Future of Cypriot Hydrocarbons Obscured by Historical and Political Shadows of the Past

by Athina Sylaidi

The discovery of hydrocarbons in Cyprus, Israel, the Greek territorial waters, and south to Egyptian waters, in the Eastern Mediterranean, is a strategic turning point for the region, especially for Cyprus and Greece. Recent research of the US Geological Survey characterizes the region as one of the most important sources of natural gas in the world with about 122 tcf of natural gas and 1.7 billion barrels of extractable oil. Initially, it would convert the economic and strategic fate of Cyprus and Israel in terms of energy independence and security. However, these developments have led to conflicts over the rights of mining natural gas from this region, with particular emphasis on the definition of the Exclusive Economic Zone (EEZ).

After finding hydrocarbon deposits in its EEZ, Cyprus has become a major new energy force. The country has already begun investigations to pinpoint its share of these deposits. The results of these will inform the final decision that will be taken by the Government for their export and transfer to other countries in Europe, along with the degree to which they are attractive to the Cypriot energy market and to foreign investors-companies. Furthermore, it will determine Cyprus’ future cooperation with the various neighboring countries. The position of Cyprus in geopolitical and geostrategic events of the region is extremely important, as in the last decade (after the gas crises of 2006 and 2009 between Russia-Ukraine and the currently unstable energy and political relationship between these two countries) security of energy supply has become a major consideration in Eurasia and particularly in the European Member States.

Mediterranean Sea EEZs. (1) Greece, (2) Cyprus , (3) Egypt, (4) Israel, (5) Lebanon, (6) Syria, (7) Turkey, (8) Libya, (9) Italy. Pnyka21os.wordpress.com.

Greece

It is known that all the Greek governments after July 1974 have recognized that the only problem between Greece and Turkey in the Aegean Sea is the delimitation of the continental shelf (without specifying whether it is the current version of the Exclusive Economic Zone). Turkey does not recognize the right shelf (or EEZ) in the Aegean and calls for the separation of the Aegean Sea in the midline, between the mainland coasts of the two countries. This would risk of “isolation” of the Greek islands of the Aegean, as they would be found in the Turkish EEZ.

Cyprus

In 2001 Cyprus was the first of the above countries to conduct exploratory drilling, during which it found significant reserves of oil and natural gas. Then Cyprus began the negotiation process with Egypt and other countries in the region with regard to the delimitation of the EEZ of each country and the scope for cooperation between them for the future exploitation of the deposits. The result of these procedures was the signing of an agreement between Cyprus and Egypt in 2003 for the delimitation of the EEZ of the two sides. Despite the fact that neither Israel nor Turkey has signed the agreement, these zones are now well established in customary international law. This means that the provisions of United Nations Convention on the Law of the Sea (UNCLOS) concerning the EEZ remain applicable and effective in these states, as well.

As opposed to those with Egypt, the Cypriot negotiations with Syria and Lebanon were delayed significantly. This was a result of the interference of Turkey, which believed that such agreements harmed the interests of the so-called “Turkish Republic of Northern Cyprus” and, by extension, its own.

Mediterranean Energy Disagreements. ed-mysterious.blogspot.com.

 

As opposed to those with Egypt, the Cypriot negotiations with Syria and Lebanon were delayed significantly. This was a result of the interference of Turkey, which believed that such agreements harmed the interests of the so-called “Turkish Republic of Northern Cyprus” and, by extension, its own. Thus, Turkey signed an agreement of setting the continental shelf with the “Turkish Republic of Northern Cyprus” and started its own investigations into controversial areas of Cyprus.

Turkey’s Interests

Turkey, in the context of the recent geopolitical and geostrategic events in the region, is the biggest loser of this story. Having fallen into the trap of supporting the Islamists in the beginning of Syria’s civil war because of investing in the fall of Assad and in the construction of energy pipelines from Qatar and Israel to Turkey through Syria, Turkey is now facing the consequences of Islamist burgeoning. The Turkish economy is directly dependent on Iraqi oil and now faces problems of exploding inflation and a dangerous increase in the deficit of the current account. Already the situation in Ankara indicates that the energy problem in Turkey has reached a tipping point and strong measures should be taken to efficiently address them. But the “lure” for Turkey, as highlighted for a long time now, by the strategic scholars in the Turkish capital, is no other than the large energy deposits in the Aegean and Eastern Mediterranean.

Israel proceeded with consultations and agreements with Cyprus establishing the EEZ of the two sides for which Turkey has protested to the United Nations.

Israel’s Interests

Turning to Israel, in 1998 the government signed a research agreement for gas fields with the Noble Energy Company in the country’s territorial waters, resulting in the discovery of deposits in the Tamar (8.4 tcf) in 2009 and a year later in the Leviathan (16 tcf) fields. Also, Israel proceeded with consultations and agreements with Cyprus establishing the EEZ of the two sides for which Turkey has protested to the United Nations.

The current environment in the Eastern Mediterranean is characterized by a significant degree of instability. The instability started from the so-called “Arab Spring” and it grew following the civil war in Syria with its impact on the surrounding region through migration. Meanwhile, relations between Turkey and Israel have also been damaged after the Mavi Marmara incident in May of 2010. Moreover, adding to this instability is the poor shape of southern Europe’s economy and the controversy surrounding the discovery of hydrocarbon deposits in the region.

Lebanon’s Interests

Lebanon rejected the maritime agreement between Cyprus and Israel in a letter to the UN in 2011. Lebanon, a neighbor of Cyprus and Israel, believes that this border agreement infringed on Lebanon’s own territorial waters. Meanwhile, Lebanon and Cyprus have been holding talks to review their common agreement and remove articles that conflict with Lebanon’s interests. Their interests often conflict; the Lebanese Parliament did not ratify the maritime border agreement signed by the two countries in 2007.

In September 2011, Lebanon sent a letter to the UN complaining that Israel encroached on 860 square km of Lebanese waters in response to the geographic coordinates that Israel sent to the UN in July 2011. The Lebanese position of 2012 consists of exploring for oil in undisputed areas. The long existing conflicts in the Middle East soon could be masking new conflicts on the rights to oil and gas resources in the Eastern Mediterranean and the Aegean Sea.

For Lebanon, this issue might be a chance to transform the structure of its economy. According to the US Geological Survey agency, Lebanon imported around $2.1 billion in oil products in 2005, which amounts to more than 22% of its revenues with an increasing public debt that has now topped $50 billion. A successful exploration in Lebanon would mean that the country would become more secure in terms of energy. It would change the role of the country at a global level, as Lebanon would no longer need to depend on oil or gas imports from other countries.

Lebanon’s wealth could exceed $300 billion in a period of 50 to 60 years. The financial revenues would depend on the final estimates of Lebanon’s share of the total gas reserves in the Levant Basin.

Every trillion cubic feet of gas is worth around $12 billion. Thus, Lebanon’s wealth could exceed $300 billion in a period of 50 to 60 years. The financial revenues would depend on the final estimates of Lebanon’s share of the total gas reserves in the Levant Basin.

Cyprus, Greece, Israel, Egypt, Turkey, Lebanon and the Hydrocarbons

Regarding Cyprus, on the table of negotiations for the better and more efficient transport of the future natural gas were the following possible options:

  1. The East Med Pipeline – export of gas to Greece via an undersea pipeline – which would unite Cyprus with Greece and from there would transport natural gas to the rest of Europe.
  2. The creation of a gasification terminal in Cyprus, with the financial support of Israel. After the recent discovery of huge quantities of hydrocarbon reserves in Israel’s sea area, the case of their transport (or a percentage of them) is under discussions in Cyprus. From Cyprus, gas will transfer to Greece in LNG form and later to the rest of Europe, as well as from Cyprus to other countries outside EU.
  3. The installation of a floating LNG unit.
  4. The transportation of Cypriot natural gas to Egypt.

According to analysts and Cypriot authorities, the first option does not seem cost effective. Thus, it has become a key strategic objective and has been given priority by the Republic of Cyprus to create an onshore liquefaction plant in the Cypriot city of Vassilikos. Still, other alternative options considered were the creation of a natural gas compression station, the installation of a power generation plant with a capacity of 2000MW and the establishment of a GTL in Cyprus.

Cypriot officials have repeatedly expressed their opposition to an Israeli-Turkish agreement which will override their agreement, since a pipeline [connecting these countries] would have to cross the Cypriot EEZ (to avoid the sea area of Lebanon and Syria).

Israel, on the other hand, has not taken final decisions on how to transfer the hydrocarbons from its deposits. On the Israeli side, there was the prospect of connecting Israel with Turkey by pipeline and from there to supply initially Turkey, then Europe and other countries. Admittedly, this option has some difficulties in implementation. First is the historically strong diplomatic relations between Turkey and Israel, which have been shaken after the Mavi Marmara incident in May 2010, in which Israeli soldiers killed nine Turks aboard a Turkish boat. The renewal of friendship between the two countries depends on three conditions laid down by the Turks: Israel should apologize to Turkey, financial compensation be given to the families of the victims, and blockade of Gaza be lifted. Netanyahu apologized to Turkey in March 2013 and promised to financially compensate the families of the victims. However, the ongoing Israeli offensive in Gaza prevents, without any doubt, the normalization of diplomatic relations between Israel and Turkey, and therefore causes a significant obstacle to the Leviathan-Turkey pipeline. The most important and crucial point, however, is that this transfer option of Israeli gas is intertwined with the agreement of the Cyprus Republic, to transfer gas through its territory. Cypriot officials have repeatedly expressed their opposition to an Israeli-Turkish agreement which will override their agreement, since such a pipeline would have to cross the Cypriot EEZ (to avoid the sea area of Lebanon and Syria). The Cypriot acceptance of this agreement and thus the pipeline’s passing through Cypriot Territory seems impossible since the Cyprus problem has not been resolved, and Turkey shows no willingness to get the necessary decisions and thereby to bring about resolution of their dispute.

Egypt, on the other hand, has since turned into an importing country because of the political and economic problems that it faces. Egypt suffers from domestic shortages due to increased domestic consumption, the continuing obligations on exporters, and the flat production of the country.

Along with the above, following the developments in Israel, which is at war with Palestine, the possible cooperation between Israel and Turkey seems impossible as Turkey has condemned the events and actions of Israel. Egypt, on the other hand, (although it was an exporting country to Israel and Jordan until the Arab Revolt of 2011, which resulted in the sabotage of the pipeline transporting Egyptian natural gas to Jordan and Israel) has since turned into an importing country because of the political and economic problems that it faces. Egypt suffers from domestic shortages due to increased domestic consumption, the continuing obligations on exporters, and the flat production of the country. So it seems more likely that Israel and Egypt come to an agreement, as Egypt has the proper equipment and terminal for LNG. Israel would sign an agreement to sell natural gas from the Leviathan and its liquefaction to LNG Damietta. This scenario contrasts and has negative implications for the plans for an LNG terminal in Vassilikos, Cyprus. This scenario, coupled with the possible transfer option and selling of Cypriot natural gas to Egypt, raises concerns. While Egypt is considered a politically and economically unstable country, such an option could bring in the future worries for the energy security of the region, in particular, the security of supply for the importer countries and the security of demand for the exporter countries, Israel and Cyprus.

Source: yannisk.wordpress.com

We see that the geostrategic and geopolitical events of this region are critical and inextricably linked to the future of Southeast Europe’s hydrocarbons. Since these countries are considered unstable and since Cyprus is a member state of the EU, it should find the best, most efficient, and safest way to transport natural gas from the Israeli area of sea and Cypriot EEZ. The main advantage is the fact that Cyprus is an EU Member State and its political issues must be resolved in line with European policy for the common benefit.

Conclusion

Today, in the era of transition of the energy center of gravity from the remaining oil reserves in the Middle East to gas-alternative energy and renewable energy, we are required to take into serious consideration the geostrategic events in this region, highlighting the major importance of these for energy security worldwide.

In the context of the historical development, Cyprus should play a leading role in state-regional-international energy issues, making full use of the advantages that are provided through the existing natural resources. The international attention to the Eastern Mediterranean must expand and intensify; highlighting the local-regional energy security is of utmost importance for the international energy security of developing countries worldwide. It is opportune to take advantage of the conditions set out in resolving issues of external-internal policy (Cyprus Problem, Economy etc.) of Cyprus, erecting its energy policy inextricably intertwined with that of the EU’s, as a member state, and as a result to assert and take the appropriate measures not only for the sake of sustainability and prosperity of the Cypriot people, but also for upgrading the area generally within the overall competition.

Today, in the era of transition of the energy center of gravity from the remaining oil reserves in the Middle East to gas-alternative energy and renewable energy, we are required to take into serious consideration the geostrategic events in this [Mediterranean] region.

The historical political and economic disputes between Cyprus, Greece, Turkey, Israel, Lebanon, and Egypt strongly affect the current and future developments and investments in the region. Nowadays the energy sector is a very important and advantageous issue for the region; its development is inextricably linked with their current and future relationship. As a result, political and economic relations among the above countries are crucial for the achievement of a successful economic environment for their states’ and nations’ future. As these countries are interlinked, they cannot act independently and must consider the best common good for their population. The only way to achieve a better economically and efficiently future for their countries is through agreements and resolving their past disputes which overshadow their future. Will they be able to overcome the shadows of the past? Or will the economically stronger country act against the interests of others, and reap the most benefits?

Athina Silaidy was a trainee in the Regulatory Authority of Energy in Cyprus and is a graduate of the ENERPO program.

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