How to Move Cyprus' (Prospective) Gaz Bonanza

Energy experts and politicians alike agree that a pipeline running from Cypriot gas fields onto Turkey and then linking to the proposed Nabucco conveyor would make the most sense, both from a technical and financial standpoint.

But pipelines need stability; deals can go sour even among the best of friends. By contrast, giving Russia gas concessions might be the easy answer for Cyprus; but is it the best?

The Nabucco conveyor is a proposed natural gas pipeline from Turkey to Austria diversifying natural gas suppliers and delivery routes for Europe. An intergovernmental agreement between Turkey, Romania, Bulgaria, Hungary and Austria was signed on 13 July 2009.

Motivated by a desire to lessen European dependence on Russian energy, the Nabucco project is backed by several European Union states and the United States and is seen as rival to the Gazprom-Eni South Stream pipeline project. At the same time, there are doubts concerning viability of supplies.

A gas pipeline from Cypriot prospects to Turkey is probably the fastest and cheapest option, says Peter Wallace, an energy consultant who has worked with most oil majors around the world.
Given estimates that Block 12, the area where exploratory drilling is currently underway, may hold up to 10 trillion cubic feet (tcf) of gas, it’s clear that Cyprus would need to export the bulk of these quantities.

“We’re talking about an island with a total population of one million, with estimated reserves of at least 10 tcf, enough to satisfy the country’s energy needs for 150 years. To put that into perspective, that’s one-quarter of the total reserves of the United States (some 40 million tcf),” says Wallace.

“So the next question is, do we pipe the gas or store it here for export? If we go for the latter, a liquefaction plant would set you back $8 billion, all in.”

He adds that if the finds pan out the liquefaction plant would process five million tonnes per annum (mpta) at least. “If you’re going to build a plant like that, your export market is the whole world, not just Europe.”

But the sheer scale of the project could mean it takes a decade before the gas comes on-stream. Wallace cites a comparable project, the Browse LNG export facility off Western Australia’s north-west coast.

With a capacity for 10mtpa, the facility was first conceived in 2004, but is not expected to be online before 2015, says Wallance, who was chief engineer on the Browse project. And he calculates that building an LNG plant here from scratch might take seven to eight years, at a minimum. That’s assuming there are no delays or complications.

The alternative is a pipeline conveying the gas in its naturally-occurring form to markets abroad. Here, there are two main options. One is a pipeline with the accompanying infrastructure running from Block 12 to Athens. But the distances involved, the sea depth and the geology of the seabed would render this task prohibitive, both financially and time-wise.

The second option is a pipeline from the Levant Basin, to Cyprus and then onto Turkey. Although these are rough estimates, a project like would have a completion timeframe of three to four years, and a price tag of some $750 million.

“Israel has so much gas on its hands from the Leviathan and Tamar fields, but it’s got nowhere to send it,” says Wallace. “It’s highly unlikely they’ll work with their Arab neighbours. Moreover, building a liquefaction facility in Israel does not sound like a very attractive idea, given the tense situation in the Mideast. The most logical step for the Israelis would therefore be to export it via Cyprus.”

It may not be much to go on, but the example of Algeria and Morocco furnishes one precedent of energy collaboration made possible in spite of political friction between nations.

“Despite their differences, there is a pipeline running from Algeria through Morocco and across the straits of Gibraltar to Spain. The greenback is the great neutraliser,” Wallace says.

But he’s quick to acknowledge there’s a long distance to travel from what’s desirable to what’s feasible:“Obviously, a possible collaboration with Turkey is hugely contentious politically. It’s a long shot, yes, but perhaps they should start considering it."

Another tricky situation, even assuming Cyprus and Turkey somehow were to set aside their dispute and cooperate on a pipeline, is that they would still have to agree on the location of a gas compression station.

A compression station is needed in order to keep the gas inside the pipeline at a constant pressure. But would the station be situated in the government-controlled areas or in the north?

Doing business with Turkey calls for a political paradigm shift, but if that’s what it takes for peace and security, why not, asserts a member of the House Committee on Foreign and European Affairs and a member of the opposition.

“Right now both sides are playing a zero-sum game. There are those on our side who say: now that we’ve found gas we shall kick the Turks’ backside. That is just nonsense. It doesn’t work that way. Nor will the Turks back off. So perhaps we should explore situations where everybody wins.”

Protests that the Republic’s sovereign rights are being violated by Turkish exploration in Cypriot waters are certainly justified, says the source who did not want to be named. But the time-honoured policy of lodging protests to the United Nations achieves little.

“What happens if tomorrow Turkey starts drilling for gas right next to Noble, in the area which we defined as our Exclusive Economic Zone? We lodge a protest, as always. Ok, then what?” he says.

The EU can only go so far, he says, questioning why EU foreign policy chief Catherine Ashton did not make stronger statements about the Turkish threats. “She stuck to the essentials: urging Turkey to refrain from making threats and encouraging Ankara to normalise relations with EU member states.”

According to the same source, recent gas finds in the Levant have generated a buzz in European circles because Europe is eager to lessen the continent’s energy dependence on Russia.

“For the first time, there is a potential convergence of interests between Cyprus and Turkey,” he says.

“Russia for its own reasons is seeking to undermine the Nabucco venture, cutting its own supply deals with Turkmenistan and Tajikistan. Given doubts concerning the viability of supplies for the Nabucco, the pipeline may well need extra gas coming from elsewhere. Why not from the Levant Basin? That’s where we’d come in.”

While concurring that a Cyprus-Turkey pipeline would be the best solution, former Foreign Minister Nicos Rolandis says the discussion is purely academic at this juncture.

“As things stand, the probability of collaboration with Turkey is zero,” comments Rolandis. “Turkey does not recognise us, why would they buy gas from us? After all, they say that Cyprus’ offshore gas reserves belong to them too.

“And as far as we’re concerned, we’d never agree to do business with Turkey because of the ongoing occupation. Anyway, I doubt anyone here, on the Greek Cypriot side, would so much as dare suggest this. All hell would break loose on the domestic scene.”

Rolandis reiterates his proposal for an escrow account to be set up for the Turkish Cypriot community into which would be placed the proceeds from any gas finds. The percentage of the proceeds would be agreed in advance, and it would include a disclaimer that this arrangement does not set a legal or political precedent

The closest anyone has come to this is President Christofias when recently he offered Turkish Cypriots a share of the proceeds prior to a settlement.

But the problem, says Rolandis, is that Christofias’ offer was vague: “It sounded like an act an charity. It’s as if he was saying to the Turkish Cypriots, look, the gas is ours but we’ll throw you a bone.”

On speculation that the recent 6.5 billion euro Russian loan to Cyprus comes with strings attached – awarding Gazprom offshore gas licences and/or control of a liquefaction plant on the island – Rolandis believes it’s too early to speculate.

“We’ve been hearing all sorts of things lately. That a Russian fleet is sailing to the Mediterranean, that Gazprom has got an offshore licence through the back door. First let’s see how much gas we have and then we take it from there.

“The mere fact that oil majors, such as Gazprom, have bought the data on Cyprus’ plots does not necessarily mean they are interested. It means next to nothing. Companies buy data routinely. There’s a lot of sensationalism going around, a lot of misconceptions.”

Brenda Shaffer, senior lecturer at the University of Haifa, School of Political Sciences, likewise thinks that talk of Cypriot/Israeli/Turkish collaboration is premature and speculative.

“There are a lot of what-ifs,” she told the Sunday Mail. “First, you’ve got to ensure there is an export market. Presumably the Mediterranean reserves would be targeted at south-western Europe.

But given developments in the Caspian, it’s far from certain whether that market should be considered a given. Next, the Nabucco project is not even a certainty.”

She adds: “There’s a saying in the energy business: selling oil is a date, selling gas is a marriage. This is because natural gas requires infrastructure and therefore long-term stable political relations. Transit states in gas are problematic – usually it’s better for the gas to be exported by a supplier directly to the market.”

Moreover, Shaffer stresses that Israel, which views energy as a national security issue, has yet to make a decision to sanction the export of the natural gas. A government-appointed commission is currently looking into this.

Shaffer outlines a number of hurdles standing in the way of Israel acquiring export markets: one obstacle, which could well apply to the case of Cyprus, is that Israel’s gas discoveries appeared at a time when there is a glut in European natural gas markets.

“The current state of the European economy will likely preclude many costly new projects to enhance EU-member states’ energy security through lowering their portion of natural gas imports from Russia,” she writes in a recent article.

Shaffer argues also that Russia “possesses tremendously powerful levers of influence to thwart Israel from cutting into natural gas export markets in southern Europe, which is dominated by the Russian state-owned company Gazprom”.

She goes on to say that Israeli gas, together with possible additional discoveries in Cyprus, “might be a relatively inexpensive means for Russia to help it meet its export commitments to

European consumers in lieu of very expensive planned natural gas production in Russia itself.”

Source: Cyprus Mail