Cyprus's energy 'bonanza' might not amount to much

Cyprus's energy 'bonanza' might not amount to much

30 March 2013 by Pelle Neroth

The EU's easternmost and third smallest member state, Cyprus, is in the news this week. The country faced an uncontrolled default on its debts following a lengthy period of economic mismanagement. Default would have led to exit from the euro, but the country was saved by a last minute bailout deal from European lenders worth 10billion euros. In return for this, the country was obliged to shrink its bloated banking sector. Hardest hit were those with deposits over 100,000 euros lodged in the country's second bank, Laiki bank, which
will be closed down.
Many of these account holders were well off Russians. The media calls them oligarchs to ease the guilt over Cyprus's expropriation action at the EU's behest.
Their deposits will be moved into a so called "bad bank", while those with deposits under 100,000 euros will find their deposits moved to the bank of Cyrpus and reconstructed. It is not clear how much the high end depositors will eventually get to keep of it, but at least the European tax payer, unlike in previous bail outs, will be spared any outlay. Politically, it was an easy sell to the European publics.
There is a complicated energy angle to all of this. Large amounts of natural gas have been found in the East Mediterranean basin. Only Cyprus - which has become rather prosperous in recent years, thanks to banking activities - and Israel gave been able to take advantage of this. They struck a deal over their mutual sea border to facilitate prospecting. Israel's Leviathan and Tamar fields are set to begin production in April. Cyprus is a bit further behind. Other countries in the area are nowhere. Syria is in the grip of a civil war. Some EU officials seem to think gas from the East Mediterranean basin could be a substitute for the slightly humiliating dependence in many EU states on Russian gas. That was another reason not to "lose" Cyprus. Before the EU deal was struck, Cypriot leaders had travelled to Moscow to seek to solve its financial problems by getting a loan in return for Russia getting a future share of Cyprus's hydrocarbons.
The deal, seemingly, was not attractive enough to the Russians, and fell through. But the overture seemed to have a desired effect on the EU, which offered a more generous bailout deal than an original offer made earlier..
The original proposal would have hit anyone with savings of over 20,000 euros in Cypriot banks, not 100,000 euros as is the situation now. Cyprus accepted this latter, better deal.

But is the EU deluded about how much gas there actually is? The deal, after all, wasn't good enough to tempt Russia.
Some media outlets have talked about gas as Cyprus's meal ticket. Maybe not; there is enough there for 50 years of domestic consumption, true, but that is because Cyprus is a small country.
The reserves are a tiny fraction of Qatar's, for example. Ironically, now
that its banking system has shrunk, Cyprus may lack the investment capital to develop the fields as well as build LNG terminals. The alternative would be to build a cheaper pipeline to nearby Turkey for onwards sale, but Turkey - which supports the rogue Turkish Cypriot Republic in the northern half of the island - is Cyprus's arch enemy.

Andrew Duff, a libera lmember of the European parliament, said this could be an opportunity for a Turkey-Cyprus rapprochement, just as Germany and France were united after the second world war over coal and steel. Sounds doubtful, but who knows.

Pelle Neroth -- EU correspondent

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    Posted By: Pelle Neroth @ 30 March 2013 07:56 AM     Energy  

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