By Charles Ellinas
Cyprus gas hopes are at a crossroads. The belligerent actions of Turkey and its navy, which put a stop to ENI’s attempts to drill in block 3 last month, have escalated tension and risks in the entire region.
However, even though ENI will now wait and see what happens before it decides as and when to resume drilling, ExxonMobil is proceeding with subsea surveys, gathering of environmental data and preparatory work to support its plans to drill in block 10 during the second half of this year.
This is crucial. Much hangs on this going ahead and on the more optimistic indications from the evaluation of seismic data, that has shown that block 10 may hold significant amounts of natural gas, in formations similar to nearby Zohr.
A major discovery in block 10, greater than 15 tcf, could alter the gas balance and associated geopolitics in the region. The prospect of substantial gas exports to Europe could put ExxonMobil at the forefront of future gas developments and could rekindle interest in the region. It could also lead to increased pressure, and even active involvement, by the US and the EU on all sides to solve the Cyprus problem, in order to unlock the gas riches of the region.
But it is not clear how exploration in block 10 will proceed. ExxonMobil confirmed that it is carrying on with its plans, but sensibly added that the safety of its personnel takes top priority. The US confirmed that its political position has not changed. It supports the ‘rights of the Republic of Cyprus to develop resources in its EEZ’, but it reiterated the consistent US position that these natural resources should be shared fairly between the two communities.
Turkey is still threatening to stop any exploration activity in Cyprus EEZ. Will the US navy provide protection? It remains to seen.
At the time of writing this article, ExxonMobil’s two survey ships were still at anchor elsewhere, with no sign that surveys are about to start and completed in early April, as reported.
Decisions on future exploitation of any gas finds off Cyprus were always going to be left until after completion of all planned drilling, by the end of 2018. Much hangs on resolving the political problems and the more optimistic indications that block 10 may hold significant amounts of natural gas.
The discussions between Egypt and Cyprus for a gas pipeline and possibly gas sales for export to Europe as LNG may have to wait until then. Any agreement for the pipeline will be inter-governmental and, as a result, not urgent.
Announcements so far on Aphrodite gas sales are vague – it is not clear that European buyers are lining up to buy Aphrodite gas, and without them, such a venture will not proceed. Even if there were such a possibility, low gas prices would mean that profits would be very low, negating any significant financial benefits to Cyprus.
Ultimately, though, the persisting low global gas prices and regional cooperation will be key factors for the wider commercialisation of East Med’s gas.
Dr Charles Ellinas is a nonresident senior fellow at the Global Energy Center of the Atlantic Council