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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University…

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Energy Experts Are Watching This Hotspot In 2019

Historically the Mediterranean hasn’t been the focus of oil and gas producing companies. With the exception of Algeria and Libya which owe their energy industry to the Sahara region. Recent discoveries, however, have put the Eastern Mediterranean in the spotlight. In the case of Cyprus, the unresolved division of the island and overlapping claims with Turkey have created an extra layer of complexity when it comes to attracting international energy companies. Despite close political relations between Qatar and Turkey, Qatar Petroleum has joined ExxonMobil in a joint venture concerning gas exploration in the EEZ of Cyprus. Ankara, however, has remained strikingly silent on Doha’s participation.

The potential of the Eastern Mediterranean

Over the years major natural gas discoveries in the Eastern Mediterranean have turned the fortunes of the littoral states. Especially Israel stands to benefit as almost all of its energy needs are met by foreign producers such as Russia and Azerbaijan. The recently discovered gas fields in its EEZ are sufficient to meet the country’s needs while at the same time surplus gas is exported. Egypt, on the other hand, became a net importer of LNG in 2014 due to rising consumption and a slump in domestic production. The discovery of the massive Zohr gas field has significantly changed Cairo’s energy outlook. Egypt is slated to become a regional gas hub.

On February 8, 2018, Eni announced the discovery of the Calypso gas field in Cyprus’ EEZ which confirms the extension of the ‘Zohr like’ play. This find was especially significant for Nicosia as it makes it more likely that Cypriot gas can be developed on its own. Previous discoveries such as Aphrodite are regarded too small which needed to be aggregated with non-Cypriot gas in order to become profitable. Cyprus’ difficult relations with Turkey and the northern Turkish inhabitants of the island are a serious impediment for the quick development of the gas fields.

Turkey playing hardball

While most of the littoral states have announced multiple discoveries, Turkey is missing out. Ankara has put pressure on gas exploration in Cypriot waters due to two reasons: first, it maintains that also the Turkish inhabitants of the island should benefit from gas production. Second, the Turks claim certain parts of Cyprus’ EEZ due to the apparent extension of the continental shelf. For this reason, Turkish naval vessels blocked an exploration ship leased by Eni in February 2018 in block 3. Related: 2019 Could Make Or Break OPEC

(Click to enlarge)

Exxon and Qatar Petroleum have joined forces in exploratory work in block 10. In a statement, the Turkish government has said: "ExxonMobil’s gas exploration in the so-called block 10 licensed by South Cyprus does not contribute to the stability of the country or the region and may change specific and delicate balances in relation to resolving the Cyprus issue”. Washington, however, has warned Turkey on several occasions not to obstruct Nicosia in its legitimate actions. Assistant Secretary of State for European and Eurasian Affairs Wess Mitchell said: "Turkey's view on the gas exploration and drilling efforts of Cyprus is a minority one, and the United States would not take a friendly view in any harassment in Cypriot waters, especially those involving U.S. vessels". Related: Why Goldman Just Drastically Slashed Its Oil Price Prediction

Despite Turkey’s fierce rhetoric aimed at international energy companies, Qatar Petroleum has escaped Ankara’s ire due to three reasons: first, ExxonMobil is the lead operator while Qatar Petroleum is a junior partner. Second, the exploratory ships are Exxon's which Doha doesn't have much say over. Lastly and most importantly, drilling is taking place in one of the few areas which aren't claimed by Ankara.

However, Turkey's opposition to Qatar's participation is expressed behind closed doors. As long as Doha doesn’t extend its cooperation in areas which are more difficult to ignore by Ankara, the Turks will be able to overlook Qatar Petroleum's cooperation with Exxon. Furthermore, Turkey is also aware that it shouldn't erode Doha's sovereignty. The close cooperation between the countries is caused by the Saudi led bloc's blockade of Qatar and its attacks on the tiny country's sovereignty. Therefore, for now, Ankara will remain opposed to gas production in Cypriot waters while avoiding confrontation with Qatar over its economic interests. 

By Vanand Meliksetian for Oilprice.com

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