Turkey starts oil drilling in Cyprus

By bne IntelliNews April 27, 2012

David O'Byrne in Istanbul -

Turkey's state oil company TPAO has started drilling for oil in the internationally unrecognized Turkish Republic of North Cyprus (TRNC), which occupies the northern third of the divided Mediterranean island. The chances of striking oil are slim, making the move more a riposte to the Greek half of the island, which last year allowed US upstream operator Noble Energy to start drilling in the Mediterranean Sea to the south of the island despite protests by Turkey.

Ankara had long objected to plans by the Republic of Cyprus to allow drilling, arguing that any hydrocarbons found should be exploited for the benefit of both communities on the divided island and that their exploitation should be postponed until the completion of ongoing UN-backed talks aimed at reuniting the two sides of the island.

Those talks had been slated to be completed by July when Cyprus takes over the rotating EU presidency, with Ankara warning that if no agreement is reached, it will freeze relations with the EU for the six months that Cyprus holds the presidency. However, little progress has been recorded in the talks since Nicosia began drilling in September last year and the subsequent announcement by Noble that it had discovered a substantial reserve of natural gas.

Given that no agreement is expected to be reached by July, Turkey is expected to arbitrarily freeze relations with the EU for the rest of this year.

TPAO's drilling in the TRNC has begun on land at the village of Sinirustu, in the district of Gazi Magusa (known as Faramagusta to the Greek community).

Privately, Turkish officials admit that the drilling is a gesture with little or no chance of finding oil or gas on the island itself. However, Turkey's energy minister, Taner Yildiz, announced earlier this year that TPAO had placed an order for a new seismic survey ship capable of conducting 3D surveys of the Mediterranean seabed. This raises the prospect that TPAO may be planning to survey and even drill the seabed to the south of the island.

A move of that kind would be unlikely to be viewed as a "gesture" and could provoke a more serious international incident - the more so because Block 12 of Cyprus area of the Mediterranean where Noble has struck gas, lies adjacent to Israeli waters containing Israel's recently discovered giant Leviathan gasfield.

Turkey's relations with Israel have been poor since the killing in 2010 by Israeli commandos of eight Turkish aid workers on board a Turkish-flagged ship heading for the blockaded Palestinian port of Gaza, and any activity in the region by TPAO could further escalate tensions.

Reunification talks stalled

Cyprus has been divided into two de-facto states since 1974 when Turkish forces invaded the northern third of the island following a coup by the Cyprus army aimed at uniting the island with Greece.

Successive efforts at reuniting the island have failed. Most recently in 2004, a re-unification plan proposed by the then secretary general of the UN Kofi Annan was put to a referendum with Turkish Cypriots voting 65% and Greek Cypriots 76% against - a result which has coloured subsequent Turkish relations with both Cyprus and the EU.

Before the vote, Turkey and the TRNC were promised that supporting the plan would lead to the lifting of the international embargo on trade with the unrecognized TRNC, and the reuniting of the island prior to its accession to the EU. Instead, its rejection by Cyprus saw the republic accepted into the EU un-reunited, from where it continues to block Turkey's ongoing accession process and the embargo of the TRNC continued. That in turn resulted in voters in the TRNC electing a hard-line government opposed to reunification at any price, and demanding a settlement involving the creation of a bicameral state - a solution now supported also by Ankara.

Now, the discovery of substantial volumes of gas to the south of Cyprus promises to make the island self-sufficient in energy, or at least the Republic of Cyprus - a development that Turkey sees as a further block to an agreement on reunification.

That need not be the case, though. The combined reserves of the Cypriot and Israeli gasfields are far more than both states can make use of over the medium term. And with much of the east Mediterranean still to be prospected, both states appear likely to have large volumes of gas available for export within the next decade - gas for which the only viable route for export to European markets appears to be through Turkey.

To date, Turkey has ruled itself out as an export route - unless and until Israel formally apologizes for the 2010 killings and dependent on a settlement on Cyprus, despite the possibility of netting substantial transit fees.

Whether or not the lure of lucrative gas export contracts will be enough to persuade one or more of the three east Mediterranean neighbours to compromise remains to be seen.

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