The discovery over a period of seven years, (2008-2015) of approximately 2,56 trillion cubic meters (tcm) of natural gas beneath the waters of the Exclusive Economic Zones of Cyprus appears to have revolutionized the regional geopolitics of the Eastern Mediterranean. Some of the conventional thinking which resulted from their evaluation is that the region will have a major impact on Europe’s gas diversification strategy assisting it to significantly diminish its dependence on Russia by exporting to the EU anywhere between 20-50 bcm/year, while at the same time help to solve the Cyprus problem.
These projections also failed to take notice of the extensive history of the global oil & gas industry over the last 110 years that essentially reconfirmed the hypothesis that oil & gas reserves by themselves do not alter but usually consolidate the pre-existing geopolitical power trajectories in the region where they are discovered. If the trajectory of regional geopolitics is cooperative, cooperation is enhanced.
If it is contentious, conflict (or the possibility of conflict) in enhanced. In other words, there is not (and never has been in the geopolitical history of the oil industry) such as thing as a “peace pipeline”. There is little chance that these discoveries could provide a critical positive incentive to change the cost/benefit analysis of the parties involved in the region’s entrenched conflicts, such as the Arab-Israeli dispute, the maritime disputes between Israel and Lebanon or for that matter the Cyprus conflict.
The discovery of the Gaza Marine field in the EEZ of the future Palestinian state in 1999 did not move Israel or the Palestinians closer to peace. The discovery and monetization of Leviathan in Israel as well as the contested claims between Lebanon and Israel over an 854km 2 portion in their respective EEZ did not seriously worsen their bilateral relationship nor did it stop Lebanon from moving forward with its own exploration round that was completed after a four years delay in late 2017.
The proposed linkage of the Cyprus Question with the monetization of Cypriot Gas reserves boils down to the erroneous understanding that the potential revenues generated by the export of these gas reserves can act as a “peace incentive” for Turkey and the Turkish Cypriots since (a) it would limit Turkey’s own dependence on Russian gas and further diversify EU gas imports from Moscow via Turkey, (b) give a positive incentive to the Turkish-Cypriots to share the ROC’s prospective wealth and (c) provide a major means of financing the cost of reunification thereby facilitating an overall settlement.
Let’s Talk Turkey: Facts Vs Perceptions
The volume of the potential gas exports Turkey could realistically import, not only from Cyprus, but from Cyprus and Israel as a whole, are too limited to generate a major shift on Turkey’s policy of continued military occupation and colonization. If Cyprus was to sign a standard 15 years contract in order to sell 7,5 bcm/y from its single commercially exploitable discovery, the Aphrodite field, this would amount to around 11% of Turkish demand that is expected, according to the projection of the Turkish Energy Ministry to reach around 65 bcm/y by 2023-2025 although this estimate may is likely to be overoptimistic regarding the pace of the projected demand increase for Turkey’s gas markets.
Moreover, even in cases when the bargaining power relationship is reversed, as it is partly the case between Russia and Turkey, Ankara is highly unlikely to make key foreign policy concessions in order to get cheaper and/or more diversified gas imports.
If Turkey, which is dependent on Russia for almost 53% of its gas demand, would shoot down Russian military jets for allegedly violating its airspace for 17 seconds in December 2015; what kind of concessions the Israelis and much more so the Greek Cypriots could expect to get before selling Ankara respectively 60% and 100% of their net export capacity?
It would also represent 100% of Cypriot exports tied to one market, exported via one route and liked to one price not a very promising option given the mercurial diplomacy of Mr. Erdogan. Under this scenario Cypriot exports to the EU are not an option. All the gas remains in Turkey and is consumed for Turkey’s domestic needs, an unwelcoming prospect for most Cypriot political forces which want to see Cypriot gas contributing in the EU’s gas import diversification.
No Easy Wealth: Can Cypriot Gas Exports Pay for the Costs of Re-unification?
Unfortunately Turkish Cypriot political parties appear to be more focused on securing an equal right with the RoC in granting the licenses to the International Oil Companies (IOC) and in sharing the gas profits -even in the absence of a solution- than constructively engaging the Greek Cypriots on issues of critical importance to Nicosia and Athens, such as Turkey’s rights of military intervention and the presence of Turkish troops in Cyprus even after a settlement is reached.
Turkish Cypriot political forces would essentially prefer for Nicosia to stop all hydrocarbon related activities which they deem as illegal and unilateral. Their demand to share licensing authority is nothing short of demanding the recognition of their self-proclaimed “TRNC” by the internationally recognized government of the country and that is something that no Cypriot President or Greek-Cypriot political party can accept.
Finally, the potential net profits generated by Aphrodite’s monetization will be -although significant- too limited to allow the RoC to self-finance the majority of its reunification costs that could reach anywhere between €20-25 billion. The current basic scenario Cyprus is working on is based on price of $6,5 MMbtu (million British thermal units) projecting an average net annual inflow of revenues estimated to be between EUR 370-420 million over a 15 years period.
This projected wealth is not something that will be immediately available. Even if the export contract was signed today it would take until 2021-2022 for the exports to start and for 2025-2026 for any serious revenue to begin flowing into the coffers of Cyprus, reunited or not. This is hardly enough to cover a substantial cost of reunification expenses, including compensation of the refugees that must be available during the first post-settlement years, in order for any settlement plan to have a realistic chance of being accepted by the majority of Greek Cypriots in a referendum.
Dr. Theodoros Tsakiris
Assistant Professor of Geopolitics and Energy Policy, University of Nicosia
Member of the Board, Hellenic Association for Energy Economics (HAEE)