Cyprus issues two licences for offshore gas exploration


Cyprus licenced Italy's ENI and South Korea's Kogas for offshore gas exploration yesterday (24 January), in a boon to an economy in line for an international bailout because of its exposure to debt-crippled Greece.

Cyprus, which discovered natural gas at sea in December 2011, issued licences covering three offshore areas lying south and southeast of the island to a consortium made up of both firms.

"The discovery of hydrocarbons [around] Cyprus, in conjunction with those found in the wider Mediterranean region, create new realities and prospects for the country," Cypriot energy minister Neoclis Sylikiotis said.

Cyprus sits in the Levant Basin, an area of the eastern Mediterranean thought to be rich in largely untapped reserves.

US Noble Energy reported discovering between 141 billion to 226 billion cubic metres  in Cyprus's first attempt to find natural resources offshore in December 2011. Neighbouring Israel has made major natural gas discoveries there in the past few years.

Turkey has in the past voiced objections to the island exploring for oil or gas. Cyprus was split in a 1974 Turkish invasion after a brief Greek-inspired coup and the exploration is being carried out by the internationally recognised Greek Cypriot government (see background).

Now in line for an international bailout, Cyprus hopes the prospect of sitting on sizable hydrocarbons reserves will give its stuttering economy a boost.

The island sought aid from the EU and the IMF in June 2012 to recapitalise a banking system badly exposed to Greece. It expects to conclude in March a bailout deal anticipated to be as high as €17.5 billion, equivalent to its national output.

>> Read: Cypriot minister defends island against money-laundering charges

In signing production sharing contracts with the consortium of the two companies, the state will earn €150 million, badly needed as Cyprus has been limping along on short-term high-yield borrowing for the past few months.

Speaking to Reuters before the signing ceremony on Thursday, Sylikiotis said separate talks with France's Total, bidding for another two blocks, were progressing well.

"There are very strong indications of gas, and possibly oil, in the area," Sylikiotis said, referring to the offshore maritime area known as the exclusive economic zone.

He said there would be synergies from the licencing to ENI and Kogas, since two of the blocks run in the path of a pipeline planned to transport gas from the Noble concession to a terminal which will convert gas into its liquefied form onshore.

Cyprus sees the discovered natural gas reserves in its economic zone as an incentive for unblocking the island’s stalled reunification talks.

Lest July, Sylikiotis told EURACTIV that income sharing with the Turkish-populated Northern part of the island could be solved by creating a national hydrocarbon’s fund.

Europe should not worry about bailing out crisis-hit Cyprus because the island's huge untapped gas reserves will benefit the European Union by making it less dependent on Russian energy, analysts quoted by AFP said.

Cyprus hydrocarbons company chief Charles Ellinas says the island will be exporting to Europe by 2019 with a view to meeting 10% of the bloc's energy needs. "This is not totally hypothetical. Europe has a huge dependence on Russia and Cyprus can help reduce that," he said.

Analyst Fiona Mullen estimates that the current finds alone could mean gas revenues of at least €1 billion annually. "So the revenue will be very significant when it comes. But I think we won't see any significant revenue for 15 years," she said.

Deputy Turkish Energy Minister Murat Mercan was quoted as saying by the daily Hürriyet that the normalisation of Turkish-Israeli relations – which is contingent on the latter apologising and paying compensation over the deadly 2010 Gaza raid – would not be enough to affect energy cooperation between the two due to Israel’s energy cooperation with Cyprus.

Cyprus has been divided since 1974 despite repeated efforts under the auspices of the UN to bring the leaders of the Greek and Turkish Cypriot communities to the negotiating table. 

Hopes for reunification were raised in 2002 when then-UN Secretary-General Kofi Annan suggested a two-part federation with a rotating presidency. 

In an April 2004 referendum, the Greek Cypriots rejected - and the Turkish Cypriots approved - a UN-sponsored unity plan. The plan's failure disappointed EU officials, who had agreed to allow Cyprus to join the EU that year partly in the hope that doing so would encourage a solution. In May 2004, the Greek Cypriot-controlled Republic of Cyprus became a full member of the EU.

At their December 2004 summit, EU leaders agreed to open accession talks with Turkey on 3 October 2005. One of the conditions specified was for Ankara to extend a 1963 association agreement with the EU's predecessor, the European Economic Community, to the Union's 10 new member states. This group included the Greek Cypriot state, which is not recognised by Turkey.

In July 2005, Turkey signed a protocol extending its customs union to the EU-10 states, but at the same time Ankara issued a declaration saying that its signature did not mean it had recognised the Republic of Cyprus. Turkey also refused to open its ports and airports to Cyprus, as it claims the EU has fallen short of having direct trade with the unrecognised northern part of the island.

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