Turkey to start exploration in Cypriot waters
Ankara appears set to ratchet up tensions in the East Mediterranean with news that Turkish Petroleum (TPAO) will start drilling in waters claimed by Cyprus.
The announcement was made by Ozdil Nami, the Minister for Economy and Energy for the Turkish Republic of North Cyprus (TRNC). He said that Turkish ships would “soon” begin drilling offshore Cyprus, “within the framework of international agreements” but gave no further details.
Nami stressed that the TRNC was “always ready for co-operation with the Greek Cypriot administration” and that his government would “protect the rights and interests of the Turkish Cypriots and take the necessary steps on the issue of natural gas”.
The announcement comes only two weeks after Turkish energy minister Fatih Donmez announced that TPAO would take delivery of its second deep water drill ship on February 20, “in the East Mediterranean”.
Donmez added that the new, as yet unnamed ship, would drill two wells this year, along with TPAO’s existing deepwater drillship, Fatih, which would also drill two wells, but he gave no details of locations.
Where exactly drilling will start is unclear. However Nami’s mention of ‘international agreements’ suggests that it will be inside the maritime area claimed by the TRNC, for which it has awarded exclusive drilling rights to TPAO, rather than blocks allocated by Nicosia to IOCs where gas reserves have already been found.
Given the timing of the announcement, it may be that the move is linked to Turkish local elections scheduled for March 31, which are expected to be a part-referendum on the first nine months of Tayyip Erdogan as executive president.
This period has seen the Turkish Lira fall by 40% on currency markets, causing across the board price hikes and widespread complaints of economic mismanagement.
Traditionally, Ankara tries to deflect attention from domestic economic woes, by ramping up international tensions.
Cyprus is a benchmark for nationalist Turkish voters, who might be otherwise be inclined to vote against Erdogan’s Justice and Development Party (AKP) and its far right National Action Party (MHP) allies.
A major dispute with Cyprus and the EU over hydrocarbon drilling could work to Erdogan’s advantage, and help to prevent serious losses at the polls.
Whether TPAO’s drilling will result in a major discover though, is another matter. As is the long standing question of where gas already discovered offshore from Cyprus will go.
The discovery of Cyprus’ 129 bcm Aphrodite gas field by Houston-based Noble Energy in 2011 further complicated the already complex issue of Cyprus.
The island has been divided into two de facto states since the Turkish invasion of 1974 and the subsequent creation of the internationally unrecognised TRNC in the northern third of the island. Attempts at reunification have failed.
Points of contention include how to divide revenue from the island’s mineral reserves.
Although Nicosia accepts international opinion that ownership of the reserves lies pro rata with both sides of the green line, to date Cyprus has only offered to put the TRNC’s share of revenues into a fund pending a final reunification agreement, an offer the TRNC rejects as inadequate.
With further exploration ongoing, the problem appears only likely to further complicate the already tricky issue of how to get the discovered gas to market.
Earlier this month Eni announced a ‘promising gas discovery’ with its Calypso 1 well in Block 6, which it is exploring in partnership with Total. ExxonMobil, began drilling its second well in Block 10 during January, and is expected to announce the results of this soon.
The block is directly adjacent to the 850 bcm reserves of Egypt’s Zohr gas field, with which it shares geology, and is widely expected to hold significant reserves.
While commercial quantities of gas exist, getting them to market will not be easy.
Efforts by Turkish consortia to develop a line to transit from the Aphrodite field and Israel’s nearby Leviathan field north to Turkey’s southern coast, and on to Europe, have stalled because of political issues – namely Cyprus’ unwillingness to send gas to Turkey and political differences between Ankara and Tel Aviv,
In November, Greece, Italy, Israel and Cyprus concluded an agreement to develop a 2,200-km pipeline connecting the Cypriot and Israeli gas fields with Crete, mainland Greece and Italy, with the EU agreeing to fund a 100 million euro (US$113 million) feasibility study.
However, with the projected line having to pass through areas claimed by Turkey as part of its Exclusive Economic Zone (EEZ), it is difficult to see how the line could be built without a prior agreement delineating the maritime borders between Turkey and Greece, Egypt and Cyprus.
The negotiations required to bring about an agreement could conceivably take decades to resolve, even before the issue of any gas that TPAO discovers is considered.
Such complications will give Israel and Cyprus more reason to consider other possible solutions, including LNG.
However, should Eni, ExxonMobil or even TPAO make a discovery on the scale of Zohr, the economics of an East Med gas pipeline could become significantly more attractive. This might even prompt a renewed attempt at patching up differences with Ankara.