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2 May 2013

Cyprus Hydrocarbons #3

Cyprus may have up to 40 trillion cubic feet (tcf) of natural gas reserves in some of its blocks within its exclusive economic zone (EEZ), and could start exporting 2.0 tcf of liquefied natural gas (LNG) a year by 2020, the head of the Hydrocarbons State Company (KRETYK) Charalambos Ellinas said on March 16th. In all, Cyprus may claim some 60 tcf from the estimated 122 tcf of natural gas in the Levantine basin, according to a US geological survey assessment cited by Ellinas.

In accordance with Ellinas, the building of a costly LNG terminal is the only option for Cyprus to export its hydrocarbons. The pipeline to Turkey, despite the fact that it could be most cost-effective solution, is not attractive due to political implications and obviously Greek Cypriots would not like to be dependent on Turkey thus the island’s entire economy would be at Ankara’s mercy.

President Nicos Anastasiades officially announced the construction of a LNG plant as one of the main measures to help kick-start the economy on April 19th. In a medium term future, with the gas converted into energy Cyprus will become an energy hub serving Europe.

In a meantime the US brokered Israel-Turkey rapprochement, therefore possibility of raising of energy collaboration in the form of gas pipeline from Israel to Turkey is on cards again. However, the Turkish-Israeli rapprochement causes fear to Greek Cypriots as it might significantly change prospective opportunities for the export of Cyprus hydrocarbons in particular as well as geostrategy of Eastern Mediterranean in general.

Generally, Turkey aims to secure the management of hydrocarbons in the region, through the participation of Turkish Cypriots in the exploitation of the Cypriot EEZ, testing with its threats the reaction of countries and companies involved. Cyprus and Israel are facing this situation through their cooperation in the field of energy, whose character is not only economic, but mainly strategic. Cooperation is needed to exploit and transport natural gas to Europe as well as the creation of a terminal in Cyprus. Obviously, this is not favourable for Israel to strengthen the role of Turkey whereas transporting natural gas to Europe through Cyprus and Greece strengthens its own position due to its contribution to Europe’s independence from Russia and Turkey. On the other hand, Israel has even displayed an interest in buying electricity worth up to $1.0 billion a year “to have an alternative energy solution”.

Cyprus natural gas reserves are considered to be one of the major factors for fast recovery. Gas for local consumption might flow in 2015, and export and sell might start in 2017 the earliest. Energy and Commerce Minister George Lakkotrypis stated that the appraisal drilling is a top priority and should start as soon as possible, probably between July and September.

 

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