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Eastern Mediterranean Energy Games

Ioannis Michaletos, December 7, 2011

Last October the government of Cyprus enacted for the first time in its history a process that may well lead it to become an important natural-gas production center, via the hypothetical reserves to be found just offshore this Eastern Mediterranean Island. In parallel, Turkey raised its tones, proclaiming its adamant stance against any exploration without its involvement, whilst Greece and Israel provided both tacit and explicit support towards Cyprus. Meanwhile, neighboring Syria is crippled by civil strife, and the whole region resembles a powder keg that may explode at any given moment, if one adds the already-explosive political situation in countries like Egypt and the wider climate in the Middle East.

Cyprus

In 2006 Cyprus began looking into the possibility of hydrocarbon explorations in its exclusive economic zone, after a similar move by its southern neighbor Egypt that provided to the company Shell a 42,000 square kilometer concession for deep water researches. That development prompted Nicosia to negotiate successfully with Cairo their borders relating to the economic zones of each country. According to well-placed sources within the British energy market, Shell indirectly assisted these negotiations, wanting to have all legal matters settled in order to proceed in its own planning in the region.

Thereafter Cyprus awarded the French energy exploration company Beicip as well as the Norwegian PGS to conduct seismic researches in order to collect data for potential reserves. Finally a part of the zones researched, codenamed Block 12, was awarded to the Houston-based energy company Noble Energy to conduct its research drills, which started in October 2011 and are scheduled to be completed soon.

Additionally, Israeli reserves, named Leviathan and Tamar, proved recently to have significant amounts of natural gas. In short, the Eastern Mediterranean region seems to have capacity to become an important energy production site, a potential development that will affect one way or another global energy balance and especially the European markets. Cypriot media speculate that potentially tens of billions of dollars worth of reserves may be found, making the island one of the richest in the region and a magnet for a host of other energy-related industries.

Turkey

Since 2007, Ankara has issued a multitude of veiled or direct threats against Cyprus, by not recognizing its right for an exclusive economic zone, let alone to proceed into research for hydrocarbons. The northern part of the island, some 37 percent of the whole, is still occupied by a 50,000-strong Turkish Army personnel, whilst since 1984 a self-proclaimed Republic of Northern Cyprus has been named, recognized only by Turkey.

The basic points as laid out by Turkey regarding the energy issue are that the Republic of Cyprus does not represent the Turkish-Cypriot side (north); therefore until a final solution is found concerning the unification of the island, no energy investments should proceed. On a legal aspect, Turkey claims that the Mediterranean Sea is a landlocked one, thus its islands do not have rights to an exclusive economic zone. It is interesting to note, however, that Turkey itself has not signed the international maritime law convention for which it argues. Turkey traditionally views Cyprus as a dagger in its side and is afraid that the economic empowerment of Cyprus will force a solution to the Island's partition problem that will eventually stipulate the ousting of the Turkish forces from there, thus rendering the geopolitical expansion that Turkey has enjoyed in the Eastern Mediterranean since 1974.

Greece

Athens is officially a guarantee force of the Republic of Cyprus, where the majority of the population is of Greek descent and has maintained an armed presence there since 1963. Over the years both countries have signed a series of bilateral defense agreements stipulating a pact that will throw both of them into battle in case a crisis with Turkey becomes an outright war. Moreover, Greece is in the process of establishing its own exclusive economic zone in the Eastern Aegean, a move that Turkey opposes, since it hasn't signed the international maritime law. Turkey wants to find a solution with Athens based on a bilateral agreement, a kind of a special exclusion of the U.N. law, which has also become an E.U. law, therefore binding Greece. It is of importance to note that if Greece establishes its economic zone, it will border with that of Cyprus, thus effectively isolating Turkey from the economic exploration of the Eastern Mediterranean.

Israel

Tel Aviv has clearly sided with Cyprus over the past years in order to secure a potential extraction of natural gas from offshore reserves, thus acquiring energy security and making Israel for the first time in its history independent from energy imports to an extent, a crucial aspect in the exercise of policy of Israel towards its Middle Eastern energy-producing neighbors. Further, the Noble Energy Company that currently drills the Cyprus block is a U.S.-based one with a significant number of Israeli shareholders, adding another dimension to the issue. A triangular relationship has been developed between Tel Aviv-Nicosia and Athens, where ministers and officials from all of these countries mention the possibilities of constructing underwater natural gas pipelines for the transfer of gas to Europe and the creation of LNG stations.

That sort of an infrastructure, which has been estimated to cost up to $30 billion, cannot be achieved unless stability prevails. Israel, having a number of adversaries like Iran, would like to attain as much stability as possible in its wider Sea region, hence the backing of Cyprus seems a precaution that will facilitate long-term energy-security planning and at the same time allow Israel to enchase its relations with the Southeastern flank of NATO and the European Union, which is Greece and Cyprus. Israel plans to invest $6 billion in the next four years in the natural-gas sector.

United States

Since the late 40s Washington has enjoyed the role of overlord of the whole of the Eastern Mediterranean, where the 6th fleet is activated and where the interests for the American side run high considering the proximity to the Middle East, the Suez channel and the Caucasus on the north. Since Greece, Turkey and Israel are all considered U.S. allies by, American diplomacy has enacted a careful policy of reassuring all three that it will protect their interests, not wanting to witness a potential crisis in such a sensitive region.

It can be safely estimated, though, that the potential of hydrocarbon reserves will shift American policy in favor of Israel and Cyprus so as to diversify the energy imports of the European Union, accomplishing in that respect the diversification E.U. energy reliance, decreasing dependency on Russia and the Middle East. Moreover, U.S. companies like Exxon Mobil have shown interest in participating in future rounds of explorations offshore Cyprus, according to local sources.

Russia

Although potentially a discovery of large amounts of gas can affect future Russian exports to the European Union, Moscow seems fully supportive of Cyprus and Israel due to its long-standing economic and political interests in Cyprus and due to its overall strategy of diversifying energy consumption globally from oil to gas, thus acquiring a primal role in the world energy game at the expense of Saudi Arabia.

European Union

The European Union is also supportive of the aforementioned, since it agonizes for its energy security and a potential discovery of new reserves by a Eurozone country such as Cyprus further strengthens its energy planning. French and German companies especially, being the dominant players in the European energy corporate environment, estimate they will be able to acquire concessions and strengthen their businesses worldwide. Europe will face an issue with natural gas imports sometime after 2020 due to rising consumption, decreasing North Sea reserves and increase in demand by the rest of the world.

Estimations

The potential reserves in the Noble Energy's Block 12 are estimated at 85 to 255 billion cubic meters of natural gas, and the neighboring Israeli ones at 700 billion cubic meters. Combined, they amount to an 18-month production of Russia, the largest gas producer in the world. Noble Energy estimates a 60 percent chance of geological success. Noble Energy has almost doubled its share price since 2008 based on its involvement in the Eastern Mediterranean hydrocarbon researchers.

The coming months will reveal the extent of reserves to be found in the Eastern Mediterranean. Should they prove to be as estimated, this will alter the geopolitical balances in the region. The cooperation between Cyprus and Israel will flourish, and in parallel Turkey may follow a more aggressive policy to secure its interests. It is more than certain that Cyprus will become more of a headline in the mainstream press, while the developments in the region will have to take into account the energy factor.

The probability of a conflict cannot be excluded, although it is not significant due to already-established balances of power. Nevertheless, it should be stated that a deterioration of the domestic conflict in Syria or that of the nuclear project of Iran, along with any destabilization developments in Egypt, may have seismic ramifications, with Turkey and Cyprus near the epicenter.    

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