Cyprus Peace Talks Could Bring Gas Export Boon for Israel

With billions of dollars at stake, Israel and Western energy majors are closely watching renewed Cyprus peace talks that could clear the way for major gas projects with a role for Turkey.

Export plans for the eastern Mediterranean have been taking shape over the past five years since US firm Noble discovered the Leviathan field in Israeli waters and the Aphrodite field off divided Cyprus.

Last week, Greek- and Turkish-Cypriot leaders relaunched UN-brokered reunification talks after a break of nearly two years.

The island’s close neighbor Turkey is a potential key customer for gas exports as well as a transit point to Europe but its occupation of northern Cyprus excludes a Turkish role barring a settlement. Ankara is threatening to boycott oil firms operating off Cyprus, while Nicosia accuses it of “gunboat diplomacy” by harassing international ships involved, including an incident early this month.

“Apart from minor incidents, we have not been too bothered. We are at the exploration stage and the blocs are not contested,” said Jean-Luc Porcheron of France’s Total in Cyprus. But if billions of euros (dollars) are invested in production and export infrastructure, “we have to be sure that security and safety conditions have been fulfilled,” he said.

Turkey, which has illegally occupied the northern third of Cyprus since 1974, opposes the exploitation of offshore hydrocarbon reserves by the Greek-Cypriot government in the south. Cyprus’s ambition to become a regional gas hub for its own as well as Israeli and even Lebanese exports would likely require a rapprochement between Ankara and the internationally-recognised Nicosia government.

Georges Mosditchian of GEP-AFTP, the French Oil and Gas Suppliers Council, said Cyprus has three gas export options: It can build a gas liquefaction plant out at sea, a costly and technically challenging venture; build a factory on land at a cost of about 10 billion euros (more than $13 billion), or construct a pipeline to Turkey.

“But there are many political obstacles” to the pipeline option, which would cost an estimated two to three billion euros, Mosditchian pointed out, especially as Ankara currently does not even recognize Nicosia.

Hugh Pope of the International Crisis Group said “the cheapest, quickest, most secure and most profitable way to get this gas to market is probably by pipeline to Turkey”. But this option depends on a long-elusive Cyprus settlement.

Immediately after the February 11 resumption of the Cypriot peace talks, Turkish Energy Minister Taner Yildiz said he hoped the negotiations would “open the way for energy-related projects”.

Ideal route for Israel 

With Israel technically in a state of war with Lebanon, its neighbor to the north, Cyprus would provide the ideal route to deliver Israeli gas to Turkey and on to Europe.

The Jewish state appears reluctant to build its own liquefaction plant due to environmental or terrorist risks.

It has also shown interest in the liquefied natural gas factory planned for Vassiliko, near the southern Cypriot coastal resort of Limassol, that would allow LNG exports by ship to lucrative markets in Asia.

The Cyprus government has commissioned Nobel with its Israeli partners Delek and Avner as well as Total to carry out feasibility studies on building an LNG plant. So far, the proven reserves of the Aphrodite field, assessed in October at around 140 billion cubic metres, would not make the venture economically viable.

Cyprus is counting on discoveries in three blocs allocated to the Italian-Korean consortium Eni-Kogas and the three blocs of Total, where drilling is scheduled for end 2014 and early 2015 respectively – and it wants to handle gas from Israel, which would in return demand a compromise between Nicosia and Ankara.

“If Cyprus does not allow the pipeline to pass through its EEZ (exclusive economic zone) to Turkey, Israeli officials say Israeli gas will probably not go to the Cypriot LNG plant either,” said Pope.