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Cyprus: gas falls victim to unity failure

The collapse of UN-brokered talks in Switzerland to reunify the island is a setback for Cypriot offshore gas ambitions

The final days of what was likely the last effort on the part of the UN to bring the Greek and Turkish Cypriot communities back together coincided with a heatwave on the island. Temperatures ventured towards 50° Celsius. By night as well as day, the mechanical throb of air-conditioning units was the ambient sound across the island.

Cyprus's ambition is that one day soon the power needed to keep the island cool will come from generating stations fuelled by its own offshore natural gas, rather than expensive imported fuel oil. That day now seems a long way off.

The Aphrodite field in Block 12, with 4.5 trillion cubic feet of reserves, was discovered in 2011, but still awaits development. The problem is that Cyprus's relatively small market doesn't justify the cost of extracting the gas, while the reserves aren't sufficient to justify the construction of a liquefied natural gas plant on the island.

The best option would be to bring gas ashore on Cyprus and then send the excess by pipeline to the huge market in Turkey, a short distance across the sea to the north. Charles Ellinas, an expert on East Mediterranean energy, told Petroleum Economist recently that "if the Cyprus problem is resolved it is possible that Aphrodite gas can be exported to Turkey, because gas prices there are relatively higher than the rest of Europe". But Ellinas also said that in the absence of an agreement "we are moving in the direction of stranded gas at Aphrodite. Stranded gas is when there's absolutely no chance of selling it anywhere."

With the Cyprus problem still unresolved, the government will have to focus in the short term on LNG-import options, while further exploration takes place in other blocks.

But even that process is affected by the continued division of the island. Total is beginning drilling in Block 11, an area in Cyprus's economic exclusion zone (EEZ), which is contested by Turkey. Ankara's view is that exploration there should await the reunification of the island.

President Nicos Anastasiades of Cyprus insisted after the collapse of the Switzerland negotiations that his government wouldn't bow to Turkish pressure and ruled out "any delay in the implementation of the Cyprus Republic's drilling programme".

But in the atmosphere of post-talks recrimination it's not easy to predict what will happen. As the Cyprus Mail pointed out, "Turkey has no legal right to prevent drilling in the Cypriot EEZ… but nobody can rule this out."

The paper also concluded that Cyprus as a whole had "missed an historic opportunity" to reunite the island. It's also missed the chance of monetising reserves of gas at the Aphrodite field that have waited nearly six years thus far to be developed and could be stuck under the sea for many more.

Cypriots still have several weeks of summer heat and air conditioned days and nights in which to ponder the economic cost of what's been missed.

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