After more than four decades of seemingly intransigent debate, the ethnically-divided island of Cyprus may reunify and potentially change the world map of oil and gas exploration and production.
Located off the northern tip of Africa, Cyprus was split in two, between the Greek south and the Turkish north, in 1974. Despite many attempts at negotiations over the years the reunification of Cyprus has yet to see success. However, now there’s much more optimism than ever before.
Greek Cypriot President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci have agreed to a timeframe for talks over the next few months. The optimism surrounding the talks stems from the discovery of vast oil and gas reserves in the Cypriot territorial waters, which is situated in an area of the Middle East containing 65% of the world’s total oil deposits.
Cyprus Strikes Oil
The Republic of Cyprus has been attracting huge interest from global energy majors. Following years of speculation of there being huge quantities of natural gas, drilling activity finally began in 2012. US-based Nobel Energy began drilling in Block 12, also known as the Aphrodite gas field, which is located in the Cypriot maritime Exclusive Economic Zone (EEZ). This offshore gas field is believed to hold as much as 6 trillion cubic feet of natural gas, worth billions of dollars. Nobel Energy has indicated that the Aphrodite gas field’s total gross unrisked deep oil potential is 3.7 billion barrels.
In 2015, Eni reported the discovery of an estimated 30 trillion cubic feet of natural gas in the Zohr field offshore Egypt. This boosted optimism around the Eastern Mediterranean region’s gas potential.
Following positive results from Block 12, the Cypriot government offered concessions to Blocks 1 to 11, and Block 13, also lying within the country’s EEZ. In December 2016, global energy giants US-based ExxonMobil, France-based Total, Qatar Petroleum and Italy’s Eni won exploration and drilling licenses for oil and gas off the southern coast. Shell and British Petroleum also have stakes here.
Total’s exploration well, where drilling is to begin later this year, is expected to be among “the most critical wells drilled globally in 2017 for the E&P industry,” according to global business-information provider IHS Markit’s Basin Insights Service. The report also stated that direct pipeline exports from this region to Greece were potentially commercially viable.
Increased Hopes of Talks Succeeding
An accord has never seemed closer. The talks between the Greek and Turkish governments are being facilitated by the United Nations. The European Union is betting on Cyprus becoming an energy hub, thereby reducing the EU’s reliance on Russian supplies to meet the region’s energy needs.
Turkey is currently in talks with Israel for a pipeline to import natural gas. Since this pipeline would have to pass through Cypriot waters, Turkey’s need for a resolution is higher than it’s been in the past.
Impact on the World Economy and Financial Markets
An accord would free up trade and investment in the area and have far-reaching political and economic consequences. Investments in the Exploration and Production (E&P) sector would result in massive job creation, while lucrative oil and gas exports would boost the economy of the entire Eastern Mediterranean region.
The EU would also benefit through access to oil and reduced reliance on Russia. Moreover, a reunification of Cyprus, which belongs to the EU, would restore faith in the Eurozone concept, which had been damaged by Brexit.
These positives suggest a huge strengthening of the Euro against all world currencies. Currently analysts have been expecting weak performance of the euro against the sterling and especially against the run-way greenback. The successful extraction and bringing the Cyprus energy finds online may go a long way towards pumping the euro back up to be a contender amongst the world’s major currencies.