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Cyprus isn’t about banks. It’s about gas

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It's that old resource curse again. If you thought that the trouble with little Cyprus was a few dodgy banks, a gaggle of Russian oligarchs fretting about their laundered dollars and the shredded reputations of some euro-politicians, think again. Everyone is talking about a giant gasfield, with the Kremlin hinting that it might be interested in a bank debt-for-gas swap and Ankara objecting loudly that there would be no gas euros without the inclusion of the Turkish-Cypriots in the north of the island.

As if the task of finding €7-billion ($9.3-billion) was not enough, Cypriots can now add Middle East geopolitics to the equation. Soon, we can expect Israel to stick its spoon into the glutinous stew, arguing that any project to export gas from the Eastern Mediterranean into Europe has to include the Jewish state's huge offshore discoveries in water adjacent to Cypriot territory. And what about Palestine?

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The giant Cypriot gasfield is somewhat hypothetical as the only resource so far discovered is Aphrodite, an offshore prospect drilled by Noble Energy in 2011 and which is believed to contain some 7 trillion cubic feet (cf) of gas. It's more fuel than Cyprus could consume in half a century but it probably isn't enough to justify hundreds of miles of subsea pipelines and the billions of dollars of kit needed to cool the gas enough for it to change into liquid (a process called liquefaction) and ship it to Italy, France or the U.K. But Charles Ellinas, executive president of the Cyprus National Hydrocarbons Company (CNHC), suggests there might be 60 trillion cf in Cypriot waters. And, in the previous year, Noble discovered Leviathan, a 17 trillion cf resource on the Israeli side of the territorial divide. There is little doubt that there is plenty of gas in the area. The problem is how to get the gas out of the politically dysfunctional states in the Eastern Mediterranean to creditworthy buyers further to the West.

Russia is in the frame but for the wrong reasons. It has every wish to prevent a Cypriot bankruptcy but Gazprom, the world's biggest gas utility, is already struggling with falling revenues and weak demand in Europe, its main export market. With the prospect of American LNG exports scuppering its plans to bring gas to Asia, the last thing Gazprom needs is Middle East gas eroding its dominant position as Europe's biggest supplier. Were Cyprus to enter into talks with Gazprom over a debt-for-gas swap, the deal would be about the cost of keeping Cypriot gas under the seabed for the next decade, not about royalites or licence fees.

There are other energy companies in Europe. In Britain, another financially challenged European island, a major utility has just given warning that the country is facing a gas shortage in the current cold snap. Perhaps the Cypriots should cast their net a bit wider for salvation.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

Editor's Note: An earlier online version of this article incorrectly attributed an estimate of the volume of gas in Cypriot waters, and used incorrect terminology related to the liquefaction process. This online version has been corrected.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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