Where does the Cyprus bailout deal leave its energy reserves?
It has been estimated over the years that the southeastern waters of Cyprus contain 50 to 60 trillion cubic feet of natural gas and 1.7 billion barrels of crude oil, worth around $400 billion.
The government in Nicosia has always based plans for the future on this projected income, so the idea of raising money based on future natural gas revenues as a means to alleviate some of the pressure caused by the immense debt that the island nation found itself in, was out of the question.
Natural gas production is not expected until around 2018 or 2019, and Cyprus refused to use any discounted future valuations to raise money in the present, not wishing to run the risk of selling their future for far less than it might be worth.
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After the first bailout plan offered by the EU was rejected, however, a viable option that was considered was to accept direct financial assistance from Russia in return for the rights to explore and develop Cyprus's natural gas.
This worried the EU who had, for a long time, been hoping that Cyprus's natural gas would offer genuine relief from an almost complete reliance on Russian exports.
Luckily the deal with Russia never really materialised, and, possibly motivated by the fear that Russia could get hold of the gas reserves, Europe was able to agree a deal with Cyprus, leaving all natural gas reserves completely untouched.
Unfortunately analysts are predicting that this bailout plan will be just the first step on the road to recovery, and the security of the natural gas reserves may be threatened again in the future as Nicosia looks for other methods to raise capital.
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also… More
Comments
Do I smell another war looming in Cyprus? We have a strained relationship with Turkey at the best of times. Let's not forget that we still have issues with Turkey that go back to 1974.
"Luckily the deal with Russia never really materialised, and, possibly motivated by the fear that Russia could get hold of the gas reserves, Europe was able to agree a deal with Cyprus, leaving all natural gas reserves completely untouched."
'Luckily'? What's lucky about it? Isn't it about time we got real on this,... Cold War Warriors? Russia is here with Europe to stay. We in Europe had better get used to this. Thry are stable, Europe is disintegrating. Once South Stream comes online the proprtion of Russian/FSU gas coming to Europe will be at least 1/3.
The rreality is that China will be taking the lions share of resources from Russia and the ME. Europe will eventually have to beg as the poor relation. In exchange for a decent whack of cheaper Russian energy Europe will eventually enter the Russian embrace. Either Europe will do this or the energy will go east not west...
It remains to be seen how much impact on European energy requirments can be met from other sources, eg N America. A lot of hype about shale and tar sands means v little in reality. Russia is next door, not an ocean away.
As for Cyprus, she may lose her banks to the EU bailout, then her independance, such as it is, to the EU, then eventually to Turkey. The Turks can't wait for some legitimate or even not so legitimate excuse to take the whole island. Who could stop them in reality? Turkey with 70 million + and a booming economy needs East Med gas if it can get it, and it won't let Cyprus stand in the way. Neither the Cyprus miklitary nor the Greek would be in a position to stop Turkey in this regard.
So lets forget Cold War Warrior inclinations and look at reality. Russia and Turkey are that reality, not the EU.