Mediterranean gas finds have Cypriots dreaming of riches

Global energy players already eyeing licences. but but a massive natural gas field could easily become a new flashpoint for the island's rival patrons, Turkey and Greece

The Greek president, Karolos Papoulias, right, meets the Israeli foreign minister Avigdor Lieberman, left, in Athens as part of the two nations' rapprochement, a friendship which is worrying to TurkeyShow more

Cyprus has suddenly become the nexus of potentially spectacular hydrocarbon riches in the eastern Mediterranean, where oil wealth was formerly associated only with olive trees.

Cyprus's energy chief, Solon Kassinis, declared this month that there are indications of natural gas deposits in the island's waters of some 10 trillion cubic feet near Israel's giant Tamar and Leviathan gas fields.

This hefty amount, if proven by exploratory drilling, is more than enough to meet Cyprus's domestic needs, leaving a healthy surplus for the lucrative export market. Mr Kassinis predicted that Cyprus could start producing gas in the next five years.

The Greek Cypriots, who represent the divided island internationally, have big plans. As European Union members on the doorstep of the Middle East, they see Cyprus becoming a regional energy hub.

The promise of hydrocarbon riches in the Eastern Mediterranean is altering alliances and stoking tensions. For example, Turkey has repeatedly objected to Greek Cypriot exploration in Cyprus's 51,000-square-kilometre exclusive economic zone (EEZ), which lies to the south of the island.

Mete Goknel, an energy expert in Ankara, said: "This issue will have repercussions for the Cyprus issue and for Turkey's relations with Greece."

Greece and Turkey came to the brink of war in 1987 over a similar drilling rights dispute in the Aegean Sea. Relations between Athens and Ankara have since improved dramatically, although Cyprus remains a source of contention between the two Nato allies.

Turkey insists the Greek Cypriots should hold back on underwater exploration until there is a solution to the decades-old Cyprus problem. Otherwise, Ankara argues, the breakaway Turkish Cypriot state in northern Cyprus, which is recognised only by Turkey, will lose out on a share of the island's gas riches.

Turkey also claims the hydrocarbon hunt will complicate attempts to achieve a Cyprus settlement.

The Greek Cypriots counter that Turkish Cypriots can share in the potential bounty once there is a deal to re-unify the island. The United Nations, which has overseen numerous attempts to solve the Cyprus problem, is pressing both sides to reach agreement early this year, while any gas production off Cyprus is a few years away.

Turkey, which has occupied northern Cyprus since 1974, will not hesitate to use its naval forces to thwart Cyprus's hunt for hydrocarbons, according to recent Turkish media reports.

But analysts do not expect the Turkish warnings to escalate beyond rhetoric. James Ker-Lindsay, an expert on the region at the London School of Economics, said: "Turkey talks tough with Cyprus on this energy issue, but they've been told clearly by Brussels and Washington not to stir it up."

The Greek Cypriots insist they will press ahead with gas exploration, regardless of Turkish sabre-rattling. They foresee Cyprus playing a key role in a new regional energy equation involving Israel, Greece, and - in the event of a Cyprus settlement - Turkey.

Mr Kassinis, who heads the Cyprus commerce ministry's energy department, said: "We are an EU country with very good taxation schemes and could serve as an outlet not only for our gas but also for Israel's."

Israel seemingly agrees. An authoritative newsletter, the Middle East Economic Survey, reported recently that its Delek Group has proposed to Cyprus the creation of a liquefied natural gas (LNG) facility on the island. Cyprus confirmed last week that it had received the Delek proposal.

This facility would process reserves Israel has discovered offshore and those Cyprus hopes to confirm nearby. It would also allow gas piped from Israel's Leviathan and Tamar fields to be exported from Cyprus by tanker to Western Europe.

The European Union, which has suffered repeated gas supply scares because of disputes between Russia and Ukraine, is eyeing these developments with interest.

Theodore Tsakiris, a policy director at the Hellenic centre for European studies, said: "Europe's gas import requirements are expected to increase from 60 per cent currently to 90 per cent by 2025."

Cash-strapped Greece, Turkey's traditional rival, is looking for a slice of the action and, with Cyprus's help, is eyeing a possible transit role to Europe.

Athens is the Greek Cypriots' closest ally while Greece's relations with Israel, once frosty, have warmed remarkably in recent months. Israeli warplanes, no longer welcome in Turkish skies, have been training over Greece in joint exercises with the Greek air force.

And, during a visit to Athens this month, Israel's foreign minister, Avigdor Lieberman, announced that in the coming months, the Greek and Israeli cabinets will hold their first-ever joint meeting.

Israel has been looking for new friends in the east Mediterranean since its alliance with Turkey went into a vertiginous decline after Israeli commandoes killed nine Turkish activists on an aid ship trying to breach the Gaza Strip blockade.

Turkey's relations with Israel soured further when Ankara angrily declared as "null and void" an agreement Israel signed last month with Cyprus to delineate their underwater boundaries. Such agreements provide exploration companies with the legal protection they need to conduct expensive research and drilling.

In a terse response, Israel's foreign ministry spokesman, Yigal Palmor, swatted aside Turkey's objections. "We do not see how a third country would have anything to say about it," he said.

In contrast, Israel's relations with Cyprus are growing stronger, in part due to the prospects of future energy co-operation.

The Greek Cypriots, who have strong relations with the Arab world, signed similar maritime boundary agreements with Egypt in 2003 and Lebanon in 2007, although the latter deal has yet to be ratified by the Lebanese parliament.

Turkey, in vain, urged both Arab countries to put those deals on hold. Ankara, however, has been seemingly more successful in delaying an agreement on EEZs between Cyprus and Syria, analysts say.

Mr Kassinis was tactful on the subject. "We've had some talks with Syria but it seems there's some delay on their side," he said, without elaborating.

Ankara also managed to deter international oil companies from participating in Cyprus's first bid round for hydrocarbon research in 2007, energy experts say.

Noble Energy, a Texas-based company which has spearheaded exploration in both Israeli and Cypriot waters, was unfazed, however.

If Turkey tries to interfere with Noble's legal drilling in Cyprus waters, "I doubt that that would be welcome news in Washington," said Gary Lakes, the east Mediterranean editor of the Middle East Economic Survey. "Cyprus has every legal right to explore for oil and gas in its internationally recognized exclusive economic zone," he said.

Mr Kassinis says companies from different countries, "including major global players" are expressing interest in Cyprus's next licensing round towards the end of this year.

Demetris Christofias, the Greek Cypriot leader, shrugged off the Turkish warnings this month. "It is the sovereign right of Cyprus to explore for natural gas," he said. "Turkey has no right, and nor does any other country, to tell us we do not have that right."

He accused Turkey of "gunboat diplomacy" that he said must end if Ankara wants to be a modern state "which wants to join the EU".

In November 2008, Cyprus protested to the UN that Turkish warships had repeatedly harassed Norwegian oil research vessels off the island's southern coast. Turkey, in turn, claimed the ships had encroached on its continental shelf.

When Turkey's squabble with Cyprus over gas and oil exploration first erupted three years ago, the US and EU swiftly came down on the Greek Cypriot side.

"The Republic of Cyprus is a sovereign nation with the right to request bids for oil exploration within its own economic zone," a US state department spokesman said. Brussels delivered an identical message.

Gerald Butt, a Cyprus-based author on the region, said the seriousness of Turkish threats would depend on Ankara's mood at the time. If Turkey, a long-standing EU aspirant, feels it is being excluded by the bloc, "it might view the energy issue as a useful card to play at some time", he said.

"Turkey won't go to war over gas in the Mediterranean, but it could use it to up the ante," Mr Butt said.

Mr Kassinis, Cyprus's energy chief, maintains a positive outlook. In the event of a Cyprus settlement, he foresees the possibility of a pipeline from the island ferrying Cypriot and Israeli gas to Turkey.

From there, Mr Kassinis said, it would mesh with existing pipelines "so that Turkey can benefit as a transit country" transporting gas on to Europe. In that case, oil literally could be used to soothe troubled waters.