International Herald Tribune 2012-12-12 NICOSIA, CYPRUS — In October, the government of Cyprus announced it was negotiating possible licensing deals with 15 companies to explore for natural gas in a deep-water zone off the island’s southwest coast. The government says it expects to sign four contracts early next year — raising deep concerns over the possible reaction of Turkey, which has never recognized the Republic of Cyprus or its maritime borders since the de facto division of the island in 1974.
“Turkey says it will not tolerate exploration and Cyprus says it will proceed,” said Hubert Faustmann, an associate professor at the University of Nicosia. “Neither side has blinked and they’re playing for great stakes.”
Aphrodite, as the gas field is named, was discovered a year ago, about 35 kilometers, or 20 miles, west of the Leviathan field, itself discovered a year earlier in Israeli waters. According to an initial survey conducted by Noble Energy, based in Houston, Texas, it could contain 5 trillion to 8 trillion cubic feet of gas, or 142 billion to 227 billion cubic meters, more than Cyprus could consume in a century.
In the initial discovery euphoria, there were suggestions that the development of the Eastern Mediterranean fields could help to stabilize one of the world’s most politically troubled regions.
Political and energy analysts suggested that cooperation between Cyprus and Turkey on gas transportation, and revenue sharing between Greek and Turkish Cypriots, could help to revive stalled Cypriot reunification talks. Gas exports could also help revive a Cyprus economy pummeled by the euro crisis and help Europe to reduce its dependence on Russian-controlled gas. And regional cooperation could help to diminish tensions between Israel and its neighbors.
A year on, the mood has changed. Nicosia, by embarking on a unilateral exploration program, has antagonized both Turkish Cypriots and the Turkish government of Prime Minister Recep Tayyip Erdogan. Ankara, in turn has warned that it would respond forcefully to continued drilling unless the “inherent and equal rights” of the Turkish Cypriots to hydrocarbon finds are respected, said Mithat Rende, a senior Turkish foreign ministry official, in an interview last month.
Turkey also claims that portions of the exclusive economic zone established by Nicosia in 2010 as part of its gas exploration program lie within Turkey’s continental shelf.
Last month, at an international energy conference in Istanbul, Turkey reiterated warnings that the world’s major energy companies would lose access to its vast market should they work with Nicosia on Aphrodite. Companies currently negotiating possible deals with Cyprus include Total of France, Eni of Italy and Novatek of Russia.
In a similarly pointed warning, in May, Turkish fighter jets chased Israeli warplanes from what Ankara said was Turkish airspace just north of Cyprus. The chilling of formerly cordial relations between Turkey and Israel reflects not only the standoff over Israel’s blockade of Gaza but also close Israeli cooperation with Nicosia on exploration of Cypriot gas reserves.
According to a report from the International Crisis Group, citing local news reports, tensions are continuing to rise, with Greek Cypriots accusing Turkey of increasingly provocative military maneuvers and “gunboat diplomacy.”
“We cannot rely on either side of Cyprus to show leadership on this issue,” says Ozdil Nami, a member of the Turkish Cypriot Parliament and a former chief of negotiations for reunification. “We need the U.S., Russia and others to take a stance. Otherwise this area will present itself with another conflict in a region where we don’t need another one.”
Since it could take at least seven years to deliver Aphrodite gas to market, some observers say interested parties have plenty of time to unravel their thicket of disputes. Most agree, however, that reconciliation over the field is unlikely without progress on Cypriot reunification, the prospects for which are dim.
There are also market forces to consider. As sources of natural gas proliferate, the price may decline even as Europe revives economically. Energy analysts say U.S. shale gas in particular, which now accounts for 35 percent of U.S. natural gas consumption compared with just 1 percent in 2000, is a global game changer.
One obvious way to leverage a price advantage from Aphrodite gas would be to transport it in the most cost-efficient way, which by all accounts means pumping it through a pipeline from Cyprus to Turkey, where it could be shipped to Europe. That would suit the Europeans who, having been denied gas supplies in late 2006 as a consequence of feuding between Russia and Ukraine, identified Turkey as a vital transit point for fuel.
In addition to the cost benefits, some analysts say, a Cyprus-Turkey pipeline would be just the tonic needed to stir reunification talks, or as Laura Le Cornu, an energy consultant based in Cyprus, puts it, “the mother of all confidence-building measures.”
For many Greek Cypriots, however, to say nothing of Israelis, such faith in Turkish good will is dangerously naïve. Not only has Russia been known to turn off its gas taps to settle geopolitical scores, Egypt in April briefly interrupted Israeli and Jordanian supplies and Turkey has done the same to Greece over the last several years. Given such exigencies, says Andreas Theophanous, a professor at the University of Nicosia, “Why would you accommodate a country that does not recognize your right to exist?”
That leaves only two alternatives: pumping the gas via pipeline from Greek Cyprus to the Greek island of Crete and then on to Europe, or building a liquefied natural gas terminal and transporting the fuel by sea. Both options are expensive; L.N.G. terminals typically cost about $10 billion, or about 10 times the estimated $1 billion price of a Cyprus-Turkey pipeline.
A pipeline linking Cyprus to Crete would cost even more. Harry Sachinis, chief executive of the publicly controlled Greek firm, Public Gas Corp., which is known by its acronym Depa, says that a study by the pipeline contractor J.P. Kenny has shown the feasibility of such a project: “If a decision were made today,” he said, “it could mean gas to Europe by 2018.”
Still, at some 1,150 kilometers in total pipeline length, a Cyprus-Crete link would be comparable in scale to the Nord Stream system that brings Russian gas to Western Europe under the Baltic Sea and could cost as much as $17 billion to build, according to Strata Insight, a hydrocarbons consulting firm in Nicosia.
Such is the burden of politics, says Praxoula Antoniadou Kyriacou, a former Cypriot gas minister and now a leader of the country’s liberal United Democrats party. “To the extent this problem is unresolved and there is no pipeline through Turkey, that leaves us with more expensive alternatives” she said. “We have no choice but to consider political and economic factors.”
Turkey is also running out of options. The strong international response to Nicosia’s tender has challenged Ankara on its threat to punish companies that entered the bidding process.
“Cyprus has done a good job of converting licenses into support from big countries,” said Mr. Haustmann of the University of Nicosia. “The Turks cannot take on France, Italy, the U.S. — and Israel.”
Hugh Pope, a director at International Crisis Group, said that “everyone could win” if relations were normalized. “But a failure to strike a political compromise has held Turkey back for decades: Now it’s blocking Nicosia’s most obvious route back to prosperity.”