Gas bonanza for Cyprus hostage to strategic battle with Turkey
Cyprus has vowed to press ahead with the exploration and drilling of its vast gas reserves despite threats from Turkey to block extraction by military force if there is no prior deal to reunify the divided island.
"The whole world, including the United States, recognises the right of Cyprus to exploit the right of its own exclusive economic resources," said Ioannis Kasoulides, the Cypriot foreign minister.
Gymnasium with its columned Palaestra, Ancient city of Salamis, courtyard, Salamis ruins, Salamis, Cyprus
Cyprus has carried out a diplomatic pivot, tightening its relations with Israel and abruptly ending its historic neutrality to apply for NATO's Partnership for Peace status Photo: Alamy
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"We are still far away from gunboat diplomacy, even for Turkey. Groups like Noble Energy, ENI and Total would not be investing billions in exploration here if they really thought Turkey was going to stop them," he said.
Mr Kasoulides said the US-based Noble Energy had already found five trillion cubic feet (TCF) of natural gas in a single bloc of the Aphrodite field to the south of the island, enough to transform the country's long-term economic prospects following last year's traumatic collapse of the banking system, and more than enough to pay off a €10bn rescue from the EU-IMF Troika.
There is potential for more in the huge fields of the Eastern Mediterranean shared with Israel, the biggest discovery of natural gas in the world this century. Italy's ENI plans to drill in neighbouring blocs this year, and France's Total next year.
Officials say there may be as much as 60 TCF of natural gas in Cypriot waters, in theory enough to turn the 1.1m islanders into the "Norwegians" of the Mediterranean once production comes on stream around 2022. All Europe consumes 18 TCF a year.
The discoveries have raised the political temperature in the region. Cyprus has carried out a diplomatic pivot, tightening its relations with Israel and abruptly ending its historic neutrality to apply for NATO's Partnership for Peace status, which lets it draw on NATO capabilities.
"The Eastern Mediterranean has become the focus of attention for the whole world. We are in the frontline of a volatile area and we are upgrading our responsibility. We have done a number of things that are not in the public domain," said Mr Kasoulides.
In theory, the gas fields could prove a catalyst for a breakthrough in the strategic impasse over the island, still divided between Greek and Turkish communities by the 180-kilometer "Atilla line" that runs through the middle of Nicosia. The makeshift wall is patrolled by UN blue berets 40 years after Turkish troops invaded to protect Turkish Cypriots in the North and forestall a plan for unification with Greece.
Turkey needs the region's gas badly to free itself from Russia's stranglehold. A pipeline to Turkey would help to restore tattered relations between Ankara and Jerusalem and stabilise the region, with some diplomats touting the idea of a "grand bargain" to settle a clutch of disputes in one go.
Yet the bonanza could equally inflame conflict. Turkey has claimed the blocs to the south of Cyprus as far as Egyptian waters. "If poorly managed, Cypriot gas could harden political divisions. Ankara does not recognise the government in Nicosia and has threatened military force if Cyprus allows drilling in the disputed maritime zone," said Rem Korteweg, an energy expert at the Centre for European Reform.
The US has begun to intervene, pushing the two sides to renew peace talks. The Greek and Turkish Cypriots have signed a document laying out general principles.
Mr Kasoulides said this text is entirely different from the "Annan Plan" to end the partition that was rejected by the Greek side in a referendum in 2004 soon after Cyprus had secured its place in the EU, though accepted by Turkish Cypriots.
"It talks about one country and a single sovereignty, and does not permit a legal divorce," he said, predicting that the Greek Cypriots are likely to vote "Yes" this time, provided there is no attempt to exploit the economic crisis to twist their arms.
Both Mr Kasoulides and the Greek Cypriot leader, Nicos Anastasiades, supported the Annan Plan then and are now viewed as open to a settlement. Most diplomats say the rejection of the plan was a missed opportunity that is now coming back to haunt Cyprus.
Turkey's deputy-premier, Ali Babacan, played down hope
s of a breakthrough last week, telling The Telegraph that the EU had lost leverage over Greek Cypriots by letting them join before the island was reunited. "The incentive for a deal evaporated," he said.
The great unknown is how Cyprus can bring its gas to market. The government is banking on a $10bn liquefied national gas plant to be built by private groups so that it can ship LNG to Asia, avoiding dependence on a cheaper $3bn pipeline to Turkey that would leave Cyprus vulnerable to pressure tactics.
But Cyprus has not yet found enough certain gas to justify the investment. The minimum threshold for LNG plants is six TCF. Cyprus must find more reserves or team up with the Israelis. Mr Kasoulides said Cyprus has not ruled out a Turkish pipeline to go along with an LNG plant, but that would require bumper discoveries.
Geroge Shamas, head of the Cyprus Energy Regulatory Authority, said the gas find is a strategic game-changer that poses all kinds of risks, including the Dutch Disease or Resource Curse. "We must not become sheikhs," he said, proposing a sovereign wealth fund to recycle revenues out of the country based on the Norwegian model.
Whatever happens, Cyprus is will be not drawing down any rents from gas for another eight years, and may never do if the island remains divided. It is a fair bet that no major oil company will sink funds into final development as long as Turkish warships patrol in anger.
telegraph.co.uk
Ambrose Evans-Pritchard By Ambrose Evans-Pritchard, in Nicosia, Cyprus7:15PM GMT 18 Feb 2014
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