Russia backs away from Cyprus natural gas involvement

Last week, the Cyprus government announced that it was initiating the second round of hydrocarbons licensing to cover the 12 remaining blocks of the island’s southern Exclusive Economic Zone. Exploratory drilling by US-based Noble Energy in the Aphrodite field produced results that showed an estimated five to eight trillion cubic feet of natural gas and not a little euphoria on the island that it was on the brink of Gulf-style wealth.

Speculation has been rife in Cypriot newspapers that potential bidders in the new round would include Gazprom and Lukoil from Russia; Total SA from France; Shell and BP from the UK and Holland; Exxon from the USA; Petrobas from Brazil; and Petronas from Malaysia. The thinking behind attracting interest from such a diverse range of companies being the desire to implicate their national governments in the island’s energy endeavours and neutralise Turkey’s belligerent reaction to Cyprus exercising its sovereign rights – rights that, of course, Turkey doesn’t recognise.

Given Russia’s increasing economic penetration of Cyprus and President Christofias’ emotional attachment to Russia, it was assumed that it was almost inevitable that state-owned Gazprom would be a major beneficiary of the new licensing round, and would be awarded one or more blocks to explore.

However, according to this report (in Greek) in yesterday’s Politis, Gazprom has decided it won't be bidding for a Cyprus block, citing the high production costs involved in exploiting Cypriot hydrocarbons.

But cost, Politis says, is not the real reason behind Gazprom’s reluctance to become embroiled in Cyprus. Rather, Gazprom is backing away from Cyprus because it doesn’t want to alienate Turkey now that Turkey has agreed to allow the construction through its territory of the South Stream pipeline, which will transport Russian gas to Europe under the Black Sea, obviating Ukraine’s involvement in the project.

The Politis article goes on to argue that the Cyprus government has also overlooked the fact that the transportation to Europe of hydrocarbon deposits from the Eastern Mediterranean will upset Russia’s plans to make Europe dependent on Russian gas and that Moscow has a vested interest in creating tension between Turkey and Cyprus. Politis further suggests that the much-vaunted despatch to the Eastern Mediterranean last October of a Russian battle group led by the aircraft carrier Admiral Kuznetsov had less to do with warding off Turkey from its threats to disrupt Cyprus’ gas exploration and more to do with showing support for President Assad in Syria.