cyprus conflict seems as elusive as ever with UN-mediated talks showing no progress. Significant gas revenues may be a decade away, and exploiting the gas in the context of the unresolved Cyprus dispute will drive up costs and scare away investment from major oil companies,” warns the highly respected International Crisis Group.
In its latest report on Cyprus, ‘Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?’ which was released yesterday the think tank reviews rising hostility in the eastern Mediterranean since Greek Cypriots began drilling for hydrocarbons last September. Turkey responded with tough talk, naval manoeuvres threatening exploration operations, and agreements with Turkish Cypriots to exploit hydrocarbons around the island.
“A joint approach to eastern Mediterranean natural gas exploitation would ensure benefits for all, while unilateral moves mean lower profits, tensions and delays that could crush current projects,” said Hugh Pope, the Crisis Group’s Turkey/Cyprus Project Director. “And it is a Cyprus settlement, not far-away gas revenues, that can provide a quick and real economic bonanza for all,” he added.
As Pope told the Mail: “The second offshore licensing is generating a great deal of interest in Cyprus right now. Lack of interest is definitely not the problem. But what I’ve seen happening on plenty of occasions is that the boards of oil companies start scratching their heads when it comes down to the details, when they start learning about the political situation.”
The Crisis Group report goes on to say that “Ankara should reverse its policy of categorically refusing to engage Greek Cypriot officials, even if it does not recognise them as representing the whole island, and agree to enter into a dialogue to defend its claims in the eastern Mediterranean.
According to the Crisis Group’s research, a pipeline pumping Cypriot gas to Turkey would make sense not only politically, but economically as well. In fact, a pipeline running from Cyprus to Turkey’s south coast would cost about one-tenth of the price tag of a liquefaction natural gas (LNG) plant.
One top-level Turkish energy executive told the group that the pipeline infrastructure to export gas to Europe could be built in two years.
The other pipeline alternative – from Cyprus to the Greek mainland – would be far too costly and pose a logistical nightmare.
But it cautions that the two sides, trapped in their “own myths” are not talking to each other.
“Turkey has not yet expressed an open interest either in talking to Greek Cypriots or transporting this gas. Even if it did, such a discussion would need third-party mediation – by the UN, the US or another neutral non-EU country.”
As the report observes, “The extra risks associated with the unresolved conflict will make any LNG development more expensive to finance and difficult to find markets for, Turkish threats will likely keep most major oil companies on the sidelines, there is not yet enough Cypriot gas to make an LNG plant truly profitable, and extra Israeli volumes seem unlikely.”
And according to the Crisis Group, “for any LNG plant to be truly profitable, it would need double the amount of gas currently known to be in the Aphrodite field.”
One energy executive quoted by the Group said: “Six to-7 tcf (170-200 bcm) makes a plant viable. But it is not enough to make much profit. It is just enough for one train [liquefaction, purification facility inside the plant]. One train is dangerous because you have no safety net in the event of problems. The second, third and fourth trains [bring in the cash].”
