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Cyprus wants Turkey to be involved in regional energy plans

Panelists at the Economist 14th Cyprus Summit

By Charles Ellinas

There was more confidence and optimism in this year’s 14th Economist Cyprus Summit than before.

The summit, held on Friday in Nicosia and organised by Hazlis & Rivas, was a great success with the participation of many important speakers from Cyprus and abroad, and the oil companies operating in the Cyprus EEZ.

The subjects covered included the Cyprus problem, economic, financial, investment and energy opportunities and challenges, with a focus on hydrocarbon exploration and development issues.

In his opening speech President Anastasiades said that Cyprus is a bridge between the EU, the East Med and the Middle East. It has established strong cooperation with all countries in the region except, of course, Turkey. As such, Cyprus has a major geostrategic role to play in the region, based on three pillars: respect for international law, creation of opportunities, and a conviction that hydrocarbon discoveries will lead to closer cooperation.

Key to this is the creation of a hydrocarbons corridor between the East Med and Europe, be it through pipelines or LNG. The recently signed gas pipeline inter-governmental agreement between Cyprus and Egypt and potential sales of Aphrodite gas to Egypt contribute to this.

He also reiterated that Cyprus will continue with its energy plans, despite Turkish provocations, for the benefit of all its legal citizens. But solution of the Cyprus problem is key.

Foreign Minister Nicos Christodoulides followed, saying that Cyprus holds huge hydrocarbon reserves and can contribute to Europe’s energy security. Cyprus is in the process of setting-up a new framework for dialogue with its neighbours Egypt, Israel, Lebanon and Greece. Turkey should realise that it has more to gain if it joins the other East Med countries in this process, but more to lose if it persists with its aggressive position. Cyprus will not respond to Turkey’s provocations, but would be happy to engage with Turkey based on international law and UNCLOS, the UN law of the seas.

He said that the EU should engage more closely and more actively with the region on energy – he is making this case in Brussels.

Cyprus wants Turkey to be involved in the development of energy in the region, but the pre-requisites are that it must recognise the Republic of Cyprus and resolution of the Cyprus problem.

DOOR IS OPEN TO TURKEY

Responding to a comment that Turkey’s position on East Med energy is either to control it or stop it, Christodoulides said that the door is open to Turkey to cooperate. But Cyprus will not stop exercising its rights to develop its energy.

Michael Oren, Israeli Deputy Minister in the Prime Minister’s office, talked about the close political and security cooperation between Israel and Cyprus, strengthened by energy links. Israel is fully supportive of Cyprus’ rights to explore and exploit its EEZ and calls on Turkey to avoid any actions that interfere with this. Turkey is an important player in the region, but it must abandon its adversarial role. Oren went further. He said that Israel stands by Cyprus and Greece in the face of Turkish threats.

Kathleen Docherty, US Ambassador to Cyprus, said that the presence of energy resources is a game-changer for the East Med. She confirmed that the US is in the process of developing a broader strategy for the region and strongly supports the tri-lateral meetings that have been taking place between Greece, Cyprus and their neighbours, leading to closer cooperation. The US is planning to expand and increase its presence in the region. It supports Cyprus’ rights to develop its hydrocarbon resources, with the benefits to be shared equitably between Greek and Turkish Cypriots – how this should be done, should be worked out between the two sides. She emphasised that military intervention has no place in commercial activities.

Energy Minister Giorgos Lakkotrypis, confirmed that a preliminary agreement has been reached with the Idku LNG plant in Egypt on selling gas from Aphrodite. He outlined a number of priorities in Cyprus’ energy plans which include:

  • Exploration in block 10, with two back-to-back wells to be drilled, starting mid-November;
  • To continue with exploration. Cyprus will be progressing licensing of block 7 during the next few months and it is in discussions with all licensees for further exploration and drilling;
  • To advance Aphrodite gas sales. This will be followed by monetisation of Calypso;
  • The import of LNG. The tender for the facilities was issued on 5 October.

He said that the EU commitment to the East Med has increased significantly through the support of the East Med pipeline studies and the contribution to the funding of the LNG import facilities. Cyprus still aspires to become a regional hub.

GLOBAL DEMAND GROWING

Tristan Asprey, vice-President Europe, Russia and Caspian, ExxonMobil, presented an overview of gas discoveries in the East Med, but noted that so far there have been limited exports outside the region. He said that global gas demand is growing and that gas has a critical role to play as a natural partner to renewables. He confirmed that ExxonMobil is ready to start drilling in block 10 mid-November. The location of Cyprus makes it ideal, both for exports to Europe and to Asia through the Suez Canal.

Aldo Napolitano, Executive vice-President Projects, Eni, said that the East Med is still an emerging gas province. What has been important for Cyprus is confirmation through recent drilling that the carbonate formations characterising Zohr extend into Cyprus EEZ, giving hope for more future discoveries. Zohr was developed at a very fast pace, within 28 months after discovery, with up to 14,000 people working during its construction. A great success story.

Gene Kornegay, Cyprus Country Manager, Noble Energy, confirmed that he expects Noble to move into the development and production of Aphrodite soon. But first the negotiations for the various necessary agreements must be completed. Signing of the Cyprus-Egypt inter-governmental agreement was an important step in this process. But there is a need to find ways to reduce regional geopolitical risk – the tri-partite meetings that have been taking place so far have the potential to do this, if they lead to wider cooperation. Investments on projects are made for decades and they need certainties.

Yves Grosjean, Cyprus Country Manager, Total, said that gas is becoming quite important in the company’s portfolio, in the expectation that global gas demand will grow, with LNG becoming key in the gas value chain. Total’s ambition is also to integrate renewables into its future business. It is building a low-carbon electricity business, integrated with solar power. Global hydrocarbon resources are not in short supply and companies must position themselves for periods of low prices.

Yannis Grigoriou, CEO, Hellenic Petroleum Upstream, presented the company’s activities and forthcoming exploration plans in Greece. He said that discoveries in Greece can contribute to the development of a hydrocarbons infrastructure network connecting the East Med to Greece and Europe.

TWO NEW DRILLS UNDERWAY

In my own presentation I highlighted that two events stand out. The forthcoming drilling by ExxonMobil in block 10 and the drilling in progress at the Noor prospect offshore Sinai by Eni. Both are very promising. Should they lead to major discoveries, for which there are high hopes, they could transform the region, not just in terms of the gas industry and exports, but also geopolitically.

Both are happening at a time when forecasts show increasing global demand for LNG, with a gap between demand and supplies developing after about 2025. This would open opportunities for LNG exports from the region, both from Egypt and Cyprus. But there will be strong competition from new, competitive projects coming up in North America, Qatar, Africa, Australia and Russia.

Recent developments, discussed at LNG conferences in London last month, are having an impact on slowing-down growth of LNG demand in China, Japan, South Korea and India. In addition, Europe is well supplied with gas at competitive prices. Longer-term gas prices are expected to be about $6/mmBTU in Europe and $8/mmBTU in Japan. Global LNG demand will continue increasing but probably not as fast and it will be price-driven.

This is what LNG from the East Med will have to compete with if it is to succeed finding markets. As a result, in addition to pursuing exports, we should be considering ways to maximise use of East Med gas in the region, including production of petrochemicals.

 

Dr Charles Ellinas is a nonresident senior fellow at the Global Energy Centre of the Atlantic Council @CharlesEllinas

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