As the geopolitical game over Mediterranean hydrocarbons heats up, Turkey has suspended energy deals with Italy’s Eni over the company’s involvement in oil and gas exploration offshore Cyprus.
The timing is important. It comes just days after Cyprus secured a painful EU bailout package and it considers extending April bidding for the next round of oil and gas exploration licenses. Bidding is set to end on 26 May, but may be prolonged, according to Bloomberg.
The extension of the deadline would give Cyprus more time to lure in additional investors, which it desperately needs. Turkey is hoping to send these potential investors a message: Explore in Cyprus, get kicked out of Turkey.
Cyprus is divided along Greek-Cypriot and ethnic Turkish lines, with the Greek Cypriots controlling two-thirds of the Mediterranean island nation. The Greek-Cypriot Republic of Cyprus became an EU member in 2004, but Turkey only recognizes the breakaway north. Turkey has warned Cyprus against any unilateral move to explore for oil and gas offshore Cyprus, maintaining that Turkish Cypriots should have equal rights to these resources.
Eni is a key partner in three major Turkish pipeline projects. The suspension appears to be centered on the Samsun-Ceyhan pipeline project, which will transport oil from Russia and Kazakhstan to Turkey.
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It is unclear what will happen to Eni’s involvement in two other pipelines, the Russian-led South Stream and Blue Stream gas pipelines, which run through the Black Sea to deliver Russian gas to Turkey. Eni has a 20% share in the South Stream project, while Gazprom holds a 50% share.
In January , Eni and its partner—South Korean Kogas—signed an agreement to explore in the Cypriot part of the explosively rich Levant Basin. Total, Eni and Kogas plan to conduct seismic surveys later this year and drill their first wells in 2014.
What’s really irked Turkey is Noble Energy Inc.’s (NBL) plans to start drilling an appraisal well in June and the possibility that it could announce commercial viability in its Block 12 before the end of this year. Noble thinks its block holds a minimum of 7 trillion cubic feet of gas. This is the development to watch closely, because commercial viability will be the tipping point for Ankara.
In the meantime, Russia missed its chance to win a nice share in Cyprus’ offshore exploration in return for a bailout package. Cyprus wasn’t offering enough to make it worth Russia’s while to anger Turkey, which it needs for its massive pipeline projects. So far, Russia’s Gazprom has steered clear of Cypriot waters.
What this comes down to is that a choice has to be made between Cyprus and Turkey. The EU will stick with Cyprus for now, and Russia will keep its pipeline plans secure in Turkey.