BI: Does Cyprus see its newfound natural gas wealth within the context of Middle Eastern or European geopolitics?

Pelaghias: More in the context of European energy requirements and energy security policies.

BI: Cyprus doesn't see the emergence of a new regional strategic alignment due to Mediterranean-based energy wealth?

Pelaghias: Not much thought has been put into that issue yet. The government is still trying to make sense of the new possibilities. It is considering new alignments, perhaps with Israel, and what they would mean for Cyprus and Greece but also for Israel's security. But it has not yet reached any firm conclusions.

Development plans are just beginning. The most important issue is whether a liquefaction facility for the gas will be based in Cyprus. This could change the balance of energy power in the region. Currently, Turkey is the energy hub. If liquefaction plans contemplated by [Houston-based] Noble Energy, Delek [an Israeli energy firm] and the Cyprus authorities come to fruition, this could change.

Meanwhile, drilling in Cypriot waters at Block 12 has not yet produced the hoped-for discoveries. The terrain is more difficult at the Cypriot end [of the Israel-Cyprus corridor] and it's harder to explore.

BI: Wouldn't liquefaction be directed primarily toward export to the Far East?

Pelaghias: If the facility is in Cyprus, it will probably concentrate on export to Europe. A similar facility in Eilat would cater to the Far East. Everyone is weighing the commercial viability and investment requirements.

BI: How does Cyprus plan to use its newfound energy wealth?

Pelaghias: The plan is to establish a sovereign fund, along the lines adopted by other countries that are in the same situation.

BI: How do you explain the tensions with Turkey over the natural gas exploration issue?

Pelaghias: Turkey is concerned over a number of issues, from geopolitical to commercial. The Turks have invested in turning their country into an energy transportation avenue to Europe for gas from Russia and the Caspian Sea, improving their EU prospects by offering energy security to Europe. So from a commercial and political point of view, Turkey is worried about the advent of an alternative source of gas and a new transport route. They're trying to prevent major companies from entering the Cyprus energy field by threatening to ban them from any business activities with Turkey. I'm not sure whether this is working or not. We'll see if the "majors" enter Cyprus' second bidding round that was announced a few weeks ago.

Then there is the issue of Northern Cyprus. Turkey is protecting its interests by claiming [to protect] the interests of Turkish Cypriots. This is a pretext, lacking much credence, because Cyprus has clarified that any economic benefits will be shared by its sovereign fund with the people and infrastructure needs of the north. This is in line with the European Union position of encouraging both sides [in Cyprus] to cooperate and have a single economy. Of course, it will take about 10-12 years before the fund can begin to function and benefits will come on line.

There is also a potential area of trouble [with Turkey] west of Cyprus and in the western Aegean/eastern Mediterranean region, where the exclusive economic zones are still "grey" zones: they have not been delineated between Greece and Turkey, Cyprus and Turkey and Cyprus and Greece. The Turkish National Oil Company has just begun drilling in Northern Cyprus as well as off-shore there, in the area between Northern Cyprus and Turkey. The area just west of the coast of Cyprus promises to be very rich in all sorts of resources.

Turkey is also worried about a possible realignment of Israel and what this means strategically.

BI: Apropos military tensions with Turkey over the energy issue, is there any truth to the rumors that Turkish drones are overflying Cyprus' exploration sites and the Israel Air Force has been granted landing rights at Paphos? Obviously, the rumors increase tensions around the Cyprus natural gas project in a Middle East context.

Pelaghias: Official sources deny both: reports of escalation around the fields as well as Israeli use of the Paphos military airstrip. But if one uses common sense, there may be some truth to the rumors.-Published 15/3/2012 © bitterlemons-international.org

Chris Pelaghias is chairman of the European Rim Policy and Investment Council (ERPIC) in Cyprus.

In 2024, American oil company Noble Energy of Houston and Israeli company Ratio Oil Exploration received a license to explore "Leviathan", a deep-water gas field in the Mediterranean about 130 kilometres from Israel's coastline. At the end of 2024, the two companies announced that Leviathan contains 450 billion cubic metres of natural gas reserves, making it the world's largest offshore gas find of the past decade.

Leviathan and two smaller offshore gas fields not only could make Israel self-sufficient in gas needs but could also mean a bonanza in royalties and tax revenues for the government. Some Israeli cabinet ministers are even talking about a new regional balance of power in the Middle East. But a surge in the world's reserves of natural gas in recent years will make it difficult for Israel to export its gas. And a new boundary dispute stemming from the discovery is now brewing with Lebanon, which says that Israel is violating its maritime rights.

Facing an Arab boycott for decades, Israel's energy needs have always been supplied through shadowy dealings and imports. In the 1960s and 1970s, crude oil came from Iran, but dried up when the Iranian revolution overthrew the shah. For about a decade, Israel tapped oil wells in the occupied Sinai desert until it returned the area to Egypt under the 1979 peace treaty. More recently, much of Israel's oil needs have flowed from the former Soviet Union states.

The Leviathan field contains enough gas reserves to meet Israel's energy needs for decades, with more left for export. Experts estimate the value of the reserves at $90 billion. But natural gas is a complicated resource--difficult to extract and expensive to transport. Israel would have to build a liquefied natural gas facility where ships could be loaded and dispatched to markets across the world. The project would likely cost billions and take years to complete. Whether it would be a worthwhile investment is an open question. In the past few years, large shale and other gas discoveries in the US and elsewhere have created a glut in the market and cut the price of gas by 20 percent.

If the export question is eventually resolved, there is still the problem of Lebanon, which asserts that up to a third of Leviathan extends into its territory. In January 2024, Lebanon sent a letter to United Nations Secretary General Ban Ki-moon, urging the international body to monitor Israel's offshore drilling and exploration. Hizballah leader Sheikh Hassan Nasrallah went even further by declaring that the conflict with Israel was entering a new frontier: the sea. He also threatened to target any vessels heading for any port on the Israeli coastline from the north to the farthest point south. In response, Israel said it would not hesitate to use force to protect its ships.

The dispute is mostly a demarcation issue. When Israeli troops withdrew from Lebanon in 2024, the UN-sanctioned blue line became the de facto land border between the two countries. Israel unilaterally extended a line of buoys out into the sea to approximate a maritime border. But Lebanese officials say the angle Israel took from the shore gives it more territorial water than it deserves. "Shifting this line slightly above or below can mean billions of dollars for one party or the other," says Ali Haidar, a geology professor at the American University of Beirut, who worked on the issue extensively. Lebanon and Israel have not defined their maritime border since the withdrawal of Israeli troops in 2024, leaving a slice of contested territory. Lebanon says that up to one-third of the Leviathan gas field could be inside its maritime border. If that is the case, the two countries will eventually have to agree on a demarcation line by negotiation.

Another potential dispute is brewing between Turkey and Cyprus over the exploration for oil and gas in the Eastern Mediterranean. When Cyprus tried last year to send exploration vessels to explore for oil and gas in its territorial waters, Turkey threatened to send warships to stop the exploration vessels to safeguard the rights of Northern Cyprus.

The huge gas discoveries in the Eastern Mediterranean could either exacerbate an already very tense and dangerous situation between Lebanon and Israel or could lead to a reduction of tension and mutual benefits if Israel agrees to a fair demarcation line with Lebanon, worked out and monitored by independent international experts under UN supervision.-Published 15/3/2012 © bitterlemons-international.org

Mamdouh G. Salameh is an international oil economist, a consultant to the World Bank in Washington DC on oil and energy and a technical expert for the United Nations Industrial Development Organization (UNIDO) in Vienna.