Does Cyprus Hold The Key To Europe's Energy Woes?

Seizing on concerns about the impact of a possible halt in Russian gas through Ukraine, Cyprus’s leadership are boasting about the island nation’s energy potential from Nicosia to Berlin. Speaking to reporters in Berlin last week, Cypriot President Nicos Anastasiades suggested that the country’s recent gas discoveries could help provide an alternative to those European countries most dependent on Russian natural gas.

“Cyprus should be developed into an energy centre that helps to reduce other dependencies,” Anastasiades told Reuters following a meeting German Chancellor Angela Merkel.

Following a 2009 pipeline closure over a price dispute between Ukraine and Russia, Brussels has made a concerted effort to diversify natural gas import options for Europe, including increasing cooperation with North African suppliers, encouraging renewable alternatives and pushing for investment for the region’s interconnectors. Despite easing dependence on Russian natural gas from 45 to 30 percent in the five years since the shutdown, Europe’s push has been limited by a series of setbacks on all fronts, not least the impact of instability across North Africa on hydrocarbon production and output.

Since a 2011 discovery, Cyprus has sought to establish the country as an energy hub in the region, joining new industry actors like Israel in promoting the potential of the Eastern Mediterranean’s new-found offshore reserves. However, progress has been slow, as the country’s weakened economic standing has made it difficult to nail down the financing needed to pursue exploration, production and export options.

Still, the country’s leadership has been optimistic about the country’s ability to meet its own needs and now the energy needs of a wider Europe. According to Cypriot media reports, Communications and Works Minister Marios Demetriades told a shipping industry conference last Friday that recent discoveries could allow Cyprus to emerge as the center of the region’s burgeoning energy marketplace. On the same day, Cypriot Minister of Agriculture, Natural Resources and Environment Nicos Kouyialis told the 5th Annual Mediterranean Oil and Gas Conferencethat Cypriot gas was an important component of Europe’s future energy security.

“The Cypriot natural gas is essentially the European Union natural gas,” Kouyialis said.

Over the last three years, Cyprus has seen its new energy role as not just potential producer, but also as an energy hub for the region. With Israel, Turkey, Lebanon and Syria all laying different claims to the region’s energy potential, Cyprus has repeatedly emerged as an aspiring middleman for the Eastern Mediterranean’s new energy revolution.

Despite the country’s clear optimism, Cyprus remains a very distant solution for Europe’s energy security in the eyes of regional observers, especially when it comes to addressing near-term concerns about Russian gas.

“All these discussions about exporting are absolutely premature,” said Michael Leigh, a Senior Advisor at the German Marshall Fund. “This whole Ukrainian business has increased interest in diversification, but the Eastern Mediterranean is usually mentioned last and there’s good reason for that.”

Although Cyprus currently lays claim to an estimated 50 to 60 trillion cubic feet of gas and 1.7 billion barrels of crude in waters off its southeastern coast, the country faces substantial financial challenges associated with export options, such as pipeline projects or possible Liquified Natural Gas plants.

According to the Eurasia Group Senior Analyst on Global Energy and Natural Resources Leslie Palti-Guzman, the problem with considering the potential of Cypriot gas in the discussion of European energy security is less an issue of paying for projects and more about first proving there is anything to get excited about.

“Financing is the last thing we’re looking at,” Palti-Guzman said. “The first thing is to make sure there reserves are proven, but at the moment, they’re not.”

Laying out a lengthy path that starts with proving the reserves meet early estimates, then moves to regulatory improvements and then nailing down buyers, which could prove difficult with new suppliers like Cyprus, Palti-Guzman suggested that the country’s contribution could be something to consider after 2020, but certainly not now and certainly not in discussions about near-term dependence on Russia.

Still, some have found some logic in the push by the country’s leadership even while admitting the obvious challenges for contributing to Europe’s energy security in the short-term.

“Cyprus is not that significant to what is happening in the region,” said a Nicosia-based attorney and author of the book, Hydrocarbons of the Republic of Cyprus.. “But they have the potential to be catalytic – the common denominator.” The recent push by Nicosia is less about immediate results as getting Europe involved at the early stages of natural gas development in the region, he explained.

“If Europe really wants to see this all happen, they need to get involved now.”

forbes.com / Christopher Coats