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Eastern Mediterranean gas: A new diplomatic opportunity?

East Mediterranean gas reserves might pave the way for better Turkey-EU relations and a Cyprus deal.

Last updated: 10 Apr 2014 10:15
Ayla Gurel

Ayla Gurel is Senior Research Consultant at the Peace Research Institute Oslo (PRIO) Cyprus Centre.
Fiona Mullen

Fiona Mullen is Director of Sapienta Economics and co-founder of Strata Insight energy policy risk advisory.
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The discovery of gas in the East Mediterranean has become an important factor in negotiations over Cyprus [Reuters]

Recent gas finds offshore Cyprus and Israel have led to suggestions that Eastern Mediterranean gas could supply Europe via Turkey along the so-called Southern Gas Corridor, e.g., through the Trans-Anatolian Pipeline (TANAP). Assuming that the various challenges to this proposal can be overcome, it could inject a positive dynamic into the troubled Turkey-EU relations by enhancing Turkey's role as a transit country for European gas supplies and thereby helping the EU reduce its dependence on Russian gas.

The most formidable of these challenges is the decades-old Cyprus problem - the de facto division of the island into a Turkish Cypriot north and a Greek Cypriot south - with only the de facto Greek Cypriot led Republic of Cyprus (RoC) recognised as the legitimate government on the island.

The obstacle arises because a pipeline to Turkey from either Israel or Cyprus would have to traverse the exclusive economic zone (EEZ) delineated by the RoC, which has no diplomatic relations with Turkey. Under international law the RoC would need to grant consent for its trajectory and RoC officials have made it clear that consent would not be given before a settlement of the Cyprus problem.

The Cyprus problem also prevents progress in Turkey's EU accession negotiations, which were launched in 2005, one year after the RoC joined the EU. Because of the Cyprus problem, Turkey does not recognise the RoC and as a result of this no less than 14 of the 35 negotiation chapters are blocked (an additional four are blocked for other reasons). Consequently, any significant improvement in EU-Turkey relations is dependent on a settlement of the Cyprus problem.

Gas tensions

To date the discovery of natural gas offshore Cyprus has made a solution more difficult, by increasing tensions between the Greek Cypriots and Turkish Cypriots as well as between the Greek Cypriots and Turkey. It has reinforced the parties' divergent positions on the question of sovereignty and related rights to exploit offshore natural resources, and has led to "tit for tat" exploration. It is, therefore, no surprise that sovereignty-related differences delayed the agreement on the joint declaration that re-launched the latest round of UN-led peace negotiations on 11 February.

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Despite this, there has been much speculation that gas might have formed part of a wider deal that made the joint declaration possible. One obstacle to this potential catalyst is that each side perceives the other side's need to be greater than its own. The Greek Cypriots believe that the Turkish Cypriots should have the stronger incentive to solve the Cyprus problem because without a solution they cannot have their share of the gas revenues. Similarly, they think that Turkey, as an energy-hungry market, is eager to find alternative cheap supplies via Cyprus gas.

On the other hand, the Greek Cypriots' strategic goal to build a liquefied natural gas (LNG) plant is being further postponed as they realise that the current estimated resources in RoC's Block 12, at around 140 billion cubic metres (bcm), are not enough to finance an LNG plant.

Further drilling including in other blocks is not due before late 2014, therefore it could be many years before sufficient volumes are found to begin construction. With this in mind, Turkey and Turkish Cypriots believe that Greek Cypriots, because of the dire state of their economy, need gas revenues as quickly as possible and that the fastest route to revenues is via a pipeline to Turkey. Moreover, statements by Turkish experts and academics suggest that the gas volumes offshore Cyprus are not large enough to be of significant interest. Therefore, each side presumes that the other side has a greater need to solve the Cyprus problem.

Israeli - a game changer?

If gas offshore Cyprus is not large enough alone to be attractive to Turkey, would the addition of Israeli gas make a difference? In other words, could the benefits of gas cooperation among Cyprus, Turkey and Israel motivate the parties towards a settlement of the Cyprus problem which would in turn help EU-Turkey relations?

One option that has such a potential is what might be termed the "pipeline plus LNG promise": That is, an arrangement whereby following a Cyprus settlement a gas pipeline runs from Israel to Turkey through Cyprus' EEZ, while at the same time Israel pledges to supply gas for an LNG plant in Cyprus. Israel's current gas resources of an estimated 800 bcm, of which 320 bcm are available for export, are large enough to support this option.

The proposed model could bring significant gains to all players. It offers Turkey an alternative gas supply that should be cheaper than some of its current options; it offers Israel diversity of gas exports and geopolitical benefits; it offers Greek Cypriots the opportunity to build the LNG plant they desire faster than would otherwise be the case and without having to depend on Turkey as an export market; and it offers Turkish Cypriots a share in gas revenues. Given all this, the "pipeline plus LNG promise" could be a strong incentive for the parties to conclude the negotiations for a settlement of the Cyprus problem quickly.

There are some caveats to this idea, however, such as Israel's security concerns, which may be why new technologies such as a floating LNG (FLNG) plant or Compressed Natural Gas (CNG) by ship appear to be gaining traction.

Despite these uncertainties, recent statements suggest that the parties may be warming more generally to the idea of post-settlement gas cooperation. The RoC president, Nicos Anastasiades, linked natural gas and a Cyprus settlement in an interview with the Associated Press on February 17, while on February 12, Turkey's energy minister, Taner Yildiz, said that a solution of the Cyprus problem could lead to cooperation on energy projects.

Although the "pipeline plus LNG promise" depends on further improvement in Turkey-Israel relations as well as a final decision by Israel and the Leviathan partners on export options, it might be evolving into a more attractive option in light of recent developments: lower estimates in RoC's Block 12, a volatile Turkish lira and pressure from foreign companies on Israel to finalise its export plans. Whether or not these calculations will encourage the parties to push for a Cyprus solution, or whether new evolving uncertainties will simply make them more risk-averse, remains to be seen.

This op-ed is based on a more comprehensive piece by the same authors published by Istituto Affari Internazionali (IAI).

Ayla Gurel is Senior Research Consultant at the Peace Research Institute Oslo (PRIO) Cyprus Centre.

Fiona Mullen is Director of Sapienta Economics and co-founder of Strata Insight energy policy risk advisory.

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The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

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