Turkey threatens energy majors over Cypriot tender

By bne IntelliNews May 21, 2012

bne -

Turkey warned international energy majors against seeking licenses to explore for energy off the coast of Cyprus on May 18, threatening to banish them from future projects in Turkey unless they "act with common sense".

Fifteen companies placed bids for the Republic of Cyprus' second round of licensing to carry out exploratory drilling for hydrocarbon deposits off Cyprus. Major oil and gas companies including France's Total, Italian Eni, Malaysia's Petronas, South Korea's Kogas and Russia's Novatek pitched for the permits, with the final bids placed on May 18.

A Turkish Foreign Ministry statement issued the same day insisted that some of the fields in question "conflict" with Turkey's continental shelf while others overlap with areas designated by the government of the unrecognized Turkish Republic of Northern Cyprus (TRNC) as sites to be explored by the Turkish Petroleum Company.

"As announced in the past, Turkey will not allow any activity in these fields," the statement said, according to Bloomberg. "We call on the countries concerned and the oil companies to act with common sense, not to engage in activities in maritime fields that are under dispute due to the Cyprus issue and to withdraw from the bidding."

It added that the companies would be held responsible for any tensions that arise from exploration in fields under dispute and would be barred from Turkish energy contracts. "It will be out of the question for companies that cooperate with (southern Cyprus) to be included into energy projects in the future," the ministry threatened.

Stephanos Stephanou, a spokesman for the Cypriot government, described the Turkish threats against the tender as unacceptable, and insisted Cyprus will go ahead as planned, reports Famagusta Gazette. He added that the threats violate international law and the UN law of the sea. "The international community continues to support Cyprus and the international law," he insisted.

The Cypriot stand-off, which has been simmering since Turkey invaded the north of the island in 1974, was always likely to escalate once oil and gas exploration kicked off. The first round of licensing in 2007 saw US company Noble Energy start drilling in one of 12 units, and reserves at the field are now estimated at over 900bn cubic metres. The tension ratcheted up in April when Turkey - the only state to recognize TRNC - began drilling off the northern coast.

The situation is another potential headache for the EU and Russia as they vie to secure the southern gas corridor serving Europe. Turkey is a strategic lynchpin for the infrastructure needed to pipe either Russian or Caspian and Central Asian supplies westwards.

At the same time, Turkey hardly has a free hand, the Financial Times points out. The list of bidders includes a subsidiary of Russia's Gazprom - which supplies more than half of Turkish imports and owns Turkey's biggest gas supply line in partnership with Eni. The Italian company also holds a stake in Turkey's largest oil pipeline and is planning to build a second oil line across the country in partnership with Turkey's Calik group, whose CEO is the son-in-law of Turkish Prime Minister Tayyip Erdogan.

In line with competing bidders, Eni refused to comment onn the threat, as did Russia's Novatek when contacted by Kommersant. However, the citing an unnamed source, the newspaper claimed the company plans to proceed with the tender.

The Republic of Cyprus said it is scheduled to appraise all bids by the end of the year. Licenses should be granted by mid-2013 following negotiations with the winning bidders.

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