Natural gas can power progress in Cyprus

The discovery of significant natural gas deposits off the southern coast of Cyprus in late 2011 and the possibility of more finds in the eastern Mediterranean offer a fresh and compelling incentive to settle the Cyprus problem. But the gas also poses risks to the island's future security and stability, entrenching the nationalist positions that for decades have blocked progress towards reunifying the Greek Cypriot and Turkish Cypriot communities.
If the sides cannot find a mutually agreed way of dealing with this new resource, the Greek Cypriots will find it harder to profit from their share of the hydrocarbon wealth, Turkish Cypriots will be deprived of inherent rights, and Turkey will miss another chance to fix this long-running drain on its diplomatic and economic future.

Escalating tensions in the eastern Mediterranean coincide with an impasse in Cyprus's reunification negotiations. The latest round of UN-mediated talks under way since 2008 have stumbled, and their stated goal of a bi-zonal, bi-communal federation is losing credibility. Few expect a breakthrough in the talks over the next year, as the Greek Cypriots will be distracted by their EU presidency in the second half of 2012 and a presidential election in May 2013.

The discovery of natural gas in the Aphrodite field -- with about 7 trillion cubic feet (200 billion cubic meters), enough to meet a century of Cypriot energy needs -- has so far not helped the process. The Republic of Cyprus, which has since 2003 delineated its exclusive economic zones (EEZ) with Egypt, Lebanon and Israel, has an internationally recognized sovereign right to explore and exploit subsea resources inside such areas. Nonetheless, the Greek Cypriots' unilateral start of drilling in September 2011 flouted an agreement they had reached with the Turkish Cypriots in bilateral talks that natural resources and maritime boundary agreements were to be shared in a joint federation. The Greek Cypriot president's vague promise to distribute future revenues did not allay Turkish Cypriot concerns that they were being cheated out of their fair share.

But unilateral and provocative actions by Turkey and the Turkish Cypriots have also violated the spirit of talks. They have agreed to delimit the continental shelf between their respective coasts and awarded licenses for prospecting in areas, including waters south of Cyprus. Now Turkey is finalizing preparations to begin onshore drilling on behalf of Turkish Cypriots in the north.

Turkey and Turkish Cypriots have objected to Greek Cypriot exploration and exploitation around the island since 2003. They reject the latter's claims to exclusive sovereignty, saying this is being negotiated and that the Republic of Cyprus does not represent Turkish Cypriots and their interests. Ankara also argues that five Republic of Cyprus licensing blocks west of the island overlap its own continental shelf claims. It believes its long coastline entitles it to a large share of maritime zones and views with suspicion the unofficial but apparently competing Greek Cypriot (and possibly Greek) claims to much of the eastern Mediterranean. To underline its objections in 2011, it provocatively sent research vessels, planes and warships to fly the Turkish flag near the Cypriot Aphrodite field and research vessels to areas closer to Greece.

Unilateral actions by all sides inevitably increase frictions and make accidents in the eastern Mediterranean more likely. At the same time, it is unrealistic to expect that the Republic of Cyprus will halt its offshore activities. Cyprus' economic and eurozone woes, which dragged its credit ratings down to junk status at the beginning of 2012, would make it very difficult for any Greek Cypriot politician to leave the gas in the ground.

Still, any significant revenues are several years away, and the two Cypriot sides can make the current situation better with confidence-building measures. Greek Cypriots should formally pledge to share an interim 20 percent of the resource with Turkish Cypriots, on the basis of their relative populations. The two sides should agree on a bi-communal advisory committee to work on ideas for joint domestic use and distribution of the gas. Alongside these steps, Turks and Turkish Cypriots should stop aggravating tensions through their actions inside Cyprus's EEZ, which are indefensible from an international law perspective.

Also, the long-term investment climate around the island suffers from apparent Turkish threats to blacklist any petroleum company that takes part in Republic of Cyprus licensing rounds and to physically challenge any drilling in what it sees as contested maritime areas. Even assuming the Greek Cypriots successfully extract the gas, the current political stalemate complicates plans to efficiently market it. Without Turkish cooperation, Greek Cypriots are leaning towards a liquefied natural gas (LNG) plant, which will need foreign financing in the range of half of Cyprus's annual gross domestic product (GDP) and will take a long time to build. Furthermore, to be truly profitable, a Cypriot LNG plant would need to process at least double the amount of gas available from the Aphrodite field, possibly from Israel. But it is unlikely that Israel will trust another country with such an expensive and strategic facility.

On the other hand, a Greek Cypriot commitment to LNG would likely cut Turkey and Turkish Cypriots out, thus deepening the de facto partition of the island. And Turkish and Turkish Cypriot plans to drill on their own are rife with technical, diplomatic and marketing difficulties.

Starting a dialogue on more imaginative energy options may prove a catalyst towards normalization of the island's frozen conflict. A pipeline to take eastern Mediterranean gas to Turkey, for instance, would give access to an attractive market and possible routes onwards to the EU. However, it is hard to imagine such a development being powered without a Cyprus settlement, itself a greater and more quickly available prize than the natural gas and probably the only way for everyone to truly profit from the recent discoveries off the Cypriot coast.