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The East Med: Trouble in paradise

Overlapping claims of sovereignty in the waters off Cyprus—and conflicting premises and perceptions—add a note of uncertainty to the island’s gas development ambitions

Cyprus sees a bright energy future ahead, one where leading international oil companies (IOCs)—Eni, ExxonMobil, Total—are confident of finding more reserves of natural gas. Furthermore, a deal has been done at last that could eventually see Cypriot gas monetised for the first time.

Noble Energy, Delek and Shell, partners in the Block 12 Aphrodite discovery (4.1tn ft3 of gas in place), have reached an agreement amending their production-sharing contract (PSC) with the Cypriot government. The deal, in the consortium's favour, brings the PSC into line with those signed with other IOCs operating off Cyprus.

The agreement means an important step has been taken towards eventually transporting Aphrodite gas-discovered in 2011-by pipeline to Shell's Idku LNG plant in Egypt. This will be the first Cypriot gas to be brought ashore, probably by 2025.

But when you look at developments off Cyprus from the perspective of the authorities in Ankara, the picture looks completely different. The Turkish perception of East Mediterranean energy prospects is based on the premise that is rejected by the Cyprus government and its allies in the European Union and elsewhere. But with Turkey's foreign policy agenda swinging away from Syria, the pursuit of what it insists are its rights in the Eastern Mediterranean is becoming a priority.

While Cyprus and its allies dismiss Turkish ambitions to search for oil and gas close to the island as illegal meddling, Ankara, with equal vigour, views the Cypriot actions thus far as illegal.

Turkish Cypriots 'ignored'

The Turkish position is that Cyprus had no right to unilaterally declare its economic exclusion zone (EEZ) because the move was made without consulting or taking into consideration the interests of the Turkish Cypriot community in the north of the island.

"The republic of Cyprus, when it was created in 1960, consisted of two communities, Greek Cypriot and Turkish Cypriot," Yurdakul Yiğitgüden, a former undersecretary of energy and now an Ankara-based consultant, tells Petroleum Economist. "Now the Greek Cypriots are cutting out the Turkish Cypriots and unilaterally declaring a Cyprus EEZ and awarding concessions there."

In 1970, after a right-wing Greece-backed coup, the Turkish army occupied the north part of the island on a mission to protect Turkish Cypriots. The area became the Turkish Republic of Northern Cyprus (TRNC). Turkey alone recognises the TRNC and still has troops stationed there. Turkey and the Republic of Cyprus have no diplomatic relations. The view in Ankara and Northern Cyprus is that the exploitation of hydrocarbons anywhere onshore or offshore should await an agreement to reunite the island, so that the resources can be shared jointly by the Greek and Turkish Cypriot communities.

Unclos-based EEZ

Cypriot East Med expert Charles Ellinas points out that the Cyprus government, for its part, "established the island's EEZ based on the internationally accepted UN Convention of the Law of the Sea (Unclos). This has been ratified by 167 states-but Turkey is not one of them." Then, in March this year Cyprus "set up an investment fund for any future hydrocarbon proceeds. President Nicos Anastasiades said the fund safeguarded the rights of both the Turkish and Greek Cypriots."

Outside Unclos, Turkey in 2004 registered with the UN a unilaterally declared continental shelf claim stretching to Egyptian waters, and the TRNC subsequently declared its own EEZ. "There are three maritime restriction areas, declared unilaterally and overlapping each other," says Mithat Rende, an Istanbul-based energy expert and former senior Turkish diplomat. "According to international law, when you have overlapping claims and conflicting maritime areas, you need to negotiate."

Multi-party drilling

After many decades, talks to end the division of Cyprus continue to go nowhere. Cyprus is proceeding with the search for hydrocarbons on the basis of its unilateral EEZ claim-which Turkey regards as illegal.

Turkey and the TRNC concluded, Rende adds, "that they had no choice but to pursue their own interests. Each country will do its own drilling: 'We will try to strike oil and gas and benefit from the natural resources in our continental shelf'. The Turkish Cypriot side, too, through Turkish Petroleum (TPAO), will try to drill and reap the benefit of the hydrocarbon resources. If the Greek Cypriots are not willing to recognise them as equal partners, what can they do?"

At present, Turkey has one drillship, Fatih, situated about 40 miles west of Cyprus. A second, Yavuz, is being deployed in one of the TRNC-designated blocks to the northeast of the island. Cyprus and Greece have urged the EU to take action against Turkey in the form of sanctions.

Turkey was a "little bit late starting" on the East Mediterranean scene, says Yiğitgüden. "But the search for oil and gas has now become a priority, partly to ease our 99pc dependence on imported gas and partly because the other parties pushed us into it. From now on, we will run parallel exploration programmes on our continental shelf and off Cyprus."

“There are three maritime restriction areas, declared unilaterally and overlapping each other” Mithat Rende

Yiğitgüden adds that Turkey has consistently said the waters around Cyprus are disputed areas. If the Cyprus authorities allow operations there, then they should expect others to operate in those waters as well. "They can't pretend they don't know," he says.

The Cypriot government argues that the EU has recognised its EEZ, and the presence of major IOCs, including the US giant ExxonMobil, confirms its international legitimacy. "But the EU and those other parties don't constitute an international court," Yiğitgüden says. "We are talking about disputed waters."

National security interests

Rende says Turkey is determined to continue its search for hydrocarbons around Cyprus "because at issue are our vital national security interests and those of the Turkish Cypriots. When national interests are at stake, Turkey will do its best to protect them. It has public backing. There is consensus that this is a national security issue, it's not party politics."

But will Turkey pursue these interests come what may—even if it risks a clash?

"I don't believe that the Cypriots will test the boundaries of our tolerance and our patience," Rende says. "I don't believe that either Greece or the Greek Cypriots are going to enter into a conflict. I hope that common sense will prevail on their side."

“I don’t believe that either Greece or the Greek Cypriots are going to enter into a conflict” – Mithat Rende

The most logical final outcome would be for East Mediterranean gas to be exported to Turkey, a vast and hungry market on its doorstep. There would be no need for IOCs to convince shareholders to sink billions of dollars into deepwater infrastructure and LNG plants in a region of simmering geopolitical tension, against a background of increasing competition for cheap sources of gas. But the political way ahead remains closed.

For now, despite the fact that the nearby shadow of Turkey is growing, Cyprus seems intent on encouraging IOCs to search for more gas in its EEZ, confident that it has the backing of the international community. "From the Cyprus government's point of view," says Ellinas, "the Aphrodite deal to Egypt, as the first gas export project, is extremely important, even though I expect Idku to drive a hard bargain on price."

Having waited since 2011, when Aphrodite was discovered, to join the ranks of East Med gas exporters, the Cypriot authorities are not in the mood to turn back. But Turkey is in no mood to turn back either. With such glaringly conflicting premises and perceptions-and a complete absence of dialogue-there could be some testing times in store in the waters around Cyprus in the months and years ahead.

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