articles | 26 November 2023

Shaping Cyprus’ energy future

The world is currently witnessing a tumultuous period marked by three significant wars that have far-reaching geopolitical, geoeconomic and energy implications. The Russo-Ukrainian war, the Nagorno-Karabakh conflict, and the Israeli-Palestinian (Hamas) war have shaken the global geopolitical landscape.

These conflicts underscore a shifting geopolitical scene, challenging the established world order and affecting economic stability, energy trade and the energy security of nations. Furthermore, they have highlighted the rapidly changing dynamics of international relations, moving from a monopolar world, dominated by the United States, to a multipolar/tripolar one, with the superpowers, the United States, Russia and China engaged in intensified competition.

At the same time, aspiring quasi-hegemons such as Turkey, Iran and Israel are actively seeking to assert their influence in the Middle East, the Eastern Mediterranean and elsewhere. Cyprus, strategically positioned in the East Mediterranean, finds itself at the centre of this global dynamic.

The wars have been exerting short-term, medium-term and long-term effects on global politics and the world economy. Both the West and Russia are leveraging energy as a weapon, contributing to price volatility. In determining oil and gas prices, supply and demand dynamics, speculation and geopolitics are all playing significant roles. Geopolitical tensions have rendered market mechanisms less effective, leading at times to price spikes, supply chain disruptions and shortages in essential products. The negative consequences have included lower energy security, generally higher energy prices, slower economic growth, high inflation and declining living standards, especially for European citizens.

Nagorno-Karabakh

Apart from its ethnic roots, the conflict in Nagorno-Karabakh involved geopolitical implications on energy dynamics: It was driven by the desire to eliminate the Armenian threat to the energy corridor between Azerbaijan and Georgia, intensifying the power and geoeconomic competition in the Caucasus and Central Asia. Additionally, the West aims to diminish Russia’s dominance in the energy market by increasing energy supplies from the Caspian Sea.

Israel vs Palestine

The historical animosity between Israel and Palestine, deeply rooted in religious and territorial disputes, also impacts the region’s energy security. The war has led to the closure of the Tamar gas field, emphasising the importance of Cyprus as a potential geostrategic and energy partner for Israel. This situation underlines the significance of Cyprus’ gas resources in enhancing the energy security of both nations, including the Euro-Asian electricity interconnector, and the need for a joint infrastructure for gas transport. Israel’s equivocation regarding energy planning in the East Med and the Levant has not served its best interests, nor those of the EU, which seeks an alternative energy corridor for its energy security, nor those of its staunch ally, the United States, which seeks to contain the Russian bear and the Chinese dragon.

Turkish revisionism

Turkey believes itself to be a Eurasiatic power and aims to join the superpower league and acquire nuclear weapons. Turkey’s revisionist policies in the Aegean and Eastern Mediterranean, expressed through its “Blue Motherland/Mavi Vatan” policy and gunboat diplomacy, violating the Cyprus Exclusive Economic Zone (EEZ) since 2018, pose an existential threat for Hellenism. As Turkey has been striving to snatch Cypriot energy resources, the current geopolitical developments have opened a window of opportunity for Cyprus.

Cyprus gas discoveries

Cyprus has made significant gas discoveries in its EEZ since 2011, necessitating a fast-track development strategy to redress the extraordinary delay in monetising them, particularly the mature Aphrodite field. The East Med pipeline has never been a viable project technically, financially, or geopolitically, nor in Cyprus’ interests. It was always a questionable proposition. A pipeline to Turkey could only have been justified if Turkey had accepted a fair solution to the Cyprus problem without troops and guarantees. Such a pipeline would complete Turkish suzerainty and hegemony over Cyprus, but misguided politics and naive perceptions of Turkish objectives contributed to the harmful delay despite Turkish intransigence.

Existing and future Cyprus discoveries, including Aphrodite and possibly small Israeli fields, should be directed to Cyprus, not Egypt. Negotiations with Chevron over Aphrodite’s development should focus on bringing gas to Cyprus and not whether a Floating Production Unit (FPU) should be used or not for directing the gas to Egypt. If an unpropitious start is made with Aphrodite, this is most likely to continue. ENI with its partner TotalEnergies shall also insist to direct the gas in Calypso-1, Cronos-1, and Zeus-1 in Block 6 to the Zohr infrastructure and ExxonMobil may come to an agreement to do the same with the Glaucus-1 reservoir in Block 10.

If Cyprus gas is tied back to existing infrastructures, and not Cypriot ones the benefits for the Cyprus economy will be minimal, almost exclusively monetary at a lower level and not cross-sectoral. Hence, it is crucial to overcome constraints imposed by the International Oil Companies (IOCs), which seek profit maximisation and investment risk minimisation. Cyprus must prioritise its own national interests and insist on local infrastructure development, even if it means sacrificing some share stipulated in the Production Sharing Agreements (PSA).

In the long-term the benefits for the Cyprus economy will over-compensate the capital cost of local infrastructures. The more extensive the energy infrastructure in Cyprus, the greater shall be the value added to the GDP. Addressing the interests of major energy players will not be an easy task for the Cyprus energy minister, as it will require certain concessions. However, it is essential to achieve collaboration among them to bring discoveries to a local onshore Liquefied Natural Gas (LNG) plant. Subsea wells in the Cypriot blocks can be routed to a fixed platform in the Cyprus EEZ and then on to the LNG plant or FLNG.

LNG stands out as the best choice for Cyprus gas monetisation. Modular LNG plants can provide a faster, cleaner, scalable and more flexible solution for liquefaction. They are fully electric, running on Renewable Energy Sources (RES), with minimal greenhouse gas emissions, and they offer scalability and flexibility according to market demand.

The adoption of LNG is a potential game-changer for Cyprus. LNG can turn Cyprus into a regional energy service centre and a trading hub, attracting reserves from neighbouring countries and serving as an alternative energy corridor for Europe and elsewhere. Moreover, bringing its own gas home encompasses huge advantages and benefits for Cyprus, comprising economic synergies, the diversification of the economy, increased competitiveness and the boosting of GDP. Natural gas feedstock can support the development of a petrochemical industry and a wide range of industrial processes as an important ingredient in products, materials and goods, including pharmaceuticals, thus boosting government revenue and profits. Furthermore, an LNG strategy will help create a downstream industry and strengthen the economy’s industrial sector with an industry immune from external shocks.

Window of opportunity for Cyprus

Cyprus’ energy planning must consider regional and global geopolitics and geoeconomics. The power struggle and the consequent instability in the international relations system has deep implications for the East Med Energy Corridor and the ambitions of Turkey to control energy routes in the region. The current configuration offers a unique opportunity for Cyprus to play a significant role in the East-Med energy map.

A new transport, rail and shipping corridor was announced at the G20 summit in Delhi on 9/9/2023 to promote world trade. The India-Middle East-Europe Economic Corridor (IMEC) constitutes a geoeconomic project by the US intending to counter China’s expansionism via its Belt and Road Initiative (BRI). It represents a geostrategic arc, stretching from India to Europe via Saudi Arabia, Israel, Greece and Cyprus to deter and contain threats from various countries regarded as hostile to American interests, such as Russia, Pakistan, Afghanistan, Iran, Iraq and Syria.

This presents an exceptionally promising and significant opportunity for Cyprus. The Russia-Ukraine and the Israel-Palestine/Hamas wars are altering the international chessboard. Turkey’s ambitions to lead the Islamic countries have triggered a vociferous and outspoken critique of Israel’s actions in Gaza, which has frozen Turkish-Israeli relations as Turkey proves once again to be an unreliable partner for Israel.

Moreover, Cyprus not only provides the strategic depth that Israel currently lacks but has proven during the current war that it can function as a bridge for the rapprochement of Israel with the Arab states. The Abraham accords normalisation process between Israel and Arab countries is certain to resume. Key actors like Saudi Arabia are unlikely to stay out of the great energy game.

In conclusion, the dynamic interplay between geopolitics and geoeconomics in the context of recent global events, wars and regional energy ambitions have set the stage for Cyprus to accelerate the development of its gas resources and shape its energy future. By embracing LNG as the preferred option and capitalising on the reconfiguration of interests and balance of power dynamics, Cyprus can position itself as an important player in the evolving global energy landscape. Taking control of its own gas resources and selecting LNG as its preferred energy strategy would exert a transformative effect for Cyprus and its economy.

This optimal energy strategy could prove to be a game-changer, offering economic diversification, energy security and enhanced geostrategic influence in a rapidly changing world. In its pursuit of energy security and national security against the Turkish designs, Cyprus must navigate carefully, integrating geopolitics and geoeconomics strategically, and balancing wisely between pragmatic realpolitik considerations and adherence to international law.

Panayiotis Tilliros is an economist, international relations, and geopolitical analyst. He is a research associate at the Cyprus Centre for European and International Affairs, which is affiliated with the University of Nicosia

Source: Cyprus Mail

Cooperation Partners
  • Logo for Cyprus Chamber of Commerce and Industry
  • Logo for Association of Cyprus Banks
  • Logo for Cyprus International Businesses Association
  • Logo for Cyprus Shipping Chamber
  • Logo for Ministry of Energy, Commerce, Industry and Tourism
  • Logo for Invest Cyprus
  • Logo for Love Cyprus Deputy Ministry of Tourism
  • Logo for CYFA Cyprus
  • Logo for Cyprus Investment Funds Association